No new incentive plan for services exports under foreign trade policy

There may not be an incentive scheme for services exports under foreign trade policy (FTP) to be unveiled later this week. The government holds the view that all services sectors are ‘self-sufficient’ and can make healthy foreign exchange (forex) earnings without the need for incentives, Services Export Promotion Council Chairman Sunil H Talati told Business Standard.

“If the government is handing out production-linked incentive schemes to other production sectors, why should the services sector be sidelined? As far as the production of goods is concerned, it’s a competitive market the world over. Many countries are competing with India. Therefore, they need incentives. (India’s) services exports have an edge over the rest,” said Talati, adding that the government is of the strong opinion that no incentive should be given to services exports. 

Even though there might not be any fiscal incentive, Talati said the government has been taking steps to increase business-to-business meetings to boost exports. 

Talati’s comments come against the backdrop of global uncertainty due to geopolitical tensions, high inflation, and recessionary trends in developed countries impairing merchandise exports. Merchandise exports shrank for the third time in five months, contracting 8.8 per cent at $33.88 billion in February.

Services exports, however, grew over 36 per cent in February at $29.15 billion, according to the Department of Commerce’s estimates.

“The demand for services has continuously increased. Nobody has been able to compete with India as far as information technology services are concerned. Other sectors, such as accounting and auditing, medical tourism, and hospitality and tourism, have gradually opened up, increasing our exports to a noticeable extent,” he said.

Services exports could see 28-38 per cent growth by the end of the current fiscal year 2022-23) between $325 and $350 billion. During April-February, services exports grew 30.4 per cent to $296.94 billion.

Last year, the Department of Commerce was working towards a revamp of the Services Exports from India Scheme (SEIS) to principally support pandemic-hit sectors, namely tourism, hospitality, education, and health care.

There has been no incentive scheme for services exports over the past two fiscal years — 2020-21 and 2021-22.

SEIS was rolled out in 2015 as part of the existing FTP. The scheme wasn’t notified after 2019-20. Under it, the government gave a 3-7 per cent incentive on net forex earned in the form of duty credit scrips used for payment of basic and additional Customs duties on goods imported.

Financial constraints towards any such incentive scheme could also have been a factor in why the government was not keen on unfurling a new scheme.

‘SELF-SUFFICIENT’

• Foreign trade policy to be announced by March 31
• Centre feels all services sectors are ‘self-sufficient’ and able to make healthy foreign exchange earnings even without the need for incentives
• Services exports expected to reach $325-350 billion in 2022-23 versus $254 billion in 2021-22