Home / Politics / Policy /  Trade ministry mulls sops for hotels, tourism

India’s foreign trade policy is set to offer a slew of incentives for hotels, tourism, transport, education, and healthcare industries, sectors that were the worst hit by the pandemic.

While the government is considering fiscal and non-fiscal incentives for the affected sectors, the department of commerce has ruled out incentives for segments such as consulting and information technology, a government official said.

“We are mulling a package for the services sector. But we are yet to finalize it, and discussions are still on. We want to support sectors that really require it, like tourism, hospitality, education, etc., and not those unaffected by the pandemic," the official said, requesting anonymity.

The government is leaning on services exports amid the faltering performance of merchandise exports, which declined 1% in August from a year earlier amid a slowdown in Western economies.

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According to estimates by the Services Export Promotion Council (SEPC), shared with the government, travel and transportation services, one of the worst hit during the pandemic, are set to make a strong recovery in the current fiscal.

Travel and transportation services are estimated to account for 21% of total services exports in FY23, as against 15% during the first half of last fiscal and 14.7% in FY21, when the pandemic struck.

In the pre-pandemic year of FY20, the two services accounted for nearly 23% of total services exports of $213 billion, before tourism and transportation services came to a near halt due to the pandemic.

The department of commerce has set a $350 billion services export target for the current fiscal, a 37% growth over FY22.

“We would like the services sector to aim for robust growth in exports this year as the lockdown restrictions owing to the pandemic are now lifted," the official said.

The trade policy was initially scheduled on 1 April 2020 but was postponed by a year to 31 March 2021 due to the pandemic, an additional six months till 30 September and then further to 1 April. The government is finally expected to come up with the policy on 30 September.

The trade policy is a set of guidelines and instructions prepared by the Directorate General of Foreign Trade (DGFT) for importing and exporting goods.

Arpita Mukherjee, a professor at ICRIER, said the government could give fiscal incentives to this sector.

“There is a need to diversify services exports beyond IT/ITES and business services to reach the $350 billion target. With the US technology market not doing too well, there is an urgent need to diversify services export basket and markets," Mukherjee said.

She added that incentives to sectors such as logistics could help reduce costs and boost manufacturing competitiveness. “We need a short-term and long-term services export strategy or vision plan." 

Queries emailed to the department of commerce spokesperson on Tuesday remained unanswered till press time. 

The industry is pressing for the reintroduction of the Services Exports from India Scheme (SEIS), which was discontinued in FY21 after the World Trade Organization ruled against subsidy schemes.

The scheme provided freely transferable duty credit scrips to exporters at 5% or 7% of the net foreign exchange earned. The scrips, aimed at offsetting infrastructural inefficiencies and associated costs faced by exporters, could be used to pay the basic customs duty levied on the import of input goods and excise and several other central taxes.

India’s services exports in FY22 touched an all-time high despite the pandemic, severely affecting the travel, tourism, aviation, and hospitality sectors.

Last week, commerce minister Piyush Goyal organized a brainstorming session on services exports to discuss challenges, opportunities and ways to boost services exports.

Businesses pressed for incentive schemes for specific sectors to boost exports. Other sessions included leveraging the ongoing free trade agreement negotiations to seek better market access, branding services, setting standards, and addressing regulatory bottlenecks.

India’s national accounts data released last week showed the economy grew at a four-quarter high of 13.5% in the quarter to June, primarily led by a rebound in the services sector.

The segment trade, hotels, transport, communication and services related to broadcasting posted a 34.3% growth in the quarter on the back of a revival in contact-intensive services after the withdrawal of lockdowns. Services sector businesses have been urging the government to facilitate faster recovery to meet the exports target set for this fiscal.

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ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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