For me, as a former DG of the Services Export Promotion Council, the issues are two-fold:
a. Our services exports continue to be heavily software services based. Since they keep growing, the general feeling is that we don't need to worry much about Services. RBI data shows that of the total receipts on account of services, 50% are from software alone. The RBI releases some data, but nothing is available market-wise.
b. In the bargain, other sectors such a legal, IP related, environmental services, AVGC, get ignored. We have to get out of the software complacency, and look closely and positively at our Services exports. Incentives such as SEIS should be restored on carefully assessed sectors while ensuring that there is no misuse. A services based PLI perhaps?
On another note, people like Richard Baldwin, faculty where I am currently studying, are extremely upbeat about India's services sector. He quotes India as a services export miracle, and that too without any FTA.
Thank you for your kind thoughts, rap on the knuckles and clarifying insights. Much appreciated and so glad about a conversation on the subject.
You are absolutely right about the skewed nature of India's service exports. However, the baby steps in diversification is visible--also because the distinction b/n manufacturing and services is blurring; often services is an embedded component.
Further, bulk of the FDI has accrued in services related sectors. Covid is proving to be a watershed moment--the rise of GCCs. In addition, growing formalisation of the Indian economy and hopefully accelerated re-skilling could open up more avenues. And, as Laxmi--her response precedes yours--flagged, there are options in education.
And yes, there is a paucity of data. RBI releases a survey every September, which lends some qualitative insights.
Congratulations for bringing out another excellent article. The conversation with Sajjid Chinoy was a much needed one which truly helped to put things in perspective especially when the waters had been badly muddied by erstwhile economists! Glad that you explored in detail this particular facet which had been highlighted by Sajjid Chinoy.
Regarding service exports, I wonder if anyone has done any proper study of a rapidly growing area - tuitions/individual academic coaching. With a large, young NRI population in Western countries, many of them are unhappy with the quality of academic coaching provided by the schools in these countries and are engaging online tutors for their children. The rapid growth in internet and cheap data is enabling tutors even in remote locations to coach children anywhere in the world. Agencies are mushrooming all over the place aggregating teachers and acting as service providers.
One question I would like to be answered is whether there is any substance in Raghuram Rajan's argument about looking more towards services than manufacturing for both growth and employment. From what I see around me, the service sector seems to be absorbing people with a higher level of skill set and education and that even now would form only the smaller sub set of the working population. Even if we cannot repeat a China and become the manufacturing capital of the world, with a 1.4 billion market of our own, can we not create enough manufacturing jobs to make a meaningful shift from farm labour?
Looking forward to further newsletters. Thank you for your wonderful work.
Thank you so much Laxmi for your detailed response and kind words. Much appreciated.
Actually service exports as a potent national asset is a relatively new idea. There are scholars who are working on the area--trying to track down someone to do a follow-up interview for StratNews Global. Your thought on academic coaching as a source is very interesting and sounds so logical. Will check it out.
Difficult for me to go up against a brilliant mind like Raghuram Rajan. Unfortunately his dabbling in politics and loaded remarks (sometimes without basis) is hurting this image--at least in my eyes.
Taking a stab at his claim I have a simple response: there can't be a simple either-or choice about any specific sector. Ignoring manufacturing investment will leave the economy vulnerable to supply side shocks; also, building this capability has phenomenal knock-on effects--like we are seeing with respect to defence etc. India is only just beginning to overcome its legacy deficits in basics like electricity, banking, roads, drinking water, health and so on. It will be Work in Progress for a long time to come--but thanks to the invisible hand of the digital economy this journey may be shorter.
Piyush Goyal also commented that our export of services has reached nearly $300 billion! India is the world's seventh largest service exporter of diversified services such as travel, transportation, insurance, tourism, software, buisness services, financial services etc.
It provides employment and also recieves FDI.
India s exports are doing well, inspite of infalationery pressures, war and reccesion in many countries.We have expanded our markets to non traditional areas like Africa, Latin America,Brazil, Netherlands etc.
But still a lot has to be achieved to improve the overall BOP situation.
Thank you for your thoughts. Glad it resonated with you.
Actually, service exports are holding up--unlike merchandise exports. The ongoing makeover of the Indian economy will presume add to the competitiveness of Indian exports--whether they be services or merchandise.
Good article as always Anil. A bit hyped up, but I can forgive you for that:) The share of Services exports in overall exports has improved by about 5%. From 37% in the previous year to 42% currently. https://commerce.gov.in/wp-content/uploads/2023/02/Press-Release-January-2023.pdf
For me, as a former DG of the Services Export Promotion Council, the issues are two-fold:
a. Our services exports continue to be heavily software services based. Since they keep growing, the general feeling is that we don't need to worry much about Services. RBI data shows that of the total receipts on account of services, 50% are from software alone. The RBI releases some data, but nothing is available market-wise.
b. In the bargain, other sectors such a legal, IP related, environmental services, AVGC, get ignored. We have to get out of the software complacency, and look closely and positively at our Services exports. Incentives such as SEIS should be restored on carefully assessed sectors while ensuring that there is no misuse. A services based PLI perhaps?
On another note, people like Richard Baldwin, faculty where I am currently studying, are extremely upbeat about India's services sector. He quotes India as a services export miracle, and that too without any FTA.
Dear Sangeeta,
Thank you for your kind thoughts, rap on the knuckles and clarifying insights. Much appreciated and so glad about a conversation on the subject.
You are absolutely right about the skewed nature of India's service exports. However, the baby steps in diversification is visible--also because the distinction b/n manufacturing and services is blurring; often services is an embedded component.
Further, bulk of the FDI has accrued in services related sectors. Covid is proving to be a watershed moment--the rise of GCCs. In addition, growing formalisation of the Indian economy and hopefully accelerated re-skilling could open up more avenues. And, as Laxmi--her response precedes yours--flagged, there are options in education.
And yes, there is a paucity of data. RBI releases a survey every September, which lends some qualitative insights.
It is like everything else about India--a WIP.
Looking forward to your continued interventions.
Best
Anil
Thanks much. You respond almost immediately. That encourages me to write on your pieces.
No rap please!!! Just another perspective.
Thank you Sangeeta.
Looking forward to your continued insights.
Best
Anil
Congratulations for bringing out another excellent article. The conversation with Sajjid Chinoy was a much needed one which truly helped to put things in perspective especially when the waters had been badly muddied by erstwhile economists! Glad that you explored in detail this particular facet which had been highlighted by Sajjid Chinoy.
Regarding service exports, I wonder if anyone has done any proper study of a rapidly growing area - tuitions/individual academic coaching. With a large, young NRI population in Western countries, many of them are unhappy with the quality of academic coaching provided by the schools in these countries and are engaging online tutors for their children. The rapid growth in internet and cheap data is enabling tutors even in remote locations to coach children anywhere in the world. Agencies are mushrooming all over the place aggregating teachers and acting as service providers.
One question I would like to be answered is whether there is any substance in Raghuram Rajan's argument about looking more towards services than manufacturing for both growth and employment. From what I see around me, the service sector seems to be absorbing people with a higher level of skill set and education and that even now would form only the smaller sub set of the working population. Even if we cannot repeat a China and become the manufacturing capital of the world, with a 1.4 billion market of our own, can we not create enough manufacturing jobs to make a meaningful shift from farm labour?
Looking forward to further newsletters. Thank you for your wonderful work.
Thank you so much Laxmi for your detailed response and kind words. Much appreciated.
Actually service exports as a potent national asset is a relatively new idea. There are scholars who are working on the area--trying to track down someone to do a follow-up interview for StratNews Global. Your thought on academic coaching as a source is very interesting and sounds so logical. Will check it out.
Difficult for me to go up against a brilliant mind like Raghuram Rajan. Unfortunately his dabbling in politics and loaded remarks (sometimes without basis) is hurting this image--at least in my eyes.
Taking a stab at his claim I have a simple response: there can't be a simple either-or choice about any specific sector. Ignoring manufacturing investment will leave the economy vulnerable to supply side shocks; also, building this capability has phenomenal knock-on effects--like we are seeing with respect to defence etc. India is only just beginning to overcome its legacy deficits in basics like electricity, banking, roads, drinking water, health and so on. It will be Work in Progress for a long time to come--but thanks to the invisible hand of the digital economy this journey may be shorter.
Look forward to your continued support.
Best
Anil
Truly appreciate the time and effort you have taken to give such a detailed answer 🙏
Dear Anil,
Very interesting article! Recently
Piyush Goyal also commented that our export of services has reached nearly $300 billion! India is the world's seventh largest service exporter of diversified services such as travel, transportation, insurance, tourism, software, buisness services, financial services etc.
It provides employment and also recieves FDI.
India s exports are doing well, inspite of infalationery pressures, war and reccesion in many countries.We have expanded our markets to non traditional areas like Africa, Latin America,Brazil, Netherlands etc.
But still a lot has to be achieved to improve the overall BOP situation.
Dear Vandana,
Thank you for your thoughts. Glad it resonated with you.
Actually, service exports are holding up--unlike merchandise exports. The ongoing makeover of the Indian economy will presume add to the competitiveness of Indian exports--whether they be services or merchandise.
Look forward to your continued participation.
Best
Anil