‘Serve from India’

A service revolution has happened in India in the past two decades. It happened so spontaneously, smoothly and silently that it went almost unnoticed by our policymakers.

Today, almost 60 per cent of our GDP originates from services, which contribute substantially to the manufacturing sector as intermediate inputs. They are the largest source of indirect taxes.

India’s services exports of $154 billion are about 3.2 per cent of the global total, which is almost double its merchandise exports. India’s balance of trade in services has always been positive, helping its merchandise sector bridge its perennial trade deficit.

During 2014-15, such surplus was about $75 billion. India now enjoys a brand name in IT and ITeS. The country has huge potential in many other services as well, as globalisation of services is only just starting up. So, India needs to expand and diversify efforts and establish a ‘Global Brand India’ in many other service sectors. This can be achieved through a well-designed ‘Serve from India’ programme.

This programme must incorporate the following:

To start with, the government and policymakers should shed their pre-conceived notion that India can grow only if it is led by a manufacturing revolution and that global integration has to occur through trade in manufactured goods.

Under the new Foreign Trade Policy (FTP-2015-20), the government announced an incentive scheme, ‘Service Exports From India Scheme’, under which the quantum of scrip incentive is reduced to 5 per cent, 3 per cent and 2 per cent. Since exploration of new markets for services and developing user-specific service products are expensive, the incentive should be enhanced to 10 per cent, 8 per cent and 5 per cent.

Earlier, FTPs had an additional incentive of 2 per cent to 2.5 per cent to the merchandise sector under the ‘Focus Product’ and ‘Focus Market’ schemes. Similar benefits should be given to services now.

Remittances send by low/semi-skilled workers (mainly from the Gulf) — which is about $70 billion — forms a good slice of our balance of payment pie. It costs about 5-6 per cent to transfer such remittances from the Gulf to India via official channels. The government should grant 5-6 per cent (merely the transmission cost) as cash incentive on such remittances. This will incentivise workers to send remittances through official channels and will augment foreign remittances by 30-40 per cent.

Under the proposed Goods and Services Tax regime, a uniform Revenue Neutral Rate of 18 per cent is being discussed. It will be detrimental to the services sector as service tax is levied at 14 per cent only at the central level. Though exports are zero duty, it will not be conducive to the ‘Serve From India’ programme. It should be retained at 14 per cent.

In the next WTO ministerial conference at Nairobi in December 2015, India should take up the issue of ‘Market Access’ and ‘National Treatment’ commitments under the General Agreement on Trade in Services, particularly Mode-4 (temporary movement of natural person) services.

India submitted its negotiation proposal in November 2000 and revised it in July 2006. This discusses issues such as the economic need test, restrictive visa regimes (like the US H-1B) and non-recognition of qualifications. These should be pursued as we have comparative advantages in Mode-4 services.

The writer is a research scholar with JNV University, Jodhpur