India Must Focus on Service Exports as “People don’t like to be sold: they love to buy quality services.” Global Trade Finance moves on two wheels: imports and exports. Imports are easy for redeeming the supply chains. But exports are a real challenge, especially if the exported item is a “service.” Exported diligently, it captures the heart, whereas the physical exports appeal to the mind. Services rendered consistently over time have a longer shelf life in the world market. The material goods face tough price quotes internationally. Many Asian tigers are reaching the West with quality goods through Amazon. India is tasting success in exporting services beyond Amazon, a less crowded area.
Indian exporters have chosen the right path. The focus on service export markets is paying rich dividends and The growing IT literacy across India is a boon and a foundation of such service exports. It is more valuable than a diamond mine or a nuclear arsenal, which has limited use. Indian exporters are reorienting strategies of service exports. The endeavour is paving for a long-term opportunity. The former RBI Governor Rajan rightly said India should focus on international branding and growth by exporting services rather than goods.
India can not take the path of exporting manufactured goods because of quality constraints. The factories are still struggling to harness international quality standards. The energy intensity is very high, and the power supply and consistency are erratic. Most goods India exports are semi-finished for B2B use for foreign manufacturers. It is very little we export for direct consumers except for jewellery. One can find products made in Bangladesh, Indonesia, and Vietnam than in India in most Europe and the US malls. We are struggling to reach the international consumer of physical goods directly.
On the other hand, the service exports market has accepted us. Major Indian companies supply quality software services to foreign establishments with repeat orders. Our IT segment has positioned it as one of the uncrowned princes of service exports. India has become a destination point for innovating software applications. Most Indian IT Czars like the TCS, Infosys, Wipro and HCL Technologies have enormous offshore footprints and staff rendering IT solutions and innovations worldwide. Nearly 50% of the total services exports comprise IT exports. Exports include services of foreign units affiliated with Indian companies. According to the RBI, Software services exports went up by 2.1 per cent to $148.3 billion in 2020-21.
Service exports presently contribute 40% of total exports but have grown faster than merchandise exports. India’s target for merchandise exports for FY22 was $400 billion, while that for service exports was $240 billion. The country accomplished both targets. But the services exports stole the march over goods exports. The commerce ministry report says that India’s services exports set a new record of USD 254.4 billion (about Rs 19 lakh crore) in 2021-2022. The new record in 2021-22 beats the previous high of USD 213.2 billion in 2019-20.
A rebound in inbound tourism and growing demand for India’s services in sectors such as medicine, law and gaming may help boost services export revenue to $1 trillion in 2027, three years ahead of estimates. The target for service exports in FY23 is $325 billion. The ambitious target requires increased trade agreements and government incentives for the service exports emanating from the country’s IT-educated youth.
India exports physical goods worth only USD 400 billion, less than 11% of the goods exported by China at USD 3500 billion. But in terms of Service exports, India is galloping fast. Dedicated efforts would take India to the $ 1.0 trillion mark, as the demand for automation services is growing fast in all businesses globally.
Two shoe salesmen arrive at a remote island to explore new markets. After landing, one salesperson calls the office and says, ‘I’m on the next flight. It isn’t easy to sell shoes here. I can’t sell even a single pair. Everyone walks barefoot.’ The other salesperson calls the boss minutes later: ‘Get ready! The prospects are unlimited. Nobody wears shoes here! Indian entrepreneurs have foreseen the exponential demand for service exports while the competitors are fortunately preoccupied with loading physical goods on export ships.
Service exports produce dual opportunities for Software Sales& Maintenance. The overseas IT outfits of Indian companies rely on backup from India-based call centres, providing additional employment avenues to budding IT technicians. India must capitalise on the opportunities in service exports.
Let India focus on service exports that would add value to the desired goals of a $5.0 trillion economy.
– Hargovind Sachdev
