The government is planning tax incentives in the Union Budget and the foreign trade policy (FTP) for niche service sectors to boost output and exports, commerce and industry minister Nirmala Sitharaman said on Tuesday. Besides, the government is planning to liberalise legal, education and healthcare services to attract foreign investment.
The focus service sectors of the Narendra Modi government are IT, ITeS, telecom, healthcare, education, logistics, media, entertainment, professional services, tourism, space, research and development as well as capacity-building for SMEs.
The proposed tax breaks may include those meant to encourage greater investment in these sectors in rural areas for better digital connectivity, job creation and affordable as well as quality healthcare and education. The government has been increasingly moving towards tax incentives which are linked to investment rather than outright tax exemption on profits from certain sectors for specified years.
In the FTP, there could be incentives including greater coverage of Served From India Scheme. It gives a duty credit scrip equivalent to 10% of free foreign exchange earned in the current financial year by an eligible service provider (companies with free foreign exchange earning of at least Rs 10 lakh in a financial year as well as individuals with Rs 5 lakh).
The budget speech of finance minister Arun Jaitley is slated for February 28 and the FTP to be announced by Sitharaman will most probably be in March.
On opening up legal, education and healthcare services, the government has already held inter-ministerial as well as committee of secretary-level meetings. The Cabinet will soon take a call on the matter, commerce secretary Rajeev Kher said.
Meanwhile, the commerce ministry in partnership with industry body CII is organising a global exhibition on services on 23-25 April in the Capital. The aim is to enhance strategic cooperation and develop synergies between players of the services sector in India with their global counterparts. More than 40 countries are expected to participate in the fair which shall see over 4,000 structured buyer-seller meetings. The idea is also to integrate the ‘Make In India’ programme with the services sector as there are many services inherent in the process of manufacturing. “Unless you are competent in services, you can’t be competent in manufacturing,” Kher said. ‘Make In India’ aims to take the share of manufacturing in GDP from the current 16-17% to 25% by 2022 and create an additional 100 million jobs.
Incidentally, services contribute close to 60% of GDP, but India accounts for just 3.4% of the global trade in services. As against this, services contribute only 42% in China’s GDP, but the country accounts for 4.6% of the global trade in services.
Rise in service exports is also helping narrow the CAD. Owing to high oil and gold imports, the CAD had hit $87.8 billion in 2012-13. But since then, gold imports fell. This resulted in the trade deficit dipping to $147.6 billion in 2013-14 from $195.7 billion the previous year. “However, in terms of net trade of services, India reported a surplus of $73 billion (in FY14), up from $64.9 billion in FY13. This helped the CAD fall by more than half to $32.4 billion,” Kotak Securities said in a note.