India’s Services Exports Opportunities and Capabilities

Introduction
India stood at the 20th position among the top exporters of business services in 2022 with a 2.1% share of global exports of these services. India’s digital asset opportunity is expected to reach US$ 1 trillion by 2032, taking a leap into Industry 4.0 by leveraging its strength to enhance its role in the global economy. The services sector now makes up 40% of total exports, contributing more than 50% to India's Gross Domestic Product (GDP) growth because of robust demand, rising investments, and growing exports. Furthermore, the Gross Value Added (GVA) share of the services sector is predicted to increase from 55.3% in 2019–20 to 63.8% in 2030–31.

Prime Minister Mr. Narendra Modi launched the 12 Champion Services Sectors in 2018 to boost the export competitiveness of services and allow the services sector to create employment opportunities. These 12 services are classified as Accounting and Finance Services, Legal Services, Construction, and related Engineering services, Environmental services, IT & ITES, Communication Services, Tourism and Hospitality Services, Education services, Medical Value Travel Services, Transport and Logistics Services, Financial Services, Audio-visual services, and other business services. Consequently, the US$ 227 billion IT Industry with a global outsourcing share of 59%, driven by approximately 5 million direct employments, is a testament to India's ground-breaking technology revolution. In FY22, India’s service exports exceeded the target of US$ 250 billion, with a 20% growth to reach US$ 254.4 billion. The big push in the services sector was largely seen, indicating the growth of private sector output climbed to a nearly 11-year high with the Purchasing Managers' Index (PMI) rising to 59.4 in December, which is the highest since January 2012.

Indian Services Sector
India has a dominant influence among the leading 10 services export countries in 2020, with its spurring share in the global commercial services exports from 3.4% in 2019 to 4.1% in 2020.  With vast inoculation drive and pickup in global demand, India’s service sector exports showed a resilient spike with more than 25% growth in the FY 2021-22. The value of exports for April-December 2022 is estimated at US$ 235.81 billion which is a 21.69% increase as compared to April- December 2021, US$ 184.65 billion. Moreover, services exports in the month of December 2022 are estimated at US$ 27.34 billion as compared to US$ 25.98 billion in December 2021, exhibiting a growth of 4.97%.

In 2021-22, the top software companies reported an average revenue growth rate of more than 21% from manufacturing, financial, banking and insurance, communication, retail, life sciences, and healthcare segments. During 2021-22, the estimated exports of India’s software services have increased by 17.2% to US$ 156.7 billion, of which computer services accounted for over two-thirds of the total software exports. The software services include IT services and IT-enabled services (ES) such as Software Product Development, Business Process Outsourcing (BPO) Services, and Engineering Services. 60% of total software service exports were from private limited enterprises, and roughly 84% of all IT-enabled service exports were BPO services. Furthermore, the United States and Canada were the primary destinations for software exports with a 55.5% share, followed by Europe (31%), Asia (6.5%), Australia & New Zealand (2.9%), and others in FY 2021-22. Exports spurred in every major destination showcasing a positive growth trajectory due to an increased fiscal injection, expanding the overall service sector market.

Source: Reserve Bank of India (RBI) 

Moreover, the pandemic adversely disrupted the tourism and hospitality business and slowed down the global supply chains. However, with the resumption of cross-border trade activities, the logistics revenue picked up with a resilient growth of 40.7% in 2021-22. Almost 41% of exports came from banking, financial services, and insurance (BFSI), which contributed US$ 61.4 billion. The gains from the hi-tech/telecom and manufacturing services were US$ 26.3 billion and US$ 24.3 billion, respectively, accounting for 17.65% and 16.28% shares in 2020-21. Business services exports surged by 17.1% in H1 2021–22, even exceeding the pre–pandemic levels, mostly due to an increase in revenues from professional and management consulting.

Furthermore, with the liberalization of the space sector, the Indian National Space Promotion, and Authorization Centre (IN-SPACe) has received more than 40 proposals from different stakeholders of the space economy. India is one of the top 5 space-faring countries in the world, contributing 2% (amounting to US$ 9.6 billion) to the global space economy. As of May 2021, India had a total of 368 space tech start-ups, ranking it 5th in the global arena. The investments in the Indian Space start-up are raised almost double from US$ 68 million in 2021 to US$ 108.5 million in 2022 so far. Moreover, a jump in the number of new space tech start-ups has been witnessed from 47 in 2021 to 104 in 2022. In the last 6 years, the number of start-ups in India has grown remarkably plunging from 14,000 new start-ups in 2021 to more than 61,400 start-ups as of 10th January 2022. Out of these, 44 start-ups reached unicorn status in 2021.

As witnessed in the graph below, even after the adverse effects of the COVID-19 pandemic on the global economy during 2020-21, the induced global lockdowns lead to a decline in the service sector exports by 3.3%. The buoyant government expenditure led to expedited growth, breaking the initial goal of US$ 250 billion during 2021-22. The exports of telecommunications, computer software, and hardware services stood at US$ 6.9 billion between the months of April to September 2022-23.

Source: Ministry of Commerce and Industry
Note: The values of 2022-23 are between April 2022 - December 2022

Investments Landscape
India’s share in global FDI has steadily increased with India securing 8th position according to the World Investment Report 2022. The service sector has attracted cumulative (Foreign Direct Investment) FDI of approximately US$ 334.54 billion from April 2000-September 2022.

Additionally, the government’s efforts to nurture international relations and improve the business environment by introducing policies to liberalize investment restrictions and eliminate regulatory barriers have spurred FDI from US$ 12.8 billion between April 2000 and March 2014 to US$ 72.7 billion between April 2014 and March 2022.

In the below table, the top service sectors are Financial, Banking, Insurance, Non-Financial/Business, Outsourcing, R&D, Courier, Tech, Testing and Analysis, and Others account for the largest share (29%), followed by computer software and hardware (27%), Telecommunications (12%), Trading (11%) and Hotel and Tourism (5%).

Source: Department for Promotion of Industry and Internal Trade (DPIIT)
Note: The values are between April 2000 – September 2022.

Government Initiatives

• Champion Services Sector Scheme (CSSS)

The Expenditure Finance Committee has approved a total amount of US$ 413 million (Rs.3,369.75 Crores), which would be monitored by a three-tier mechanism.

• Ministry of Electronics and Information Technology
  • Future Skills PRIME: On the FS PRIME Portal, over 193,000 candidates have registered. More than 29,000 individuals have signed up for foundation/deep skilling courses that are associated with National Occupational Standards and the National Skill Qualification Framework, and 4,000 of those candidates have already finished the course. 241 trainers and 1,182 government employees were trained by resource centres as part of the blended learning program.
  • Next Generation Incubation Scheme (NGIS): It aims to develop a thriving software product eco-system to support the expanding IT sector. The first start-up has been launched, and the beneficiaries are currently being chosen.

• Ministry of Tourism
  • Creation of Tented Accommodation in the Buddhist Circuit including Promotion & Marketing: Making short films about the Buddhist sites in Bodhgaya, Sarnath, Kapilvastu, Shravasti, Kushinagar, Vaishali, Rajgir, and Sanchi in order to promote them in both domestic and foreign markets.
  • Extending Incentives for Improving Air Connectivity: Under the RCS UDAN3 Scheme, the Ministry of Civil Aviation has awarded 46 tourism routes to selected airlines. 21 of these routes have already been put into operation.
  • Capacity Building Programmes in & around Iconic Sites: Over 7,000 people have signed up for the Incredible India Tourist Facilitator (IITF) Certification Programme, a pan-Indian online learning program and the first batch of IITF Certification basic course exams have already been held.

• Ministry of Education
  • Scholarships: 3,668 scholarships were awarded between 2019 to 2020.
  • Strengthening of Infrastructure: To identify the institutes for this sub-scheme, data collection from all the cooperating institutes has started.
  • Translation of promotional material text in multiple languages: The translation of existing brochures into numerous foreign languages is underway.

• Ministry of Ayush: Out of the US$ 1.8 million (Rs 15.00 crores) allotted for FY 2020-21, US$ 1.3 million (Rs. 10.59 crores) have been released since the sectoral scheme's launch in FY 2020-21. To promote AYUSH-based medical tourism and for talent development in the AYUSH industry, proposals for the building of AYUSH Super Specialty Hospitals/Day Care Centres are being accepted.

• Department of Telecommunication: In 2019–2021, it received a total of US$ 1.8 million (Rs 15 crores), of which they have already spent US$ 131,196 (Rs. 1.07 crore) as part of its sectoral program, "Brand building of India as Telecom Manufacturing and Services Destination". Grants for participation in events including the Global Exhibition on Services in Bangalore, BASIS Soft Expo, ConnectTechAsia 2020, AfricaCom 2020, Africa ICT Expo 2020, and the India Mobile Congress 2020 have been made available by the Department of Telecommunication.

• Service Exports from India Scheme (SEIS)

Under the Foreign Trade Policy 2015-20, the framework of the Service Exports from India Scheme (SEIS) scheme was implemented. The service exporters who are eligible for service categories can avail of the benefits in the form of transferable Duty Credit Scrips (DCS) as a portion of Net Foreign Exchange earned on the export, of the eligible services in a fiscal year. The basic customs duty and a few other levies can be paid using the Duty Credit Scrips. Exporters of selected services are eligible for incentives of 3%, 5%, or 7% of the net foreign exchange paid in the form of duty credit scrips.

The Market Access Initiative (MAI) Scheme is an export promotion program designed to serve as a catalyst for the continuous promotion of India's exports. Export Promotion Council (EPCs) and Trade Bodies have sanctioned US$ 3.65 million (Rs. 29.8 crores) for MAI assistance to conduct 244 virtual export promotion activities during FY2020–21. The broad goals of the scheme are as follows:

• Market Access Initiative (MAI) Scheme 2021
  • To showcase and market India's abilities as a supplier of top-notch goods and services
  • To position India as a desirable location for sourcing
  • To build a strong brand image for India
  • To make it easier for exporters and industry organizations to take part in significant international events in targeted markets to increase awareness of Indian goods and services
  • To make it easier for exporters to get data on international trade and gain exposure to new or possible markets, etc.

• Other Initiatives
  • The Central Government increased incentives by 2% under services exports from India
  • To ensure easy trade in the service sector, the Government of India is taking many initiatives like sanitary and phytosanitary & technical barriers
  • The revised FDI policy of automatic routes without prior government approvals to facilitate business activities

Road Ahead
The Service industry is the primary growth engine contributing to India’s economy in terms of both growth and size. It serves as an engine of growth to increase high-quality employment and attract investments, making a robust ecosystem. In the past 2 decades, India's IT services sector grew to be a US$ 100 billion powerhouse, bringing in more than 70% of its income from exports to developed markets while creating 3 million jobs. To explore new possibilities, the private sector, entrepreneurs, India's enduring values, and governmental institutions would be crucial to meet the goals for each sector. The Indian economy relies heavily on exports of services, which represent a higher portion of output than in most other major nations.