The Hindu Business Line : Foreign travel props up invisibles account

The ubiquitous Indian middle-class has begun to pack its bags and travel abroad in such huge numbers that it could soon rival the hordes of foreign tourists, businessmen, delegates and foreign academics descending on the country every year. That is the clear indication emerging from the Balance of Payments Summary of the Invisibles Account of the country. In a break from the 1980s and the 1990s, the total expenditure incurred on foreign travel by Indians last year has nudged tantalisingly close to the foreign exchange received from the four-million-plus foreigners visiting the country.

Even as receipts from foreign visitors added up to $6.66 billion in 2004-05, the expenditure by Indians travelling abroad grew to $5.24 billion — and the country netted $1.42 billion under the foreign travel account.

In 2005-06, the receipts surged to $7.85 billion while the expenditure on foreign travel grew to $6.46 billion, and the net realisation shrunk modestly to $1.39 billion. India has been the focus of global attention, not only for the impressive eight-per-cent-plus growth, but also for its transformation into a key tourist destination.

Tourism growth

In January, the World Tourism Organisation noted the emergence of South Asia as a tourist destination with a remarkable growth of 10 per cent in tourist arrivals in 2006, more than double the global average. But, more importantly, it observed that this growth was boosted by India, which accounted for half the arrivals in the region. Given the attention India is attracting, it is inevitable that the focus should shift almost exclusively to the surging in-bound tourist traffic, with scant attention to the even faster-paced growth in foreign travel by Indians. Though the growth in out-bound travel seems to be the result of India's impressive performance, the surge of in-bound visitors must be sustained to keep the net returns from the invisibles account ringing.

Travel receipts

Between 1990-91 and 2000-01, receipts under foreign travel grew handsomely at an average of 14 per cent an year. The surge in foreign tourist arrivals, as noted by the World Tourism Organisation, was also reflected in the double-digit growth in foreign exchange earnings. However, the expenditure on foreign visits by Indians grew at an alarming 61 per cent per annum. But one must not lose sight of the extremely small base of this growth cycle.

The trend of foreign travel expenditure outpacing receipts continued in this decade. While foreign exchange receipts grew by 12 per cent between 2000-01 and 2005-06, the growth in expenditure was still modestly ahead at 13 per cent. Does the narrowing of net receipts from foreign travel in recent years signal a crisis on the BoP front?

Surge in foreign travel expenditure is inevitable in any accelerating economy as business visits by domestic delegations become common, placement by companies of their personnel abroad expands, and visits in pursuit of technology, equity partnerships and for mergers and acquisitions increase.

Shoring up receipts

While the surge in business visits has reduced the net realisation from foreign travel, it has helped to shore up receipts from other sectors of the invisibles account. The two heads that contribute to the surplus in the invisibles account in almost equal measure are private transfers and the miscellaneous account.

Private transfers constitute remittances from Indians working abroad, which topped $24 billion in 2005-06. Increased travel expenditure is an inherent pre-condition for remittances to sustain their growth curve. Software and business services constitute the biggest component in the miscellaneous account. On a net basis in 2005-06, the rapid growth of software services (31.7 per cent) and business services receipts helped non-factor services to bridge the gap with private transfers in the invisibles account.

The growth in software and business services has resulted in increased foreign travel. Major software companies have offices in Europe, the US and other countries, which necessitates the maintenance of large number of personnel abroad. This increased expenditure on travel has been more than offset by heightened software and business service receipts, which together contributed over $24 billion in 2005-06.

The $42.65-billion surplus in the invisibles account has helped a great deal in bridging the yawning balance of trade deficit at $51.84 billion for 2005-06.

In fact, increased travel and communication is an inherent feature of an accelerating economy. And increased foreign travel is an inevitable consequence of the integration of the Indian economy through globalisation and liberalisation. The country should accelerate inbound tourist arrivals instead of being overly concerned about the growth in foreign travel.

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