The prediction came in the backdrop of the Russia-Ukraine war — which has fuelled geopolitical tensions — inflationary pressures, and a spike in Covid-19 cases in China.(Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know)
What does this indicate for India’s exports, which showed a modest month-on-month growth in FY22 compared with FY21, where India surpassed targets and closed the year at an overwhelming $418 billion?
Experts say the budget should look at policy measures specifically tailored to suit exporter requirements.
Vikas Vasal, National Managing Partner, Grant Thornton Bharat, says short-term export incentives should find a mention in the budget, including a core focus on services. “While we continue to push merchandise exports, let’s look at services as well. There is fintech, data analytics and an entire gamut of services that are coming up, including the banking services, LPO (legal process outsourcing), insurance and think-tank services that can be brought to India easily and will add to the dollar billings,” he says.
While the Merchandise Exports from India Scheme (MEIS) was replaced by the Remission of Duties and Taxes on Exported Products (RoDTEP), the Service Exports from India Scheme (SEIS) did not see any other scheme come up in its place, he points out. “Services were left on their own. If we study trade for the last 50 years or so, the services trade has increased by a higher percentage globally compared with merchandise exports. The budget must look at incentives or policy-making for the services sector to give it a thrust.”
India’s services exports set a record of $254.4 billion in 2021-2022, beating the previous high of $213.2 billion in 2019-20. Telecommunications, computer and information services, other business services and transport were the top contributors in exports here during April-December 2021, according to the Press Information Bureau.What is noteworthy is that for this fiscal till November 2022, the services exports have grown to $204.41 billion compared to $158.67 billion last year. Services exports this year is set to better last year’s numbers and set a new record. Unlike merchandise trade, in services, the country has recorded a trade surplus in this fiscal so far at $87.32 billion as compared to a surplus of $68.16 billion in the year-ago period.
The sector contributes over 50% to the GDP, according to the Economic Survey 2021-22. The Survey says India had a dominant presence in global services exports. It was among the top ten globally in 2020, with its share in world commercial services exports increasing to 4.1% in 2020 from 3.4% in 2019.
Experts say manufacturing can create more blue-collar jobs than services, which mostly create white-collar jobs. Nevertheless, the services sector has and still can grow exponentially in India because the country has a big English-speaking talent pool available at competitive rates. By further incentivising the setting up of such companies in rural areas, the government can ensure a more even growth distribution across the country.
Besides, the services sector is also largely free from geopolitical and Covid-like disruptions because employees can work from remote locations also, unlike manufacturing. “The impact of Covid-19 induced global lockdown on India’s services exports was less severe as compared to merchandise exports,” says the Economic Survey 2021-22. It adds that despite the Covid-19 impact, a double-digit growth in gross exports of services, aided by exports of software, business and transportation services, resulted in an increase of 22.8% in net exports of services in H1 2021-22.
Growth through FTAs
Experts also root for single-window clearance for exporters. Sanjay Kumar, Partner, Deloitte India, says creating such a mechanism can be a part of trade facilitation 2.0. He also stresses on the significance of a digitised environment for the sector. “The government could think of such an environment by which it starts facilitating trade and brings in a lot more certainty for their ilk. It will create a better regulatory mechanism so that an exporter has a lot more certainty on movement of his goods from point to point,” he says.
While measures such as foreign trade agreements (FTAs) and Production Linked Incentive (PLI) schemes are steps in the right direction, Kumar says that more avenues should be explored to bring in investment. “Making investment easier in the country should be looked at. India’s integration into the supply chain can’t happen overnight. For instance, even if it is assembly operations by a brand, it will lead to more employment opportunities here, which will be a win-win. We need to have our policies for investments in place and must continue pursuing these,” he says.
Affirming the views, Vansal says that we must ensure that compliance burden and administrative interference are reduced to a bare minimum. FTAs can help a lot in making exports surpass many challenges. “FTAs can be a game changer. There is a great opportunity after Covid. And we should also encash the current geopolitical situation. Right now, schemes are there for individual exporters, whereas free trade agreements have the potential to offer a fillip at a country level,” he says.
The India-Australia trade agreement, which came into force from December 29 last year, is expected to give a boost to labour-intensive sectors and create an additional 10 lakh jobs in India.
Drawing a parallel with Vietnam, Vansal says that a large part of exports happens through FTAs. “Vietnam is a successful export story today. We have to sign FTAs with the UK and EU as well because they are major blocs which export a lot of high-value goods,” he says.
For the year ahead, industry experts envision the export trajectory to be in tandem with last year. “It should be the same as in 2022 unless all of Europe goes into a big recession and the US goes into a mild recession. There would possibly be an increased trend of better exports on the services side. Figures are expected to stay intact, even if they don’t grow as much,” adds Vansal.
It is important that India ensures its exports, which currently account for 2% of global exports, do not come down, says Kumar of Deloitte India. “India is maintaining its tempo on export growth and general economic growth. We are, at the moment, good enough,” he adds.
