“Travel and transportation to account for 21% of services exports in FY23”

Travel and transportation services, which are among the hardest hit by the pandemic, are set to rebound strongly this fiscal year, according to the Services Export Promotion Council (SEPC).

The two services combined are expected to account for 21% of India’s total services exports in the year to March, compared with around 15% in the first half of 2021-22 and 2020-21 when the pandemic hit, SEPC said. In 2019-20, before the pandemic, travel and transportation services accounted for almost 23% of the US$213 billion services exports.

SEPC has shared its estimates with the Department of Commerce. It has sought support for a faster sector recovery and helped meet the ambitious goal of services exports worth $350 billion in FY23, up 37% from $254 billion last year.

Travel services include inbound tourist flows for medical, educational and tourism purposes. Transportation services are mainly freight, including mail and courier by air and sea.

Exports of transportation services are expected to reach US$44.1 billion in the current fiscal year, or 12.6% of total services exports, up from the 9.84% share in FY20 before the pandemic. Travel exports are estimated at US$29.9 billion or 8.5% of total services exports. This would surpass the 4.12% share in 2020-21, but still fall short of the 14% share in 2019-20.

Telecommunications, computers and IT services are estimated to reach US$156 billion in 2022-23, accounting for the largest part at 44% of total services exports.

However, the sector has yet to return to pre-pandemic levels, said Abhay Sinha, director general of SEPC.

“In this context, the role of export incentives for the sector, either through the notification of SEIS (now suspended services export program from India) 2020-21 and 2021-22 or through alternative export incentive schemes, would play a crucial role in achieving the overall target in general and the sectoral ones Targets in particular,” Sinha said.

The service export sector continues to seek support and stimulus from the government in foreign trade policy, which is likely to be unveiled this year, Sinha said.

“The sector is pinning its hopes on post-pandemic recovery in a few key sectors including travel, hospitality and entertainment. Therefore, the importance of continuously incentivizing the service industry to achieve targets cannot be overstated,” he said.

The Asian Development Bank. said in its supplemental outlook released on Thursday that the services sector will do well in FY22 and beyond as the economy opens up and travel resumes. It has since lowered its forecast for India’s total gross domestic product (GDP) for this fiscal year to 7.2% from a previously estimated 7.5%.

The Ministry of Finance pointed out in its monthly economic report that credit support for the service sector picked up in the second week of June mainly due to a pick-up in credit growth for hotels and restaurants and shipping in the second week of June.

The services sector will lead the growth recovery in FY23, said Aditi Nayar, ICRA’s chief economist. “Middle- to high-income households are likely to prioritize spending on contact-intensive services that have been avoided during the pandemic at the expense of consumer durables,” Nayar said.

India’s services exports had hit an all-time high of $254 billion in FY22, although the travel and tourism, aviation and hospitality sectors have been hit hard by the pandemic.

Exporters will also focus on market research, consulting, engineering and construction services, which together will contribute to the target of $350 billion for FY23, Sinha said.

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