The Hindu Business Line : Not from software alone

Once upon a time, not too long ago, data on India’s external dealings captured under various balance of payments categories were available after a long time lag and reflected a routine story of indifferent merchandise exports, large oil-based imports and sluggish service-based receipts. For decades, the only bright spot in the current account was the flow of remittances from West Asia in the main. In the last four years all that has changed. The data now available re flect the variety of India’s interaction with the global economy and the changing structure of the economy itself.

The latest balance of payments data for April-June, the first quarter of 2007-08, mirror those changes captured in new categories. The most striking change is the contribution of various services — current transfers and incomes that fall under Invisibles — to the Current Account Balance. While the difference between merchandise exports and imports — the trade balance — shows a wider deficit of $21 billion compared to $16 billion in Q1 2006-07, net Invisibles have grown to $16 billion from $12 billion in the previous year’s Q1. That positive growth has had a salutary effect on the Current Account Balance, with the deficit maintained in this category at around last year’s levels of $4.6 billion. Needless to say, among Invisibles receipts, net transfers or remittances and software exports share pride of place, with a little over $8 billion each for the quarter under review. Interestingly, while a strong rupee does not seem significantly to have impacted software receipts, which have grown by about a billion dollars, remittances have grown faster precisely because of the strong rupee, rising $3 billion this quarter over that a year ago, workers overseas needing to send more dollars to give their families in India the same number of rupees. The adverse impact of a strong rupee on software earnings could thus well be offset by higher remittances.

The data reveal new sources of dollar earnings through non-software services that have become significant enough to be accounted for under separate heads. Out of a total $6.8 billion through non-software receipts, business services account for $4.4 billion, with communication and financial services following. A further break-up of business services reveals “business management consultancy” and “architectural engineering” accounting for a little over half the earnings under this head. Provisional as the data are, they reveal a new facet of the economy, one that highlights the emergence of knowledge skills and competencies that India once paid for with precious foreign exchange. Clearly, the Commerce Ministry would do well to encourage such non-software services, even while it devises ways to boost declining growth rates in merchandise exports.

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