Awaaz Desh Ki: Global Service Export | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Global Service Export

Context:

• India's service sector has achieved significant milestones, highlighted by a recent World Trade Organisation (WTO) report indicating a doubling of India's share in global service exports, with a notable 11.4% surge in service exports in 2023.

Key Highlights

• Forecasted Growth: Goldman Sachs projects India's services exports to reach $800 billion by 2030, a substantial increase from $340 billion in the previous year. This growth is expected to enhance the external sector resilience against supply-side shocks and reduce rupee volatility.
• Export Destinations: India predominantly exports services to North America and Europe, while witnessing growing markets in Asia, Africa, and Latin America.
• Current Account Deficit: Estimates suggest the current account deficit to average around 1.1% of GDP from 2024 to 2030, with projections for 2024 remaining at 1.3% of GDP. Geopolitical tensions in West Asia and reduced agricultural exports to Iran pose challenges despite potential gains from services exports.
• Contribution to Global Services Exports: India's share in global services exports has more than doubled over the past 18 years, surpassing the growth rate of goods exports and outperforming China's decline in service exports.
• Role of Global Capability Centers (GCCs): The emergence of Global Capability Centers has significantly contributed to India's services export growth, enhancing the country's competitiveness in the global services market.

Growth Trends in Service Segments

• Professional Consulting: Professional consulting has emerged as the fastest-growing segment in India's services exports.
• Travel Services: In contrast, travel services have shown slower growth among service segments.
• Financial Services: There is significant potential for growth in financial services, particularly with initiatives like GIFT City in Gujarat, India.

Service Sector Overview

• About: The service sector comprises industries offering intangible services such as finance, banking, insurance, real estate, telecommunications, healthcare, education, tourism, hospitality, IT, and BPO services.
• Contribution to GDP and GVA: India stands as the world's fifth-largest services exporter, with the sector contributing 54% to the Gross Value Added (GVA) in FY21. The services sector has also been a significant recipient of foreign direct investment, constituting 53% of total inflows from 2000 to 2021.

Significance of the Service Sector for India

• Balancing Trade Deficit: The surplus in services trade has historically helped offset India's merchandise export deficit, promoting greater economic stability.
• Potential for Growth: With governmental focus and strategic interventions, there is immense potential for further growth in services trade surplus, indicating positive economic prospects.
• Transition to Knowledge-Based Economy: The service sector is pivotal in India's shift from an 'assembly economy' to a 'knowledge-based economy,' emphasizing IT, finance, and education services.

Challenges and Opportunities

Opportunities

• Tourism Sector: Tourism significantly drives economic growth through GDP contributions, foreign exchange earnings, and job creation.
• Ports, Shipping, and Waterways Services: India's ports handle a substantial portion of export-import cargo, with consistent traffic growth.
• Space: India's space programme has expanded, incorporating applications in launch vehicles, earth observation satellites, and more.
• Logistics & Transportation: India's natural coastline and river network offer a competitive edge in transportation services.
• IT-BPM/Fintech: The Indian IT-BPM industry, a major export contributor, has witnessed substantial growth.

Government Initiatives

• Service Exports from India Scheme: Incentives provided to service exporters aim to promote service exports from India.
• Skill India Initiative: Seeks to train over 40 crore youth by 2022 for employment in various sectors, including services.
• Purchasing Managers Index (PMI): A business activity indicator aiding in sectoral health assessment and decision-making.
• Free-Trade Agreements (FTAs): Pursuing FTAs with key economies to facilitate market access for Indian service providers.

Challenges

• Global Competition: Intense global competition affects sectors like IT and BPO, necessitating continuous innovation and cost-effectiveness.
• Skills Mismatch: Despite Skill India initiatives, there exists a gap between demanded skills and available talent in sectors like IT.
• Infrastructure Deficit and Digital Divide: Infrastructure gaps hinder sectoral growth, while urban-rural digital disparities persist.
• Regulatory Complexities: Complex regulations pose challenges in the legal industry, limiting global competitiveness.

• Investment Imperative: Prioritize service industry development through sustained, large-scale investments with significant multiplier effects.
• Reforming Domestic Regulations: Crucial reforms to facilitate domestic production and service exports while negotiating market access restrictions.
• Enhancing Employment Opportunities: Focus on quality employment in the services sector for both skilled and unskilled workers.