Services Imperative

The benefits of services reform can result in a 20–50 per cent increase in trade values, depending on the sector

- SUMANTA CHAUDHURI

Services have been a key driver of economic growth since the 1990s, generating half of global employment and two-thirds of global GDP, surpassing agriculture and industry combined. Services Trade has grown from USD 11 trillion in 2018 to USD 15 trillion in 2023. World services exports surpassed USD 7.8 trillion in 2023, with an 8 per cent annual rise in current dollar values. In India too, services exports have surged from USD 204 billion in 2018 to USD 344 billion in 2023, while our imports have grown more slowly from USD 175 bn to USD 245 bn, resulting in a trade surplus. India's share in global services exports rose from under 2 per cent in 2005 to 4.6 per cent in 2023, while India's share of goods exports has only increased from 1 per cent in 2005 to 1.8 per cent in 2023. With the ever-expanding growth of the digital economy globally further exacerbated by technologies like AI, the monthly services trade has exceeded merchandise trade on November 24 and January 25. Recently announced figures for FY24-25 point to a significant yearly increase in services exports while merchandise stays flat. The government targets for 2030 to equalize the two at USD 1 trillion each, which would require a continuously faster CAGR for services exports. The dominant mode of supply in services currently is cross-border or Mode 1 supply, where India has comparative strengths. Two-thirds of global FDI inflows come from the Services sector, including in India.

However, all this potential could remain grossly unutilized unless there is a clear recognition of this importance that requires a major mindset change in emphasis both globally and in India. Especially, in the current environment where the US, led by Trump, has put merchandise tariffs on top of the trade agenda, almost exclusively so, we must all recognize and act to put Services at the mainstream of trade and investment discourse.