The Government plans to set up an Inter-Ministerial Group (IMG) on Services to suggest measures to increase exports from the sector.

The move comes in the face of a burgeoning deficit on the trade (merchandise goods) account, which the Government till now has been relying on partially bridging through a surplus in ‘invisibles' earnings from remittances, software and other services exports.

But with the trade deficit mounting on the back of rising oil prices, the Government is keen to boost the country's inherent advantages in services exports to further increase the invisibles accounts surpluses.

This is even as services exports encountering problems, with the recessionary trends in Europe and the slow recovery in the US denting earnings from IT/ITeS exports.

The proposed IMG will address the skill shortage faced by the services sector; tackle implicit and explicit barriers faced by services exporters in markets abroad; and ensure better sector-wise services data collection.

The IMG, to be headed by the Commerce Department, will go in for a coordinated effort by having representation from other Ministries such as Finance, IT and Communication which play a crucial role in the services sector.

Most Ministries have broadly supported the proposal to set up an IMG. Though some Ministries expressed reservations about setting up of an IMG saying it could intrude into allocation of their businesses, the Commerce Department has assured that the IMG is only for a coordinated approach.

DIVERSIFYING SERVICES EXPORTS

The IMG's terms of reference include suggesting measures to diversify the Indian services export market and thereby avoid being over-dependent on IT/ITeS exports.

At the same time, it will also look at ways to give further impetus to software exports owing to competition from countries such as China, Vietnam, the Philippines, and even from Poland and the Czech Republic.

RISING CAD

It will also recommend measures to help software exports in moving up the value chain. There will also be a strategy for business services (such as R&D, consultancy and professional services, involving highly skilled labour) with a focus on skill generation.

A high trade deficit coupled with declining services export surplus could worsen the Current Account Deficit (CAD).

The Government's focus on services exports assumes significance in the backdrop of the Prime Minister's Economic Advisory Council's recent estimation that the CAD may touch 3.6 per cent of the GDP this fiscal, worse than the CAD at 3 per cent of the GDP even in the crisis hit year of 1991.

The trade deficit this fiscal is set to touch a record $165-170 billion.

The services exports surplus has also witnessed a decline (from $53.9 billion in 2008-09 to $35.73 billion in 2009-10). This is mainly due to a decline business services exports. The Commerce Department feels that the only way to tackle the rising CAD is to focus on expanding services exports.

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