The service industry needs LIP-like support

By Maneck Davar

India’s ambition to achieve a $5 trillion economy hinges on growing its international trade to $2 trillion by 2030, fueled equally by goods and services. This translates to a threefold growth, or almost 20% CAGR, over this period. The Department of Commerce expects services exports to overtake goods and manufacturing, or at least to be on par. This is only possible if services are considered the same as manufacturing in terms of incentives and tax incentives. Around 50% of service exports are carried out by IT-ITeS, which continues to innovate and develop. The rest is input from management, legal, accounting, logistics, travel and tourism, education, healthcare and other sectors. Service sectors beyond IT require special attention, especially investment-intensive sectors like hospitality, healthcare and education.

Even though it accounts for more than 50% of GDP, eclipsing agriculture and manufacturing, the service sector does not receive the recognition or encouragement in the form of incentives that it deserves. One of the reasons is the perception of the sector consisting solely of IT. The IT sector flourished due to minimal government intervention; ergo, the sector as a whole requires no handling. This is a fallacious perspective.

Take the case of exports. Last year, the government claimed that exports of manufactured goods and goods crossed the $400 billion Rubicon, a hugely creditable performance given the ravages of Covid. However, services exports had exceeded $254 billion, an increase of more than 20% year-on-year, despite the contribution of only three sectors: education, health and travel and tourism. (although the latter has shrunk by more than $20 billion because of travel restrictions during the pandemic).

As Chairman of the Service Export Promotion Council (SEPC) at the time, I predicted after the first quarter of 2021 that service exports would exceed $250 billion, hoping that tourism would pick up in the third quarter, but back-to-back waves of Covid have erased that possibility. Despite this, reaching this milestone is a credit to all those who have harnessed our intellectual capital in services.

Additionally, exports of goods and manufactures are negative $200 billion – we imported $600 billion against exports of over $400 billion. Meanwhile, services exports exceeded $100 billion, underscoring the importance of ensuring that the growth trajectory of services exports is maintained. This year, the merchandise export-import deficit is widening due to the impact of rising crude oil prices. Yet there is a huge imbalance in the incentives offered. Under the rule of Commodity Export Incentive Scheme (MEIS), commodity exporters benefited over Rs 40,000 crore in 2018-2019, while under the export of services (SEIS), exporters could only benefit from one-tenth of this amount. amount. Even though SEIS falls under foreign trade policy, it was only due to intense advocacy that Rs 2,000 crore was earmarked for service exports for 2019-2020, largely for reasons of compassion, as sectors like travel and tourism had suffered greatly due to Covid restrictions. . These incentives cannot be considered charitable donations – they serve to make companies internationally competitive and to recognize the contributions of service providers. These incentives are providers of temporary impulses, and it is imperative that there are a multitude of economic measures with long-term effects and benefits for services.

Quadrupling service exports over the next 7-8 years is a herculean and unachievable task without a strategic roadmap with the right government intervention. The burden cannot rest solely on the IT sector, which currently contributes around 55% of total services exports. Clearly, other sectors will need to bring exponential growth to the table.

Think of international tourism. We attract 10 million tourists every year. This is disappointing, given the diversity we offer. Prime Minister Modi has urged the diaspora to insist that at least five of their acquaintances visit India. The objective should be to triple arrivals. For this, we must embark on an emergency program to improve infrastructure. While the government can work on physical connectivity through public-private partnerships by building more airports and highways, it will take individual entrepreneurship to increase the hospitality quotient by adding more guest rooms. ‘hotel. The government offers attractive incentives, including direct taxes for greenfield projects in manufacturing. The same master plan must be initiated for the service sectors, especially in the construction of hotels, hospitals and universities, especially those that attract foreign currencies.

Policy makers have encouraged manufacturing by introducing the Productivity Linked Incentives (PLI) program with a well-designed process that guarantees investment in capital expenditures, resulting in increased productivity and business opportunities. ‘use. A similar system for services can be introduced with substantial reach in areas such as hospitality, education and healthcare.

In these difficult times, if the economic momentum is to be maintained and every effort must be made to achieve the desired result, the perception of services, in particular their exports, must transform radically. It is also about ensuring that, as a major economy, India’s reliance is on several horses in the race.

(The author is the former chairman of the Service Export Promotion Council)