Budget 2023 | Services export promotion body seeks tax relief, revival of incentives 

Abhay Sinha, Director General, Services Export Promotion Council

India’s services sector is leading the domestic economic recovery and exports are booming, but the revival faces headwinds from a slowing global economy.

To ensure that services continue to grow, the government should consider providing tax relief in the budget for 2023-24 as well as revive incentives for the sectors worst hit by the pandemic, Abhay Sinha, Director General of the Services Export Promotion Council (SEPC), told Moneycontrol.

Sinha, who has over 24 years of experience in various organizations under ministry of commerce and industry, the Pharmaceuticals Export Promotion Council, Confederation of Indian Industry (CIII) and the National Centre for Trade Information, is sanguine about prospects for services exports which have been helping reduce India’s trade deficit.

Edited excerpts: 

What measures are required to help the services sector of the economy?
One of the major concerns of the industry is in the long-term; people are looking at support in the services sector. More so the sectors which suffered hugely during the COVID time. Then there was no incentive announced.

The services sector is definitely looking at some kind of tax relief. We have proposed to the ministry.

Export only happens when there is a competency to be able to reach out to new markets. There is a journey till the firms reach the point when they are able to export their services.

Which sector needs the most help?
The tourism sector, which is one of the largest sectors from the point of view of services. Any destination, we cannot segregate between domestic and international tourism. It is a highly unorganized sector and employs a lot many people in various segments. And then there are services which are offered around tourism.

The first issue is the taxation. There have been a lot of concerns on that, we have proposed some relaxations. The GST (Goods and Services Tax) on the industry is actually on the higher side when we compare with the neighbouring countries.

Also read: Budget 2023 | Industry expectations and state of the economy

Many foreign tour operators, they come to India, but the kind of tax incurred is affecting the market, and we are losing to countries like Nepal and Sri Lanka where the taxes are 6 to 8 percent.

There is cascading of taxes under GST. All those we have highlighted to be considered during the budget.

What are your other demands?
The budget allocation is important. For example, for manufacturing or for sectors in manufacturing, the government allocates certain budget in a financial year as a kind of incentive.

The (services) industry has been talking about such incentives, duty-based or to handhold sectors like travel and tourism, hospitals, education, entertainment, transport and logistics.

So there is an expectation that if the government can allocate something so that in upcoming foreign trade policy the sectors can get benefits like SEIS (Service Exports from India Scheme, which has been scrapped).

So the budget allocation will be the one key ask from the ministry.

You want the incentive scheme to be brought back? 

The services sector does not have any kind of incentive as part of the foreign trade policy.

Earlier, the benefit under SEIS was 5 percent to 7 percent; the government may like to reduce it. But such incentives mobilise and motivate the industry to move ahead.

Also read: Budget 2023: Reforms are required if we’re to become a global manufacturing hub

Exports will always happen but the industry, say travel and tourism, used the SEIS incentives to offset their marketing costs. Now when they are there on the revival path after COVID, such things will help them. Right now also, tourism is happening but we are still not able to drive a large number of tourists to India just because we are not able to market it.

Of course, the government is doing a number of activities but at the firm level, they need such kind of handholding.

So maybe we need to have a relook at it and redefine the SEIS kind of benefit for the industry. And that will be true for education, healthcare and some of the emerging areas also besides travel and tourism.

What is your outlook in terms of services exports?
Last fiscal year’s services exports were $254 billion and the way it is going, we will be able to cross the $300 billion mark in this financial year. And it can be more if incentives are announced.

The problem is that imports have also gone up and that we need to analyze. And this sector is a kind of data-blind sector. We do not have data as we have for the manufacturing sector. Very difficult to say right now with the available information, what are the areas exactly where we are seeing the spurt in imports?

Overall exports are doing very good but at the same time we need to understand that they can grow enormously provided certain benefits are given to the industry.

Government may not be keen on handholding through the cash incentives, but indirect incentives like competence development and SEIS could be further rationalized. To incentivize newer exporters support is needed.

The government seems disinclined to provide support…Certain sectors suffered a lot during COVID, those incentives were a cushion for them. We totally understand that the industry has to stand on its own. But if we analyze every industry, even if it is doing good, they will stand on their own but provided the government support in capacity building, competence building through whatever form of incentives, that makes them globally competitive.

We see in manufacturing certain sectors are doing very good, still they are being incentivized.