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India’s services exports exceeded merchandise exports for the first time in November, driven primarily by software services and the increasing importance of Global Capability Centres. Services exports have managed to grow despite no specific incentives, highlighting India’s strategic importance in the global tech services value chain
Forget the notion that exports mean goods loaded onto ships. For the first time in Nov, services exports were provisionally estimated by the commerce ministry at $35.7 billion, higher than merchandise exports of $32.1 billion. Software services were the biggest contributors, with 47% of the total. But the contribution of Global Capability Centres (GCCs) — the in-house centres of multinationals — has been steadily rising in importance. This is transforming India’s economic structure.
The govt is desperately trying to step up manufacturing. New manufacturing companies pay a corporate tax of only 15% against 22% for others. A Production Linked Incentive (PLI) scheme for 14 manufacturing sectors offers tariff protection, cash subsidies linked to production and other forms of encouragement. This was aimed at inducing a massive entry of global companies wanting to diversify out of China after the new US-China Cold War. That has not happened. Apple is the sole important PLI entrant. Niti Aayog CEO BVR Subrahmanyam says we cannot get into global value chains without Chinese investment which, so far, has been stringently curbed.
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