Diversifying India’s Services Exports through SEZs: Status, Issues and the Way Forward

Services play a key role in enhancing competitiveness of manufacturing and establishing global value chains. Realising the importance of services, a number of countries such as China, Taiwan, Philippines and United Arab Emirates (UAE, Dubai) are focusing on special economic zones (SEZs) for services sectors. Moreover, the World Trade Organization (WTO) is yet to develop a discipline on subsidies in services, and therefore, it is easier to subsidise the services sectors rather than manufacturing.

India’s growth in the post-liberalisation period has been propelled by the services sector and India enjoys a positive trade balance in services, as opposed to trade in goods. The services sector has the largest share in foreign investment. It is, therefore, prudent for the country to promote services SEZs to enhance exports, investment and employment. This paper focuses on how India can leverage on its strength of human resource and improve its global competitiveness through services-based SEZs. It discusses in details four sector-specific services SEZs, namely free trade warehousing zones (FTWZs), finance SEZs, power SEZs and aviation SEZs; that have been approved by the Department of Commerce, Ministry of Commerce and Industry. Further, given India’s export potential in audio-visual and business services, the paper also examines the possibilities of enhancing India’s services exports through creation of special services SEZs for these sectors. The paper presents the current status of these SEZs, identifies the barriers and makes policy recommendations on how to make such SEZs successful. The paper strongly recommends that SEZs can be used as a testbed for reforms in the services sectors.