The Services Export Sector of India : A Visibly Emerging Sector

India ranks amongst the top ten countries in the World Trade Organization considering the service export sector of the country. Though India is an agriculture based country and a fast emerging economy, the service export sector has registered a faster growth than either the agriculture or the industrial sector and is responsible for contributing about 55% to the gross domestic product (GDP) of the country. Despite the fact that the service export sector is the largest and registering a faster growth than any other sector in the country, the Government so far has been unable to realize and tap the immense potential of this sector. As a result the service export sector is heavily disorganized. With multiple regulatory bodies completely lacking coordination between them, absence of an organized approach to improve the present creaky infrastructure, archaic administration, imposition of illogical blockades and constraints on foreign direct investments are seriously hampering the growth of this highly futuristic sector. The consequences are apparent. Though India has emerged as the largest and has recorded the fastest growth in the service export sector in the global arena, China has overtaken India in this sector.


The service export sector of India is multifaceted consisting of various services like transportation, communication, financial, business services etc. including social, community and personal services. Even with its highest labor productivity, this sector has failed to be employment intensive as expected. The various impending factors are blunting the competitive edge of this sector and naturally competition has narrowed down to a select few markets.


Current status of the service export sector of India:

Though there was a fall of 1.1% in the net service export during the current fiscal year between the months of April and September, to USD 28 billion, the service export sector witnessed a quantum leap of 45.4% touching USD 34.9 billion in the second half of the fiscal year between October and March. This improvement in the service export sector will compensate to a large extent the finance deficit in merchandise export. It is to be mentioned here that the surplus revenue accrued from the service export sector had compensated for the merchandise trade deficit, between 2006-2007 and 2011- 2012 on more than one occasion. But the merchandise trade arrears registered in 2012-2013 is a record USD 191 billion. With the net revenue accrued from the export sector amounting to USD 63 billion, the expected compensation can be only 33.8% of the net deficit.


Reserve Bank of India (RBI) projected growth statistics of the service export sector:

As mentioned before, India has a multifarious service export sector ranging from IT services to medical services including Indian doctors and nurses. Transport, construction, travel, insurance and pension, communication, information services and telecommunication are some of the services identified by the RBI’s classification of the service sector industry of the country. As per the data released by RBI, the net revenue accrued from service export sector of India amounted to USD 12.94 billion (July 2013) registering a net increase of 4.8% from the month of June, 2013, net service sector income for which was USD 12.35 billion. 2013 also witnessed an increase in the import of services from 6.22 billion in June to 6.62 billion in July. It is to be mentioned here that IT (software), is one of the most important categories of the service export sector as this category has the largest stake in the global market. The stake of this category in the net revenue accrued from the service sector in 2011-2012 was 43.7%.


Report of ASSOCHAM to improve the service export sector of India:

The report of Researcher Gartner Inc. predicted an increase of 4.2% of worldwide expenditure in the IT sector amounting to USD 3.73 trillion by 2013. Apex Industry body ASSOCHAM is conducive with this report. ASSOCHAM is exploring Government initiatives for the IT services sector which will act as a catalyst to hike their exports. Evident from the letter that ASSOCHAM sent to the Commerce Minister Anand Sharma, the Apex Industry Body has underlined the necessity of Government incentives to the IT segment, as this segment holds the maximum stake in the global export sector market. As revealed in the ASSOCHAM letter to the minister, “India’s IT services sector witnessed 4.2% growth in 2012-13, while Russia and Philippines grew at a massive 69 percent and 27 percent respectively. In the face of the increasing competition it is imperative that IT industry is incentivized towards increasing its export growth.”


In addition to Government initiatives, ASSOCHAM proposed that the Government should take necessary steps to boost the software services sector in India. To begin with, ASSOCHAM proposed, this particular service sector should be offered a quantum of incentives accrued from the export sector of this segment. This will in turn inspire various software services sector in India. ASSOCHAM has further stressed upon the fact that the software companies which hitherto have traded well in the stock market be granted a handsome concession to enable them to payoff customs and other duties that might be levied on them. This benefit should be valid for at least a period of 5 years. The Apex Industry body also emphasized upon the obsoleteness of the ‘Software Technology Parks in India’ (STPI) as a direct result of the withdrawal of the income tax benefits in 2011 which necessitates welcoming of fresh IT service providers and alleviating of the intricacies involved in the import export procedures.


The Government seems to have finally realized the full potential of the service export sector of India and its 55% contribution to the country’s GDP. The revenue accrued from the service export sector has also helped the Government to partially fill up the ‘trade deficit gap’. ASSOCHAM have underlined the importance of the IT segment of the service export sector and the Government is now outlining plans to explore the upcoming expansion of the global IT market as depicted in the Gartner Inc. report. In a speech addressing the various representatives of the export promotion councils and industry bodies at the Pragati Maidan trade and convention center, Commerce Minister Anand Sharma declared, “My immediate priority is to arrest and reverse the declining trend in exports. We have taken a conscious view to expand and diversify our export markets especially in the emerging markets like Africa and Latin America. By 2014 we expect to double India’s export of goods and services”. The new impetus of the Government to create demand for Indian exports of both goods and services has been welcomed by the various exporters, ASSOCHAM and Federation of Indian Chambers of Commerce and Industry (FICCI).