Services boost: Govt plans FTAs, getting access to new regions

The foreign trade policy has laid down the road map to promote services through free trade pacts.

By: ENS Economic Bureau | New Delhi | Published: April 3, 2015 1:14 am

Betting big on the services sector, the government has identified sectors including health, education, tourism, entertainment and professional services and is working on reforming them through inter-ministerial consultations to make them globally competitive.

The foreign trade policy (FTP), which was unveiled by commerce minister Nirmala Sitharaman on Wednesday, has laid down the road map to promote services through free trade pacts and gaining market access in countries like China, which has a very high trade deficit with India.

The sector contributes around 58 per cent to the GDP and 28 per cent to employment. Its contribution to total trade is 25 per cent while the sector accounts for more than 50 per cent of FDI into the country. The government has targeted doubling of export to $900 billion by 2020, from $465.9 billion in 2013-14. The services exports stood over $151 billion in 2013-14.

Despite its strength in sectors like IT and ITeS, India has not been able to harness the true potential of these services owing to protectionist measures by trading partners, domestic regulatory loopholes, lack of information and finance to build a case for export assistance and factors like infrastructural constraints.

However, the government is working on amending the situation by negotiations and aggressive branding, the FTP said adding that the commerce ministry will promote a rating system for service providers and ensure compliance of services with the highest standards.

The policy has also made a case for companies to tap the opportunities thrown up by sectors including  e-commerce, cloud computing, mobile applications and data security requirements. Apart from traditional markets like the EU and US, the policy seeks to make inroads in the Chinese and African markets too.

“India’s IT services are unable to make a breakthrough in China’s highly controlled and, at times, opaque state-owned enterprises business,” the FTP said.

Ajay Sahai, director general, Fieo, said that the inter-ministerial mechanism on services is a welcome step. However, “Reduction of rates from 10 per cent to 5 per cent and from 5 per cent to 3 per cent will impact at least to those who were utilising duty scrips like the hotel industry. Also, earlier all modes of services were covered for benefits but now only mode 1 and mode 2 would be covered. Mode 3 and 4 have been left out,” he said.

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