Services Sector

Services Sector

[pib] International Financial Services Centres Authority Bill, 2019PIB


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: IFSC Authority Bill

Mains level: Terms of reference of the IFSC Authority


  • The Union Cabinet has approved establishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through International Financial Services Centres Authority Bill, 2019.
  • The first IFSC in India has been set up at GIFT City, Gandhinagar, Gujarat.

What is an IFSC?

  1. An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities.
  2. They offer business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore.

Why regulate IFSCs?

  1. Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI.
  2. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination.
  3. It requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs.
  4. The development of financial services and products in IFSCs would require focussed and dedicated regulatory interventions.
  5. It provides world class regulatory environment to financial market participants.
  6. Further, this would also be essential from an ease of doing business perspective.


  1. The establishment of a unified financial regulator for IFSCs will result in providing world-class regulatory environment to market participants from an ease of doing business perspective.
  2. This will provide a stimulus for further development of IFSCs in India and enable bringing back of financial services and transactions that are currently carried out in offshore financial centres to India.
  3. This would also generate significant employment in the IFSCs in particular as well as financial sector in India as a whole.

Features of IFSC Authority Bill, 2019

Management of the Authority

  • The Authority shall consist of a Chairperson, one Member each to be nominated by the RBI, the Securities Exchange Board of India SEBI, the IRDAI and the PFRDA.
  • Two members are to be dominated by the Central Government and two other whole-time or full-time or part-time members.


  • The Authority shall regulate all such financial services, financial products and FIs in an IFSC which has already been permitted by the Financial Sector Regulators for IFSCs.
  • The Authority shall also regulate such other financial products, financial services or FIs as may be notified by the Central Government from time to time.
  • It may also recommend to the Central Government such other financial products, financial services and financial institutions which may be permitted in the IFSCs.


  • All powers exercisable by the respective financial sector regulatory (viz. RBI, SEBI, IRDAI, and PFRDA etc.) under the respective Acts shall be solely exercised by the Authority in the IFSCs.
  • This is so far as the regulation of financial products, financial services and FIs that are permitted in the IFSC are concerned.

Grants by the Central Govt

  • The Central Govt. may, after due appropriation made by Parliament by law in this behalf, make to the Authority grants of such sums of money as the Central Government may think fit for being utilized for the purposes of the Authority.

Transactions in foreign currency

  • The transactions of financial services in the IFSCs shall be done in the foreign currency as specified by the Authority in consultation with the Central Govt.
Services Sector

[pib] SEZ Policy Review Committee holds final meetingPIBPrelims Only


Mains Paper 3: Indian Economy| Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

From UPSC perspective, the following things are important:

Prelims level:  SEZ Policy (2005)

Mains level:  Reconsidering the SEZ Policy in India



  • The SEZ Policy Review Committee has its final round of consultations with the members under the chairmanship of the Commerce Secretary.
  • The Committee was of the opinion that SEZ should now transform into “Employment and Economic Enclaves” (3Es).

Why such Policy Review?

  1. The objective of the Committee was to evaluate the SEZ policy framed in 2000 and suggest measures to make the policy WTO compatible.
  2. It is aimed to give suggestions which will encourage manufacturing and services sector and lead to maximizing utilization of vacant land in SEZs.
  3. It further aims to create seamlessness between SEZ policy and other schemes like Costal Economic Zone, Delhi-Mumbai Industrial Corridor, National Industrial Manufacturing Zone, Food Parks and Textile Parks.

Broadening the scope of SEZs

  1. The changes in the macro-economic environment in India required a re-look at the SEZ Policy framework so that focus is on enabling generation of 100 million jobs in the manufacturing sector.
  2. It will enable manufacturing competitiveness within the framework of WTO rules, bringing in services sectors like health care, financial and legal services, repair and design services under SEZs.


Special Economic Zones (SEZ)

  1. SEZs are set up under Special Economic Zones Act, 2005 as duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs in India.
  2. SEZ units are deemed to be outside the customs territory of India.
  3. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India.
  4. The facilities at SEZ include:
  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
  • 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
  • Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
  • Exemption from Central Sales Tax.
  • Exemption from Service Tax.
  • Single window clearance for Central and State level approvals.
  • Exemption from State sales tax and other levies as extended by the respective State Governments.

Setting up an SEZ

  1. The developer submits the proposal for establishment of SEZ to the concerned State Government.
  2. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval.
  3. The applicant also has the option to submit the proposal directly to the Board of Approval.
Services Sector

India’s services industries seen propping up capital investment


Mains Paper 3: Economy | Investment model

From UPSC perspective, the following things are important:

Prelims level: Gross fixed capital formation

Mains level: Rising investments in India and reasons behind it

Adding to gross fixed capital formation

  1. India’s dominant services sector is likely to lead growth in gross fixed capital formation
  2. GFCF is a measure of investment spending
  3. The services sector accounts for about 55.2% of gross value added

Highest growth rate 

  1. Healthcare, information technology, banking, telecom, retail, and ship-building had the highest growth rates of investments between the financial years 2012 and 2017
  2. But their share was dwarfed by the total amount of capital poured into telecom, power, oil, steel and banks, which together attracted 72% of the investments

Why are investments low?

  1. High inflation
  2. A slowdown in incomes
  3. Banks wary of lending because of rising soured loans
  4. High real interest rates


Gross fixed capital formation

  1. As per RBI, Gross capital formation refers to the ‘aggregate of gross additions to fixed assets (that is fixed capital formation) plus the change in stocks during the counting period
  2. Fixed asset refers to the construction, machinery, and equipment
  3. Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year
  4. GFCF is a component of the expenditure on the gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed
  5. GFCF is called “gross” because the measure does not make any adjustments to deduct the consumption of fixed capital (depreciation of fixed assets) from the investment figures
  6. GFCF is not a measure of total investment, because only the value of net additions to fixed assets is measured, and all kinds of financial assets are excluded
  7. The most important exclusion from GFCF is land sales and purchases
Services Sector

[op-ed snap] Pivoting to enhance India’s services exports


Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Mode 1,2,3 and 4 of GATS-WTO, EU General Data Protection Regulation, India-EU free-trade agreement, Unesco World Heritage sites

Mains level: India’s services exports and need for diversification in them


India’s exceptional IT exports

  1. India’s exceptional performance in exporting information technology (IT) services has been instrumental in its integration with the global economy
  2. But this growth story has been under threat in the wake of anti-globalization and protectionist measures in major destination markets

Trade negotiations by India

  1. India’s focus in trade negotiations has been mainly on temporary movement of professionals (mode 4) and outsourcing using telecommunication services (mode 1)
  2. Countries put significant restrictions on mode 4 and many countries, including the US, UK and, Australia, have increased such restrictions in recent times

Challenges being faced by India’s IT industry

  1. Uncertainty caused by the Hire American-Buy American movement unleashed by the Donald Trump administration
  2. The EU General Data Protection Regulation (GDPR), which is set to kick in from May, will also create difficult challenges for the outsourcing industry
  3. The GDPR has more advanced rules on data privacy as compared to the India-EU free-trade agreement

What can India do for increasing its services exports?

India should focus on attracting more foreign consumers in its territory, referred to as mode 2 in services trade parlance

This is because of three reasons:

  1. First, most of the countries do not put severe restrictions on this mode and had also liberalized it in their World Trade Organization commitments
  • Enhancing trade through this mode is not dependent on importing countries, rather on the actions that are within the ambit of the exporting country

2. Second, the three sectors that are most important for mode 2—tourism services, education services and medical tourism—also have a high employment multiplier

  • An increase in foreign consumers will not only lead to enhanced foreign exchange earnings but also an increase in employment opportunities

3. Third, much-required diversification in India’s services exports basket could also be achieved through this refocusing

  • India’s services exports are often termed a “one-trick pony” to indicate overreliance on IT services exports
  • An increase in mode 2 exports will lead to services exports diversification not only within the services sectors but also in terms of destination markets

Tourism potential

  1. India has 36 UNESCO World Heritage sites
  2. Countries like Turkey, Malaysia and Thailand have half the number of these sites
  3. But those countries attracted double tourists as compared to India
  4. India needs to build an image of a tourist-friendly globalized nation that warmly welcomes an outsider who might have different ethnicity, language or food habits

Education potential

  1. India has a potential for developing itself as an education hub for students from South and South-East Asia, and Africa
  2. Many reputed foreign educational institutions have not been able to set up their Indian campuses as relevant legislative amendments have remained as drafts
  3. Fast action in this direction could lead to more international institutions and student flow in India

Medical potential

  1. A number of hospitals in India are providing advanced treatment at much lower costs compared to the developed world
  2. They are able to attract patients from neighboring countries and Africa
  3. There are still issues around obtaining health visas, accessing good quality hospitals, following up treatments, etc
  4. An improved infrastructure, a more friendly national ethos to foreigners and a greater sense of commitment and ethics among professionals can work wonders in this sector

Way forward

  1. India’s key demand areas (mode 1 and mode 4) are unlikely to see any positive momentum in the near future
  2. It’s time to shift gear and focus on mode 2 where enhancing efficiency and boosting services exports depend primarily on domestic measures and not on removing restrictive measures by foreign countries
  3. This will also help in achieving national employment goals and benefit domestic consumers


4 Modes under GATS of WTO

Image source
Services Sector

Phased approach to adopt standards

  1. Context: CII paper on ‘Challenges of Standards and Technical Regulations’ recommends a phased implementation of standards
  2. Standards adoption is a time and resource consuming process
  3. Recommendations: Government should encourage standards at least in those sectors more prone to consumer safety and security
  4. In the first phase, export-oriented services could be focused, where awareness about international standards exists
  5. In the second phase, services that are important for exports, but lacking standards, such as logistics, can be targeted to adopt internationally acceptable standards
Services Sector

Agency to analyse services trade data- II

  1. Legality: To ensure legal certainty to the framework, the above provisions could be incorporated as amendments to the Collection of Statistics Act, 2008
  2. A new law is also being considered as the Collection of Statistics Act is not specific to services sector
  3. Nodal agency: It could be the Directorate General of Commercial Intelligence and Statistics (DGCI&S- currently compiles and analyses only goods trade data) or an entirely new one
  4. Deterrent: There could be stringent penalties for misreporting and for failing to report
Services Sector

Agency to analyse services trade data- I

  1. Context: The Centre will soon establish an institutional framework for better collection and analysis of data on India’s services export and import
  2. Objective: To improve targeting of incentives based on services exports
  3. Also to firm up a superior strategy for the country to be used in negotiations on bilateral free trade agreements as well as on regional and multilateral trade pacts
  4. Framework: Setting up of a nodal agency for international trade data in services, creation of an international services trade business directory
  5. Also, provisions mandating enterprises to report their international services trade to the proposed nodal agency

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