India’s services exports are on track to overtake merchandise exports within the next 18–24 months, provided current growth trends hold and policy bottlenecks, especially tax distortions, are addressed in the upcoming Union Budget, according to the Services Export Promotion Council (SEPC).
In an interaction with NDTV Profit, SEPC Director General Abhay Sinha said services exports are growing at 12–13% annually, far outpacing merchandise exports, which have struggled amid global headwinds such as tariff uncertainties and geopolitical developments in Iran, Russia-Ukraine and elsewhere.
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At present, services exports stand at roughly $387–390 billion, while merchandise exports hover around $430–450 billion, leaving a narrowing gap.
“Services have already been offsetting a large part of India’s merchandise trade deficit. At the current pace, services are very likely to surpass goods exports in absolute terms in the next one-and-a-half to two years,” Sinha said.
Unlike goods trade, services exports are spread across four modes of delivery, which are cross-border digital supply, consumption by foreign visitors in India, overseas commercial presence, and temporary movement of professionals, making them harder to measure but structurally more resilient.
SEPC argues this complexity has led to systematic under-prioritisation of services in export policy despite the sector contributing nearly 55% of India’s gross value added.
Budget Ask: Neutralise Embedded Taxes On Services Exports
Ahead of Budget 2026–27, SEPC is seeking a services-specific duty remission framework called DRESS (Duty Remission on Export of Services) to neutralise domestic taxes that remain embedded in export pricing. This is modeled on the RoDTEP (Remission of Duties and Taxes on Exported Products, which is meant for goods.
According to SEPC’s submission, export-facing services currently carry a 4–9% tax wedge due to blocked GST input credits, fuel and electricity being outside GST, municipal levies, port charges, and basic customs duty on specialised equipment. This makes Indian services structurally less competitive in global markets despite strong demand.
SEPC has urged the government to begin DRESS with five high-employment, high-tax sectors:
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Tourism and hospitality
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Construction and engineering services
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Transport, logistics and maritime services
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Audio-visual, media and entertainment (including AVGC)
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Education and EdTech-as-a-service
The estimated fiscal implication for these five sectors is Rs 45,000–50,000 crore in the first year, which SEPC argues is not a subsidy but a refund of taxes already paid upstream.
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