UNIT 12 TRADE IN SERVICES

Structure
12.0 Objectives
12.1 Introduction
12.2 Definition of a service and features of services
12.3 Reasons for rise in Trade in Services
12.4 Trends in Export of Services from India
12.5 India’s Strengths and Weaknesses in Exports of Services
12.6 Measurses for promotion of export of services from India
12.7 Prospects and Strategies for Services Exports
12.8 WTO and Trade in Services
12.9 Let Us Sum Up
12.10 Key Words
12.11 Answers to Check Your Progress
12.12 Terminal Questions

12.0 Objectives

After studying this Unit, you should able to

• Explain the definition of a services and its features

• Describe the reasons for growth in trade in services

• Trace the trends in export of services from India

• Explain the steps taken by government to promote export of services from India

• Describe the prospects and strategies for export of services

• Explain how is the trade in services related to WTO

1
12.1 INTRODUCTION

Unlike physical products, services are the non-physical and intangible parts of an economy.
Services, such as banking and other financial services, education, medical treatment, hospitality,
construction, transportation etc. constitute major part of majority of the economies -- both rich
and emerging economies-- including India. While the share of agriculture and manufacturing is
shrinking, the share of services sector in the Gross Domestic Product (GDP) of various countries
of the World is on the rise. For example, the services sector account for about 54 percent of
India’s GDP and accounts for over two-thirds of GDP and four-fifths of employment of the
Organisation for Economic Cooperation and Development (OECD) countries. In this Unit, you
will learn the definition and features of services trends in exports, strengths and weaknesses and
export promotion measures. You will be further familiarized with the prospects and strategies for
services exports.

12.2 DEFINITION OF A SERVICE AND FEATURES OF SERVICES

Definition
“A service is an act of labour or a performance that does not produce a tangible commodity and
does not result in the customer’s ownership of anything.” According to Philip Kotler “A service
is any activity or benefit that one party can offer to another, which is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied to a physical
product.” According to Christopher Lovelock “Services are economic activities that create value
and provide benefits for customers at specific times and places as a result of bringing about a
desired change in – or on behalf of – the recipient of the service.”
According to BusinessDictionary.com, services are: intangible products such as accounting,
banking, cleaning, consultancy, education, insurance, expertise, medical treatment, or
transportation.”

Services can be categorized into three types. There are some services, whose production may be
tied to a physical product. For example, there are some pure services that do not involve any
physical product such as physiotherapy. There are some other services whose production may
not be tied to a physical product. For example, there are some services accompanying with a

2
physical product such as a software package accompanying with free software support. Apart
from these, there may be some hybrid product services. They consist of both physical product
and a service. For example, food service in a restaurant. The restaurants are patronized both for
food and the accompanying service.

The above definitions of services drive us to the following special features of services that make
them distinct from physical products:

Features of Services

Services have some distinct features as opposed to the physical products. The following are the
distinct features of services. These features of services, of course, result in limitations in trading
of services which the provider shall try to overcome.

Intangibility: Services are intangible. Services often cannot be seen. They can also not be tasted.
Most of the times a service cannot be felt. We can also not hear it or smell it. The customer does
not own any physical, solid, or fixed property resulting from the transaction pertaining to a
service. A service is intangible because the buyer of a service cannot feel worth before it is
purchased. For example, the client of a lawyer cannot anticipate the outcome of a case before the
lawyer successfully argues in a court. To reduce the uncertainty that results from intangibility,
marketers work hard to make their service tangible by emphasizing the place, people, equipment,
communications, symbols, or price of the service.

Inseparability: While physical products can be consumed long after their production, services
are produced and consumed simultaneously. The inseparability feature of a service can be seen
in services such as entertainment services or professional services. These services are tied
directly to the person who is performing the service. In fact, this limits the production of
services. This limitation can be overcome in a number of ways. For example, the service
provider can learn to work faster and may provide the same service to many. She may also
standardize the expertise and this enables a number of individuals performing the same service.
In some cases the service may be made available on line such as on-line tax consultancy
services.

3
Variability: Since there is a significant human component in the provision of service, services
are variable. This is because the humans differ from each other. The performance of a human
being also differs from one time to the other. For example, the same cook may exhibit different
levels of expertise with the same dish at different points of time. The variability in performance
of a service can be reduced through standardization and quality control. By selecting right
people, providing right training to them and by allowing frank customer feedback the variability
in delivery of service can be minimized.

Perishability: Services are perishable because they cannot be stored. Hence, a steady demand is
essential for the service providers to manage their business. A sudden rise or fall in demand
creates problems for the service provider. A sudden rise in demand creates problems in meeting
the demand because the service cannot be stored. To manage such situations the companies may
have to hire part-time employees (gig workers) as Amazon does during festival season to meet
the sudden demand. When the demand drops off suddenly, the service provider feels the pinch of
excess staff. Organizations can maintain steady demand, for example, by offering differential
pricing during peak and slack times to stagger the demand.

12.3 REASONS FOR INCREASE IN TRADE IN SERVICES

Trade in services means “the value of services exchanged between residents of a country with
the residents of another country”. Trade in services also includes the services provided through a
foreign affiliate of a country to the residents of that country. Trade in services is an important
measure of the performance of an economy. Trade in services is measured as a percentage of
GDP, exports, imports and net trade. The most frequently traded services across nations include
transport (both freight and passengers), travel, communication services (postal, telephone,
satellite, etc.), construction services, insurance and financial services, computer and information
services, royalties and license fees, other business services (operational leasing, technical and
professional services, etc.), cultural and recreational services, and also government services
which are not included in the above. Trade in services drives the exchange of ideas between the
nations, exchange of know-how and technology.
According to the World Bank, “services are both becoming more tradable and more vital as
inputs to traded goods and services. Services have become increasingly important to trade in the

4
21st Century. Developing countries, in particular, have an interest in tapping into this growing
sector of trade services. As we move to the 21st Century, services will decide the ability of
countries and their firms to compete on international markets”.

Reasons for Rise in Trade in Services

The rise in trade in services can be attributed to the following reasons:

i) Ranging from communications to transport, finance, education, tourism and

environmental services, the services sector has become the backbone of the global
economy and the most dynamic component of international trade.
ii) Trade in services creates welfare gains for society through a more efficient allocation
of resources, greater economies of scale, and an increase in the variety of services on
offer.
iii) Services trade improves firms’ competitiveness in both the services and
manufacturing sectors as services also serve as crucial inputs into the production of
goods.
iv) Because services providers must often be present in the area where the service is
delivered, the quality of institutions in the importing country is of greater importance
for services trade than for goods trade. This helps in increase in export of services of
countries such as India where a significant number of high quality human resources
are available.
v) A large number of jobs are supported by services exports.
vi) Services trade can help to reduce economic inequality for women and MSMEs.
vii) Recent technological advances have made it easier to supply services across borders,
thereby opening new opportunities for national economies and individuals. For
example, the innovations in information and communications technology (ICT) made
the services more and more tradable. Service-providers, such as computer
programmers or call-center operators, no longer need to be close to their customers.
They can operate from a location that provides skilled labor at low costs.
viii) Services trade policies are an important determinant of foreign direct investment,
participation in global value chains, productivity and exports of manufactured

5
 products. The level of foreign investment in a country depends upon the quality of
services available in a country.
ix) Policies in relation to services trade also contribute to a wide range of national
objectives, including the achievement of Sustainable Development Goals.
x) Apart from helping in increased cross border trade, the domestically produced
services are also emerging as vital inputs to the production of goods and services that
are exported. For example no factory can manufacture or a call centre can operate
without reliable electricity and water. Similarly, the reliable supply chains have
become essential for manufacturing of goods and provision of services. The material
has to cross multiple countries before it is converted into a finished product. Reliable
services make the difference between a firm’s profit and loss.

Thus, the increased production of quality services result in increased trade in goods and services.
This is true for all the countries including middle income and low income countries. This trend
has also helped the economies in improving the living conditions of people particularly those
living below the poverty line (BPL). One example for this could be the ancillary services such as
transport (cab), small food carts developed in and around BPO offices in metros such as
Bangalore, Hyderabad, Chennai, Delhi etc. Already, many developing countries have been
exporting a diverse range of services. For example, they are providing transport services to their
neighbors and back-office business services to developing countries. The trend in increased trade
in services will further grow with the falling costs of information technology and increasing
access to the internet. This creates the possibility of more and more jobs in the services sector in
the developing world. In fact, India has the potential to become the top service provider. This
services sector is boosting India’s transition from an ‘assembly economy’ to a ‘knowledge-based
economy’.

12.4 TRENDS IN EXPORT OF SERVICES FROM INDIA

The services sector is the main contributor towards India’s economic growth. Gross Value
Added (GVA) at current prices for the services sector is estimated at Rs.96.54 lakh crore 2020-
21. The services sector accounts for 53.89% of total India's GVA of Rs.179.15 lakh crore. The
industry sector contribution to GVA during 2020-21 was Rs. 46.44 lakh crore, and in percentage

6
 terms it was 25.92%. While Agriculture and allied sector share was 20.19%. Hence, the services
sector has become essential for India’s economy in terms of provision of employment. The IT
services and BPO sectors alone employed about 4.47 million people directly and more than 12
million indirectly during 2020-21. The IT industry accounts for about 8% of India’s GDP and
has a share of more than 52% global outsourcing market. The growth of the sector in the first
half of 2020-21 was 10.8%. Tourism is another sector that has been contributing rapidly towards
employment generation. There was a setback to the entire hospitality sector including tourism
during the Covid-19 pandemic. However, the sector revived sharply during 2021-22 and the total
employment in the sector increased by 48% in March 2022. India has emerged as one of the
major recipients of FDI in the world. In fact, it is the fifth-largest recipient of FDI inflows. Of
the total FDI inflows, the services sector is the highest recipient. During the first half of 2021-22,
for example, US$ 16.73 billion worth of FDI flowed into the sector which accounted for 54% of
the country’s total FDI inflows. The computer software and hardware services sector is among
the largest recipient of FDI. Its share was about 25% in 2021-22 in FDI inflows into the country
during 2021-22.
As far as trade in services sector is concerned, services sector has been the major driver of
India’s exports during the past two decades. India has become one of the fastest growing nations
in global services trade.

Table 1: Foreign trade of services by service export promotion council of India

(US$ Million)
Services 2018-2019 2019-2020 2020-2021
Export Import Net Export Import Net Export Import Net
Charges for the use 692 8028 -7335 934 7705 -6771 1310 7707 -6397
of Intellectual
Property n.i.e.
Construction 3388 2527 861 3096 2746 351 2620 2606 14
Financial Services 4858 3486 1372 4734 2919 1814 4338 4763 -424
Government Goods 610 1114 -504 659 1107 -448 630 1021 -392
and Services n.i.e.
Insurance and 2661 1790 871 2431 1738 692 2376 2058 318

7
Pension Services
Maintenance and 189 1201 -1012 194 1182 -988 159 834 -675
Repair Services n.i.e.
Manufacturing 260 42 219 232 68 164 296 28 268
Services on Physical
Inputs Owned by
Others
Other Business 39112 40413 -1301 45716 46881 -1165 49161 49522 -361
Services
Personal, Cultural 1853 2571 -719 2207 3131 -924 2336 2810 -474
and Recreational
Services
Telecommunications, 86344 7409 78935 96110 10212 85899 103078 12278 90800
Computer and
Information Services
Transport 19464 20529 -1065 20988 24285 -3297 21854 19755 2099
Travel 28441 21704 6737 29998 22011 7987 8483 11507 -3024
Others n.i.e. 20128 15246 4882 5892 4284 1608 9447 2633 6814
Total Services 208000 126060 81941 213191 128269 84922 206090 117524 88565
Source: Ministry of Commerce & Industry, Govt. of India.

Look at table 1, it shows the details of the foreign trade of services in the last three years. in the
year 2020-21, the highest exported services were Telecommunications, Computer and
Information Services (103078 US$ Million) followed by Other Business Services (49161 US$
Million). While the highest imported services were other Business Services (49522 US$
Million) followed by transport (19755 US$ Million).

Major Services Exported from India

The following are the important services exported from India as per the Services Trade
Promotion Council data:

1. Accounting, Auditing and Bookkeeping services: India occupies the second

position, next only to USA, in terms of the number of accounting professionals in
the world. India is a net exporter of Accounting and taxation services. During
2019, India exported worth of accounting and taxation services. The export of

8
 these services grew by 9 percent between US$ 42bn in 2017 to US$ 54 billion in
2019. The services under this category broadly include Accounting, auditing and
bookkeeping services and taxation services.
2. Architectural and related services: India is the 11th largest exporter of architectural
services. It exported architectural services worth US$2.9 billion during 2019.
3. Consultancy Services: India’s trade with world in Consultancy Services was
US$54.2 billion in 2019. The major classification of consultancy services
include: a) Management Consultancy services; b) Services related to
Management Consultancy and c) Other Consultancy Services.
4. Entertainment and Audio Visual Services: India’s annual exports of audio-
visual services amounted to about US$ 600 million during 2019. India’s share in
global export of these services increased from 0.8% in 2015 to 1.6% in 2019.
5. Environmental Services: India exports environmental services annually worth
about US$ 40 million. The market for environmental services in developing
countries has been growing. This is due to factors such as increased
environmental regulations, urbanization, industrialization and international
commitments. The Indian exporters of environmental services have the requisite
competitive strength to cater to the global market. The broad classification of
environmental services include: Sewerage, Sewerage treatment and Sewerage
cleaning services; Sanitation and similar services; Remediation services; Water
treatment and disposal services; Water collection services and other services
incidental to environmental services.
6. Financial Services: India is one of the leading economies engaged in exports
of Financial Services and poised to grow further. Financial services include:
Banking, Insurance and other services.
7. Hospital Services: Hospital industry in India is projected to rise to Rs. 8,60,000
crores by FY22 from Rs. 4,00,000 crores in FY17 at a CAGR of 16–17%.
Healthcare is one of India’s largest sector, both in terms of revenue and
employment. Healthcare industry in India has a lot of potential to grow due to
factors such as strong human resources, inflow of foreign investments,
innovations and advanced technology. India has 18 per cent share in the global

9
 medical tourism market. Around 697,453 foreign tourists came for medical
treatment to India in 2019, making up 6.4 per cent of the total foreign tourist
arrivals in India.
8. Hotel and Tourism related Services: India ranks 7th in foreign tourist arrivals
and tourism receipts. Hotel and Tourism sector received cumulative FDI inflow
of US$ 15.61 billion between April 2000 and December 2020.During 2010-2019,
India has doubled its tourism exports, along with an increase in market share from
about 1.5% to over 2.1%.
9. Information Technology (IT) and Information Technology Enabled Services
(ITES): IT and ITES services sector is the largest exporter among the various
service export sectors in India. The scope of this sector has expanded
significantly in the last 15 years. This is due to increasing importance of the
digital economy. India is the second largest exporter in IT and ITES services with
a market share of 11%. IT and ITES include: Software implementation services;
Data processing; Consultancy services related to installation of computer
hardware; Database services and other computer services.
10. Legal Services: There are over 10,00,000 lawyers in India and on an average
about 75,000 are passing out every year from law schools. India exports legal
services to the tune of US$800 million. India has the required skill set to
undertake legal services such as legal research, drafting contracts etc. Legal
services include: Legal advisory and representation services; Legal and advisory
services relating to tribunals and quasi-judicial bodies; Legal documentation and
certification services; and other legal advisory and information services.
11. Maritime Services: India’s market share in the overall export of Transport
services has been ranging between 1.5 percent and 2 percent. India exported more
than US$ 21 billion worth of transport services during the year 2019. Exports of
maritime transport services contribute about 70% of the total export of transport
and Logistics services from the country. India has about 3.6 percent market share
in the maritime domain.
12. Transport Services: They cover all transport services (sea, air, land, internal waterway,
pipeline, space and electricity transmission) performed by residents of one economy for

10
 those of another country. They involve the carriage of passengers, the movement of
goods (freight), rental of carriers with crew, and related support and auxiliary services.
They also included postal and courier services.

Share of various service industries in Service Exports

As per the data published by RBI, the shares of various industries in export of services from the
country are as follows:

India’s Industry wise share of total

service sector exports
Industry % share
Software services 49
Business services 23
Transportation 11
Travel 4
Financial Services 2
Communication 1
Insurance 1
Others 8

It can be seen that about half of the total value of exports consists of software services
and about one-fourth consists of business services. Transport services hold a share of
over one-tenth. These three sectors constitute more than 80 per cent of the total exports
of services from India.

The Foreign Trade Policy announced by the Government of India for 2015-20 which has been
extended up to April,2023 introduced a scheme known as Service Exports from India Scheme
(SEIS) w.e.f. April 1, 2015 to promote the export of services from India. Under the scheme, the
exporters of eligible service categories are given transferable Duty Credit Scrips as a percentage
of Net foreign exchange earned on the export of these services in a financial year. These scrips

11
can be used against payment of customs duty for import of goods and services. These scrips are
transferrable. Hence, the scheme amounts almost to a cash incentive.

Check Your Progress A

1. What is the definition of a service?
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
2. State the top four services exported from India.
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
3. Match the following:
Features of service Meaning
A. Perishability a. Cannot be felt
B. Inseperability b. Humans differ from each other
C. Variability c. Cannot be stored
D. Intangibility d. Produced and consumed simultaneously

4. State whether the following statements are True or False:

1. Agriculture sector contributes more to the GDP of India.
2. Manufacturing sector receives the highest FDI in India.
3. The Foreign Trade Policy 2015-20 is extended up to April, 2023.
4. India is having Trade Surplus in Services Trade.
5. Software Services are the highest exported services from India.

12.5 INDIA’S STRENGTHS AND WEAKNESSES IN EXPORT OF SERVICES

12
The following are the strengths of service sector exports from India:
1. India’s services sector exports have been the least susceptible to global vagaries:
India’s merchandise export was at $45 billion in 2000 while services export was at about
$10 billion. The export value of services was only one-fourth of the goods exports. By
2015-16, services exports had grown to about $154 billion, over half of the goods export
of $262 billion. For the first time India’s merchandise exports have contracted by 16.5
per cent to $29.78 billion for the month of October, 2022. This contraction has been
attributed to the weak global demand due to various factors such as Russia-Ukraine war,
interest rate increases in several countries including US Fed to contain inflation, Covid-
19 effects such as China's lockdowns and disruptions in supply chains. The International
Monetary Fund (IMF) has cut the global growth forecast to 3.2 per cent in 2022 and 2.7
per cent in 2023. The global growth rate was 6 per cent in 2021. This global slowdown is
expected to have significant negative impact on merchandise exports of developing
economies like India. However, during this period the services sector grew at an
impressive rate of 40.3 per cent. This shows the strength of India’s services sector
exports. The impressive performance of services sector exports is not a one-off
phenomenon. Data for the last 12 years shows that India’s services exports have
consistently done better than merchandise exports. Thus, the services sector exports have
been the least susceptible to global vagaries.
2. A Large Skilled Workforce: About 65% of India's population is below the age of 35
years and a significant proportion of it is global skilled workforce. This helps in specific
services like telecommunications and other services based on information communication
technology (ICT). Further, a large portion of India's population is fairly conversant with
the English language. And this provides an edge in key service areas like outsourcing,
banking and finance, hospitality, consultancy, etc.
3. Strong Regulatory Framework: For emerging economies such as India have to
combine their service trade liberalization strategies with sound regulatory environment,
complementary domestic policies and effective governance to realize the benefits of
liberalization of trade in services. India has made rapid progress in these areas with a
sound regulatory framework, world class corporate governance structure and domestic

13
 policies in tune with global priorities such as Environment, Social Responsibility and
Governance (ESG). This is one of the important reasons why have our markets
particularly financial markets have been able to withstand global financial crises and have
shown very strong resilience to world financial shocks. However, developing countries’
regulatory environments are often perceived as ‘unsophisticated’ and ill-prepared for the
additional complexities that international competition brings. Regulatory reform is
therefore often needed.
4. Information Technology Boom: The IT boom has created new avenues for the global
services sector. The consumerisation of technology has a huge positive impact on trade in
services. Consumerization of IT is the cycle of technology emerging first in the consumer
market and then spreading to business and government organizations. This phrase is
favored largely because employees are first selecting popular devices and technologies as
consumers, then introducing them to the workplace. The biggest beneficiary of the IT
boom has been India. India has competitive advantage in IT services due to lower
employee cost. The government undertook a major reform of removing telecom
regulations in the IT-BPO sector and allowed a large part of the workforce to work from
home. These reforms have reduced compliance burden, enhanced productivity, increased
global competitiveness and lowered the cost of doing business in India and made our IT
and BPO services much more competitive.
5. Focus on digitization: The country has been pushing digitization through ‘Digital India
for Atmanirbhar Bharat’ initiative. Some of these areas which are getting benefit are
fintech services, consultancy services, ‘manufacturing services’ and AVGC (Animation,
Visual Effects, Gaming and Comics). Manufacturing services are services that have come
up due to an increased reliance on services within manufacturing in the global value
chains. They are, for example, branding, packaging and marketing, logistics, research and
development (R&D) in patent development, etc. All these sectors are going to contribute
a lot to export of services.
6. India offers a diverse portfolio of niche tourism products: The country’s export
revenue from tourism sector has been showing rising trend. This is because of a diverse
portfolio of niche tourism products offered by the country which include cruises,
adventure, medical, wellness, sports, MICE (meetings, incentives, conferences and

14
 exhibitions), eco-tourism, film, rural and religious tourism etc. In fact, India’s tourism
and travel sector is ranked 11th among 184 countries on the basis of GDP contribution.
India witnessed about 2.74 million foreign tourists during the year 2020. It declined to
1.57 million in 2021, but expected to increase by 52% over 2021 during 2022. The sector
is expected to contribute about $275 billion to India's GDP by 2025. The foreign tourist
arrivals have been recording a growth of 7.2% per annum. Increasing tourist arrivals will
mean good business in the areas of hospitality and ancillary services such as logistics,
hotels, tour operators, etc. The major factors helping India to attract huge inflow of
foreign tourists include 37 world heritage sites, 25 bio-geographic zones, very long coast
line with attractive beaches, huge medical tourism sector, 10 bio-geographic zones, 80
national parks and 441 sanctuaries. The success of 'Make in India' programme also lead
to frequent MICE travel etc. Campaigns such as ‘Athidhi Devo Bhava’ are also helping
the cause. Visitor exports (money spent by international travellers) accounts for 4.8% of
the overall exports in the case of India, higher than the world average of 4.2% (as per the
World Travel and Tourism Council)
7. Tremendous potential in Educational Services: Exports in education sector include
offering academic courses in humanities, engineering, off-shore services in teaching and
teacher exchange programmes. India can play a big role in trade in higher education.
India has a large pool of English proficient academicians. India has the opportunity to
position itself as a high quality and affordable education hub, under various modes of
supply of services. India can also position itself well as a quality supplier of cross-border
education services through distance education, e-education or virtual education by
universities in India to students abroad (Mode 1 services). For instance, Indira Gandhi
National Open University (IGNOU) has gained a good reputation abroad in marketing
education programmes at extremely cost competitive rates compared to similar courses
from developed countries. IGNOU is already a recognised distance education provider in
the gulf region – Dubai, Abu Dhabi, Sharjah, Doha, Muscat and Kuwait, and is slowly
entering newer markets. This model can easily be replicated by other universities, both
government and private, in India.
8. Startups are on the rise: A start-up is an enterprise that is working on the growth,
commercialization, and the creation of brand-new products, services, or mechanisms that

15
 are driven by intellectual property or new tech. However, most of the startups in India are
coming up in development of software applications that is going to help in exports. As of
August 29, 2022, India had emerged as the world’s third-largest startup ecosystem. There
are over 77,000 Department of Promotion of Industry and International Trade (DPIIT)
recognized startups spread throughout 656 districts of the country. There are about 100
unicorns in India. Unicorn is a start up that reaches a valuation of $1 billion without being
listed on the stock market. Many multinational corporations are now outsourcing their
tasks to small businesses in order to focus on their core competencies. As a result of this
trend, not only Indian venture capitalists but also many multinational corporations are
closely monitoring the progress of Indian start-ups to invest their money. Thus, the
evolving startup eco system may have tremendous potential for export of services from
India.
9. Key factors contributing to the success of IT Sector: The government has invested in
creating high-speed Internet connectivity for software parks. The government has
allowed the ICT sector to import duty-free both hardware and the ICT sector has been
able to function under the Shop and Establishment Act and hence is not subject to the 45
labour laws which apply to industries. Further, the ICT sector benefits from public
investment in technical education.

Weaknesses of Indian export of services

Though India has many strengths in many industries consisting of services sector such as
IT and ITES, Tourism, Transport, Healthcare etc., it has to overcome several weaknesses
that cripple the further growth of these sectors. The following are the important
weaknesses which India needs to overcome to reach India’s services export target of $1
tn. by 2030.

1. Reaping the demographic dividend: The quantity and the quality of production of
services depend upon the skilled manpower. Though India is on the top of the table in
terms of demographic dividend it has to overcome the following challenges to reap the
demographic dividend (demographic dividend occurs when the proportion of working people
in the total population is high):

16
i. Fertility has been declining and reached the level of 2.16 which is just equal to replacement
rate of 2.1. The population growth is concentrated more in poorer states and in the developed
states of the country it is way less than replacement rate. This needs policy intervention to
sustain the demographic dividend.

ii. Spending on human capital development is very low. The spending needs to be increased to
develop the human capital.

iii. The gender inequality of education is a concern.

iv. Female workforce participation in the economy needs to be increased.

2. Infrastructure Development: The major challenges faced by industries including service

industries include land acquisition, transport connectivity, availability of uninterrupted quality
power, communication connectivity and other related infrastructure. Availability of quality
infrastructure is a precondition for growth of the industries. Though lot of progress has been
made in all these areas, a lot more is the requirement to make our service industries much more
competitive.

3. Unlocking growth in Tier II cities: The growth of Service Industries such as IT and ITES is
concentrated only in and around Tier I cities such as the National Capital Region, Bangalore,
Chennai, Hyderabad, Mumbai etc. By penetrating into Tier II and Tier III cities, these industries
can reduce their cost of production and become much more competitive in the international
markets. This requires concerted efforts on the part of the Central and the concerned State
Governments to focus on developing the required infrastructure in these cities.

4. Shortage of Skilled manpower: India has been facing huge shortage of skilled manpower
which is essential for growth of service industries. This is in spite of the fact that about 62% of
the Indian population is in the working age group of 15 to 59. The major factors contributing to
the shortage of skilled manpower include: disparity between classroom knowledge and practical
application; shortage of relevant skills; lower women participation rate in gainful employment
etc. This issue needs further attention for the growth of services industries.

17
5. Low investment in Research and Development: R&D plays a key role in the growth of
services industries. But both the public and private investments in R&D are very low. This
hinders innovation and new product development.

6. Exports are concentrated in a few services and a few markets: About 83% of service
exports (during 2020-21) are accounted for by software services, business services and
transportation services. Further, the exports of these services, for example software services, are
mainly to USA and Europe. India needs to diversify its export basket and export destinations to
reduce risks of volatility in exports.

7. IT companies have to overcome challenges such as Automation and Cloud adoption: The
technological changes such as automation, cloud and digital need to be adopted by Indian
software companies. Indian companies traditionally offered development (writing code) and
maintenance services through time and material contracts. This was delivered both offshore
(Indian firms first devised the globally distributed development model) and onshore (at client
sites to help with installation). But a lot of these jobs are now being automated. So IT firms have
to offer clients something more. They have to help clients innovate and find new solutions that
will enable them to be part of the digital revolution. This requires new investments, up skilling
and re-skilling of employees. Another emerging area is movement to cloud. Companies earlier
were mostly hosting their own hardware, enterprise solutions and applications which were
required to be installed and maintained. However, a major part of this is being uploaded to
servers through the internet. Everything from warehousing data to accessing and using
applications is executed through the internet and servers. They are neither on a firm’s premises
nor owned by the company. Cost savings take place because enterprise solutions and
applications are not owned but paid for peruse. The challenges are two-fold. The level of skills
required by IT firms has gone up (routine tasks are being automated), the government has to play
a big role in training more skilled engineers. The entrepreneurs have to devise new businesses
which can make the best use of the new skills. Further, the middle class has to shed the notion
that a software job will be easy to find with even a mediocre engineering degree.

8. Market Access Barriers: There are many market access barriers in India’s trading partner
countries. Some of them include Visa issues in different countries for Professionals; licensing of
professional service suppliers (which is generally regulated at State level in the US); the Buy

18
American provisions; restrictive regime in the case of shipping (for example, in US with many
types of assistance to domestic shipping sector such as a minimum of 50 per cent of government
shipments for US registered ships, limitation of use of ships built in US in internal waters, huge
subsidies etc.) These market access restrictions need to be negotiated in the WTO and bilateral
meetings.

12.6 MEASURES FOR PROMOTION OF EXPORTS OF SERVICES

The Government has fixed a target of $1tn worth of exports of services by 2030.
Government has initiated several measures for promotion of exports of services from
India. Some of the important measures are as detailed below:
1. Establishment of Service Export Promotion Council (SEPC)

The Ministry of Commerce and Industry set up the SEPC in 2006. The Council is set up to
facilitate global business opportunities for India’s services sector. The Council has been
facilitating exports of services through trade intelligence, export development, export
promotion and enabling business environment. The broad roles and responsibilities of the
Council have been:

i. To create business opportunities for the services exporters consisting of both aspiring and the
existing ones;

ii. To act as a platform between Government and Industry in order to provide policy inputs, take
up issues of industry, provide insight on global markets (existing and emerging) in terms of
opportunities, challenges and regulatory frameworks;

iii. To facilitate exports by formulating business enablers like incentives and designing suitable
market oriented promotional events and activities; and

iv. To enable members avail various grants and incentive schemes under Ministry of Commerce,
related line Ministries and State Governments.

Those who become the members of the Council have the following benefits and advantages:

19
 • Access authentic Trade leads, market access opportunities in existing and emerging
markets
• Opportunity to Create and build their company’s profile on www.servicesepc.org under
MY SEPC.
• Get noticed by overseas importers through digital networking facilitated by SEPC.
• Get all necessary support from Indian Embassies/Missions for business opportunities in
various countries.
• Visa facilitation to undertake business visits.
• Actively participate in policy formulation towards enabling business environment.
• Participate in international exhibitions, Reverse Buyer-Sellers Meet and all other export
promotional activities at subsidized cost.
• Access incentives under Market Access Initiative (MAI) Scheme of Ministry of
Commerce and Industry.
• Avail Partial coverage of cost of airfare (subject to guidelines under MAI scheme) while
undertaking participation in international exhibition under SEPC pavilion.
• Avail Export Incentives formulated under Foreign Trade Policy to be announced soon.
• Become eligible for schemes under Ministry of MSME.

2. Market Access Initiative (MIA) Scheme

Market Access Initiative (MAI) Scheme is an export promotion scheme envisaged to act as a
catalyst to promote India’s exports of goods and services on a sustained basis. The scheme is
formulated on product-focus country approach to evolve specific market and specific product
through market studies/survey. Assistance would be provided to Export Promotion
Organizations/Trade Promotion Organizations/National Level Institutions/ Research
Institutions/Universities/Laboratories, Exporters etc., for enhancement of exports through
accessing new markets or through increasing the share in the existing markets. Under the
Scheme the level of assistance for each eligible activity has been fixed.

The following activities are eligible for financial assistance under the Scheme:

20
Marketing Projects Abroad; Capacity Building; Support for Statutory Compliances; Studies;
Project Development; Developing Foreign Trade Facilitation web Portal; to support Cottage and
handicrafts units

The following agencies are eligible for financial assistance under the Scheme:

Departments of Central Government and Organisation of Central/State Governments including

Indian Missions abroad; Export Promotion Councils; Registered trade promotion Organisation;
Commodity Boards; Apex Trade Bodies recognized under Foreign Trade Policy of Govt of
India; Recognized Industrial & Artisan Clusters; Individual Exporters (only for statutory
compliance etc.); National Level Institutions (e.g. Indian Institutes of Technology (IITs), Indian
Institutes of Management (IIMs), National Institute of design (NIDs), NIFT etc.)/ Research
Institutions/Universities/ Recognized laboratories, etc.

3. Service Export from India Scheme (SEIS)

Under the SEIS Scheme, the Central Government gives incentives in the range of 3% to 7%
to all Service providers who are providing services from India to organisations outside India.
The Service Exports from India Scheme has been introduced in 2015 and was valid for 5
years i.e. from 2015 to 2020.However, the scheme was further extended up to January 2022.
The Scheme was introduced as a part of the Foreign Trade Policy 2015-2020 and replaced
the Service from India Scheme (SFIS) which was applicable earlier.

The incentives under the SEIS Scheme are provided to all types of service providers who are
located in India irrespective of the nature of organisation of the service provider. The rate of
reward under SEIS varies between 3% and 7% and computed on the net foreign
exchange earned. The services covered under this scheme are professional, R&D,
rental/leasing, construction, education, environmental, health, tourism, travel, transport services,
etc

These incentives are not given in the form of money but are given in the form of duty free
credit scrip. The duty credit scrips issued under SEIS Scheme can be used for payment of
various taxes levied on goods and services. These scrips are also freely transferable and can
also be easily sold to some other assessee.

21
Under SEIS, an incentive of 3-7% of net foreign exchange earnings is provided to services
exporters of certain services in India. This scheme aims to promote the export of services by
giving duty scrip credit for eligible exports. These services covered under this scheme are
professional, R&D, rental/leasing, construction, education, environmental, health, tourism,
travel, transport services, etc.

4. Software Technology Park (STP) Scheme

The STP Scheme is a 100% export-oriented scheme for the development and export of computer
software, including export of professional services using communication links or physical media.
As a unique scheme, it focuses on one sector, i.e. computer software. The scheme integrates the
government concept of 100% Export Oriented Units (EOU) and Export Processing Zones (EPZ)
and the concept of Science Parks/Technology Parks, as operating elsewhere in the world. The
unique feature of the STP scheme is the provisioning of single-point contact services for member
units, enabling them to conduct exports operations at a pace commensurate with international
practices.

Scheme benefits and Highlights

• Approvals are given under single window clearance system.

• An STP unit may be set up anywhere in India.
• Jurisdictional STPI authorities can clear projects costing less than Rs.100 million with
Indian Investment.
• 100% foreign equity is permitted.
• All the imports of Hardware & Software in the STP units are completely duty free,
import of second-hand capital goods are also permitted.
• Re-export of capital goods is also permitted.
• Simplified Minimum Export Performance norms i.e., "Positive Net Foreign Exchange
Earnings".
• Use of computer system for commercial training purposes is permissible subject to the
condition that no computer terminals are installed outside the STP premises.
• Sales in the Domestic Tariff Area (DTA) are permissible.
• The capital goods purchased from the DTA are entitled for refund of GST.

22
 • Capital invested by foreign entrepreneurs, know-how Fees, royalty, dividend etc., can be
freely repatriated after payment of Income Taxes due on them, if any
• The items like computers and computers peripherals can be donated to recognized non-
commercial educational institutions, registered charitable hospitals, public libraries,
public funded research and development establishments, organizations of Govt. of India,
or Govt of a State or Union Territory without payment of any duties after two years of
their import.
• 100 Percent Depreciation on computers and computer peripherals over a period of five
years.

5. Digital India Internship Scheme

The objective of the Digital India Internship Scheme is to provide hands on experience to the
engineering students and job ready skilled employees to the IT industry. The scheme is aimed at
offering the meritorious and interested candidates with an opportunity to sharpen their skills.
Transformative initiative was one of the aspects of Digital India. This scheme will make that a
reality. Each intern gets a monthly scholarship of Rs.10,000.

Tenure of the internship – The internship program will continue for a period of two months. If
deemed necessary, then it may be increased to three months, at the most. The number of interns
for each session is 25. The internship will be conducted by the respective department in two
sessions, one in summer and the other in winter. The mentor will also offer a certificate to the
intern for participation and the project report.

6. PhD Scheme

The objective of this scheme is increase the number of PhDs in the Electronics Systems and
Design Manufacturing (ESDM) and IT enabled services in India. The scheme was approved in
2014 with a financial outlay of Rs. 466 crore (US$ 59 million).

12.7 PROSPECTS AND STRATEGIES FOR SERVICES EXPORTS

The prospects of exports of services from India improved because of the following:

23
1. Governments Support to IT Sector: The government has been providing lot of support to
the IT industry such as Software Parks, push to IT education etc. to further improve its growth
and help India’s services exports. AS IT exports constitute about 50% of service exports from
India, IT sector has to play a key role if the service exports have to grow four-fold and reach $1
trillion target by 2030. The Central Government also agreed to develop IT hubs in Tier II and
Tier III towns.

2. Covid-19 Pandemic Helped the IT Sector: The prospects of IT firms further brightened
during the pandemic as many businesses started adopting technology in a big way by providing
all the necessary infrastructure and facilities. This will help further growth of IT sector and its
exports.

3. The quick adoption of new developments such as automation, cloud etc. will help the IT
industry to contribution to services exports by developing new products. This will make India a
bigger global player in the sector.

4. Government identified 12 champion sectors including IT and ITES sector to boost

services exports: India has set an achievable target of $1 trillion in services exports by 2030. So
far, out of total services exports, a large chunk of exports are from the IT and ITes sector. Now
the focus of the government is to boost services export from another eleven crucial sectors. They
include Tourism & Hospitality Services, Medical Value Travel, Transport & Logistics Services,
Accounting and Finance Services, Audio Visual Services, Legal Services, Communication
Services, Construction and Related Engineering Services, Environmental Services, Financial
Services and Education Services. Government has approved the ‘Action Plan for these 12
Champion Sectors in Services’ to give focused attention to these champion Services Sectors. For
example, worldwide we have over 1 billion people travelling but we have a very small share in
that, even smaller than Thailand and Malaysia. Take education sector, we have 5 million students
travelling to get admissions and for higher studies, but here in India we get only 50,000 students
in spite of having a large number of higher educational institutions.

5. Studies show that by 2040, the share of services in total international trade will overtake
goods trade so services export. This will further boost the export of services from India.

24
6. The Government’s focus on Digital India will help delivery of services digitally by
businesses and would help the growth of export of services. For this the businesses need to
leverage their digital platforms and become a part of digital e-commerce; there is lot of
receptivity for digital delivery services.

7. The Free Trade Agreements entered into the Country with other nations such as UAE,
Australia etc. would help in boosting services exports. The FTAs with nations such as UK,
Canada, European, Union would further help the sector’s export potential. All these countries are
big services markets.

8. Development of dynamic B2B portals will help the service providers to reach out to the
markets abroad. Development of a a platform for engagement with people of other countries
would help them to know who are the service providers in India so that the country can get more
and more export business.

9. Need for a “Services from India” Initiative: A ‘Services from India” initiative on the lines
of ‘Make in India’ is needed to strengthen our services sector for exports. This should be
supplemented by more promotional activities in target markets including showcasing India as a
major quality service provider at competitive rates. There is also a need to make the Service
Export Promotion Council (SEPC) more active. This council should also network with the Indian
missions abroad and the India Trade Promotion Origanisation (ITPO).

Strategic Responses to overcome the Weaknesses in Export of Services

1. To further improve the competitive strength of India’s IT and ITES sector domestic
challenges like shortage of skilled digital talent, and underdeveloped infrastructure in Tier 2 & 3
cities is focused upon on and this needs further investments in infrastructure and a concerted
effort between the Centre and the respective States.

2. The tourism sector has great potential to contribute towards India’s service exports. Apart
from schemes such as Atidhi Devobhava the other strategic responses to give further fillip to this
sector may be making India Tourism friendly and Tourist safe Country with a special Tourist
Protection force. Cleanliness hygiene and ambience at international standards need to be
maintained. Good tourism infrastructure including beautifying riversides passing the middle of

25
cities needs to be focused upon. The Central Government’s initiatives such as ‘Adopt a Heritage
Project’ etc., may be used to build tourist accommodation and infrastructure through
privatization or Public Private Partnership model. There is also a need for further improvement
in E-Visas and Immigration procedures to reduce the waiting time. Another area is promotion of
Medical Tourism. Hospitals contributing towards medical tourism may be encouraged by
facilitating imports. A package of services may be designed for medical tourists which may
include state of the art medical facilities, ambulance services at airports, airlifting of medical
tourists to hospitals by helicopters and fast track clearance of medical visas, immigration and
other formalities.

3. Shipping and Port Services: India has a merchant fleet of 1491 seagoing ships with total
capacity of 13 Million Gross Tonnage (GT). India is ranked 18th with respect to leading flag of
registration by dead weight tonnage (DWT) and 19th by carrying capacity in DWT and accounts
for about 1.3 percent of the total global DWT. This needs to be increased further to increase the
contribution of Shipping services to trade in services.

India’s share in shipping transport is very low. n India’s International Trade and both a foreign
exchange earner and saver, India’s share in total world DWT is only 0.9 per cent as on 1 January
2017. Despite having one of the largest merchant shipping fleets among developing countries,
there the share of Indian ships in the carriage of India’s overseas trade is very low. Though
government has undertaken several reforms to improve these shares, a lot more is needed to
further strengthen the shipping industry.

4. Project Exports: Indian Project Exporters have executed a variety of projects in markets in
various countries of the world. India’s competitive strength in project exports lie in its cost
effectiveness, application of technical expertise and timely delivery of quality products and
services. These factors have earned project exporters from India a fair degree of goodwill and
standing. Project Exports include both goods and services and therefore have some peculiar
problems. They include lack of accuracy of data and absence of a specific HS code resulting in
Project Exporters not qualifying for Export Benefits. There is need for exploring the potential
for project exports in the SAARC and CLMV (Cambodia, Laos PDR, Myanmar and Vietnam)
regions. Inclusion of Project exports in negations relating to Free Trade Agreements (FTAs) and

26
Comprehensive Economic Cooperation Agreements (CECAs) negotiations will provide further
help to this segment. Promoting Project Exports through rupee trade will also help the exporters.

5. Trade Settlement in Rupees: “In order to promote the growth of global trade with emphasis
on exports from India and to support the increasing interest of the global trading community in
INR” the RBI has put in place an additional arrangement for invoicing, payment, and settlement
of exports/imports in INR. This very recent initiative is going to help further the export of
services apart from merchandise exports.

6. FTAs and CECAs and Comprehensive Economic Partnership Agreements (CEPAs):

India has entered into several FTAs, CEPAs and CECAs with several countries. These
agreements are meant not only to reduce and but also help in reducing other barriers that impede
the flow of goods and services. They also encourage investment. They improve the rules
affecting intellectual property, e-commerce and government procurement etc. The India’s
strategy to increase its trade in goods and services through these agreements may also help in
achieving the target of $1 tn services exports by 2030.

7. Export Preparedness Index (EPI): The idea behind the Export Preparedness Index (EPI) is
to create a benchmark to rank these states and Union Territories (UTs) to help them individually
promote a conducive export environment in the region. The index helps the policymakers and
exporters to identify the drivers and obstacles of exports. This also helps in strategizing a viable
export map for the state.

The index can be used by the States and Union Territories to benchmark their performance
against their peers and analyse potential challenges to develop better policy mechanisms to foster
export-led growth at the subnational level. The index is data driven and helps in identifying the
fundamental areas critical for export promotion at the State level. The index consists of four
pillars, eleven sub pillars and sixty indicators and covers 28 states and 8 UTs. The four pillars
are: Policy, Business Ecosystem, Export Ecosystem and Export Performance. The 11 sub pillars
of the Index are: Export Promotion Policy, Institutional Framework, Business Environment,
Infrastructure, Transport Connectivity, Access to Finance, Export Infrastructure, Trade Support,
R&D Infrastructure, Export Diversification and Growth Orientation.

27
The EPI helps the states and UTs in a significant manner to plan and execute sound export-
oriented policies and build a conducive export ecosystem and make maximum utilisation of their
export potential.

12.8 WTO AND TRADE IN SERVICES

The WTO’s General Agreement on Trade in Services (GATS) was the basis for expanded global
trade in services. In fact, the services were not part of trade negotiations under GATT. The
creation of the GATS was one of the landmark achievements of the Uruguay Round of trade
negotiations.
GATS: The WTO’s GATS came into force in 1995. The GATS remains the only set of multilateral
rules relating to trade in services. The Agreement helped in the gradual transfer of responsibility for
many services from government-owned suppliers to the private sector (for example telecom services,
insurance services etc.) The agreement increased the potential for trade in services brought about by
advances in information and communication technology. The GATS acknowledges that in many
instances suppliers and consumers haveto be in physical proximity for services to be traded.

Services covered by the GATS are not automatically opened to competition. WTO members provided
guarantee access to their markets only in certain sectors and in certain modes of supply. Their
commitments are specified in their “schedules of commitments” along with “limitations” they wish to
maintain. These schedules provide legally binding commitments on the part of members. The only
obligation that applies across all services covered by the GATS is the most-favoured-nation (MFN)
principle. MFN means suppliers of services from all member countries are treated in the same way.
The GATS covers all services. However, it excludes those services which are provided in the exercise of
governmental authority and also many air transport services.

Modes of Supply: The GATS defines trade in services in terms of modes of supply:

Mode 1 covers services supplied from one country to another (forexample, call centre services).

Mode 2 covers consumers or firms making use of a service in another country (for example, through
international tourism).

28
Mode 3 covers a foreign company setting up subsidiaries or branches to provide services in another
country (such as a bank setting upa branch overseas).

Mode 4 covers individuals travelling from their own country to supply services in another (for example,
a consultant travelling abroad to provide an IT service).

Of all the modes of Trade in Services the mode 2 is the most liberalized mode in terms of
commitments by WTO members. This is because governments are less restrictive with regard to the
movements of citizens outside domestic borders (for example tourists).

Mode 1 is not often committed, mostly because it is impossible for many services to be supplied
remotely (e.g. construction services).

Mode 3 is more open. This reflects the role of mode 3 in driving the international supply of services,
transferring know-how and improvingthe capacity of economies to participate in global value chains.

GATS Commitments: Out of a total of approximately 160 service sectors, WTO members, on an
average, listed about 50 in their schedules of commitments, pledging some degree of market opening.
Developed countries have commitments in nearly four times as many sectors (some 110) as least-
developed countries (LDCs). But economies that have joined the WTO since 1995 have committed to a
significantly higher number of sectors than the “original” members at similar levels of development.

The permissible restrictions on trade in General Agreement on Tariffs and Trade (GATT) are only
tariffs. However, in GATS commitments the members detailed so many restrictions on trade in services
which cover numerical quotas, limits on foreign ownership, and discriminatory subsidies. The sector
most commonly included in WTO members’ schedules of commitments is tourism followed by
infrastructure services (financial services, business services, and telecommunications). The sectors least
frequently included in commitments are education and health services, because in many countries
these services are provided by governments.

Improving information on trade in services

To provide for information on trade in services, the WTO and the World Bank jointly established the
Integrated Trade Intelligence Portal for services (I-TIP services) in 2013. I-TIP services is a set of
databases listing services commitments by WTO members in the GATS and regional trade agreements,

29
the measures they have actually applied and related services statistics. The aim is to assist policy-making
and analytical work. The World Bank and the WTO have been working to increase the level of
information provided on services trade policies and regulations applied by WTO members on trade in
services.

Check Your Progress B

1. What is Export Promotion Council of India?
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
2. What is Export Preparedness Index?
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
3. State whether the following statements are True or False:
1. Service Exports Scheme from India provides incentives to exporters in cash.
2. To boost service exports the government identified 12 sectors.
3. All the imports of Hardware & Software in the STP units are completely duty free.
4. GATS identified four modes of services.
5. International trade in services commenced because of GATS.

12.9 LET US SUM UP

Services sector is emerging as the major contributor towards the GDP of both rich and emerging
economies. A service is an act of labour or a performance that does not produce a tangible
commodity and does not result in the customer’s ownership of anything. The specific features of
services include intangibility, inseparability, variability and perishability. Trade in services
means “the value of services exchanged between residents of country with the residents of

30
another country”. There are several reasons for increase in trade in services. The major reason is
technological advancements in communications. India’s export of services has shown an
increasing trend since 2014. The services trade surplus grew substantially during 2021 and
reached US $89 billion. The important services exported from India included Accounting,
Auditing and Bookkeeping services; Architectural and related services; Consultancy Services;
Entertainment and Audio Visual Services; Environmental Services; Financial Services;
Hospital Services; Hotel and Tourism related Services; Information Technology (IT) and
Information Technology Enabled Services (ITES); Legal Services; Maritime Services;
Transport Services etc. About half of the total value of exports consists of software
services and about one-fourth consists of business services. Transport services hold a
share of over one-tenth. These three sectors constitute more than 80 per cent of the
total exports of services from India. The strengths of India in export of services
include its least susceptibility to global vagaries; a large skilled workforce; strong
regulatory framework; focus on digitization etc. India also suffers from a number of
weaknesses in improving its exports of services. India has taken several steps to
overcome the weaknesses. The major promotional measurs include the establishment of
services export promotion council. India realized the importance of the role of the
states in export promotion and developed a index to measures the competitiveness of
various states. Government identified 12 champion sectors for increasing the exports of
services. The WTO’s General Agreement on Trade in Services (GATS) was the basis for
expanded global trade in services. GATS defines services in terms of modes of supply. WTO
joined hands with the World Bank in making the information available on trade in services.

12.10 KEY WORDS

Service: “A service is an act of labour or a performance that does not produce

a tangible commodity and does not result in the customer’s ownership of anything.”
Demographic Dividend: Demographic dividend occurs when the proportion of working people
in the total population is high.
Start-up: A start-up is an enterprise that is working on the growth, commercialization, and the
creation of brand-new products, services, or mechanisms that are driven by intellectual property or
new tech.
31
Unicorn: A start up that reaches a valuation of $1 billion without being listed on the stock
market.
Service Export Promotion Council (SEPC): The Ministry of Commerce and Industry set
up the SEPC in 2006 to facilitate global business opportunities for India’s services sector.
The Council has been facilitating exports of services through trade intelligence, export
development, export promotion and enabling business environment.
Market Access Initiative (MAI) Scheme: MAI is an export promotion scheme envisaged to act
as a catalyst to promote India’s exports of goods and services on a sustained basis. The scheme is
formulated on focus product-focus country approach to evolve specific market and specific
product through market studies/survey.
Service Export from India Scheme (SEIS): Under the SEIS Scheme, the Central
Government gives incentives in the range of 3% to 7% to all Service providers who are
providing services from India to organisations outside India.

Software Technology Park (STP) Scheme: The STP Scheme is a 100% export-oriented
scheme for the development and export of computer software, including export of professional
services using communication links or physical media.
Digital India Internship Scheme: The objective of the Digital India Internship Scheme is to
provide hands on experience to the engineering students and job ready skilled employees to the
IT industry.
12 champion sectors to boost services exports: They include IT and ITES, Tourism &
Hospitality Services, Medical Value Travel, Transport & Logistics Services, Accounting and
Finance Services, Audio Visual Services, Legal Services, Communication Services, Construction
and Related Engineering Services, Environmental Services, Financial Services and Education
Services. Government has approved the ‘Action Plan for these 12 Champion Sectors in Services’
to give focused attention to these champion Services Sectors..
Trade Settlement in Rupees: In order to promote the growth of global trade with emphasis on
exports from India and to support the increasing interest of the global trading community in INR
the RBI has put in place an additional arrangement for invoicing, payment, and settlement of
exports/imports in INR.

32
Export Preparedness Index (EPI): The idea behind the Export Preparedness Index (EPI) is to
create a benchmark to rank these states and Union Territories (UTs) to help them individually
promote a conducive export environment in the region.
GATS: The WTO’s General Agreement on Trade in Services (GATS) was the basis for
expanded global trade in services. The creation of the GATS was one of the landmark
achievements of the Uruguay Round of trade negotiations.
Modes of Supply: The GATS defines trade in services in terms of modes of supply. Mode 1 covers
services supplied from one country to another (for example, call centre services). Mode 2 covers
consumers or firms making use of a service in another country (for example, through international
tourism). Mode 3 covers a foreign company setting up subsidiaries or branches to provide services in
another country (such as a bank setting up a branch overseas). Mode 4 covers individuals travelling
from their own country to supply services in another (for example, a consultant travelling abroad to
provide an IT service).

12.11 ANSWERS TO CHECK YOUR PROGRESS

A. 3) A-C; B-d;C-b; D-a.

4) 1. False; 2. False; 3.True; 4. True; 5. True

B. 3) 1.False; 2. True; 3. True; 4. True; 5. True

12.12 TERMINAL QUESTIONS

1. Define a service and explain the various modes of services and features of services.
2. Explain the trends in India’s export of services.
3. Describe the strengths and weaknesses of India in export of services.
4. Describe the export promotion measures with regard to services.
5. Explain the future prospects of export of services from India and state the strategic
responses to overcome the weaknesses of the country in export of services.
6. Describe the role of WTO in export of services.

****

33
34