Global Services-5-6 Prof. Tarun Das

8/9/2019 Global Services-5-6 Prof. Tarun Das

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Global services- Lectues-5-6 An Overview of Global and

Indian Trade in ServicesProf. Tarun Das, IILM, New India.Formerly, Economic Adviser, Ministry of Finance


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Contents1. World Trade in Services

2. Services Trade of India3. External Sector is Under Control4. Projects on Services Trade

5. Review Questions


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1 .1 World exports of merchandise and

commercial services in 2000-2005M erchandise Com.

services

Value ($Bln) 10120 2415GR 2000-05 (%) 10 10

GR 2003 (%) 17 15

GR 2004 (%) 21 19

GR 2005 (%) 13 11


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1 .2 GDP and Trade Growth in 2005Country Exports Imports

GDP Merchand. Services Merchand. ServicesN.America 3.4 6.0 1 0 6.5 11

-- USA 3.5 7.0 1 0 5.5 1 0SC.America 4.9 1 0.0 20 1 4.0 22Europe 1 .7 3.5 7 3.0 8

CIS 6.6 4.5 201

6.51

8 Africa 4.5 7.5 1 2 1 2.0 1 5 Asia 4.2 9.5 1 9 7.5 1 5-Japan 2.8 1 .0 1 2 2.5 1-China 9.9 25.0 30 11 .5 30

-India 8.4 27.5 27 3 1 .6 24World 3.3 6.0 11 2.5


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1 .3 Trade of Commercial services in 2005Country Exports Imports

US$Bln GR (%) %Share US$Bln GR (%) %ShareN.America 420 1 0 1 7 373 1 0 1 6

-- USA 353 1 0 1 5 289 1 0 1 2SC.America 68 20 3 70 22 3Europe 1 233 7 52 111 9 8 48-Germany 1 43 7 6 1 99 4 8-U.K. 1 83 - 1 8 1 50 4 6

-France 11 4 4 5 1 03 7 4CIS 40 20 2 58 1 8 2

Africa 571 2 2 66 1 5 3Middle East 54 1 2 2 80 11 3

Asia 543 1 9 22 595 1 5 25-Japan 1 07 1 2 4 1 36 1 6-China 8 1 30 3 85 30 4-India 68 38 3 67 40 3

World 24 1 5 11 1 00 36 1 11 1 00


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1 .4 Composition of inward FDI inservices sectors in 2002 (in percentage)

Industry Developed Developing Cent.& Eastern WorldCountries Countries Europe

Utilities 3 4 6 3Construction 1 3 5 2Trade 20 1 4 2 1 1 8

Hotels 2 2 2 2Trans-Telecom 11 1 0 24 11 Finance 3 1 22 29 29Business 23 40 1 0 26Social 2 1 1 2Others 8 6 2 7

Total 1 00 1 00 1 00 1 00


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1 .5 Composition of outward FDI inservices sectors in 2002 (in percentage)

Industry Developed Developing Cent.& Eastern WorldCountries Countries Europe

Utilities 2 0 2 2Construction 1 2 2 2Trade 1 0 1 2 1 7 1 0

Hotels 2 2 0 2Trans-Telecom 11 7 1 9 11 Finance 35 22 39 34Business 34 54 1 9 34Social 0 0 0 0Others 2 2 2 2

Total 1 00 1 00 1 00 1 00


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1 .6 Mean Tariff Rates & NTBsCountry M ean

Tariff 1990

M ean

tariff 2000

NTB (% in

all tariff lines

India 93.6 28.0 5.2

China 46.5 18.5 11.2

Indonesia 27.4 14.3 2.0

S. Korea 17.8 7.0 n.a.M alaysia 14.4 9.4 2.4

Sri Lanka 22.2 19.8 4.0

Thailand 42.4 43.7 4.2


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1 .7-A Substantial fall ofservice charges

Y ear Ocean freight Airfare per PK M

1920=100 (in 1990 US$)

1960 28 0.241970 29 0.161980 25 0.101990 30 0.112000 27 0.08


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1 .8-B Substantial fall ofservice charges

Year Cost of 3-Min Computer PriceTelephone call (Base 2000=100)

New York -London(In 2000 US$)

1960 60.42 186,9001970 41.61 19,9981980 6.32 2,7941990 4.37 7282000 0.40 100


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2. 1 New Growth Dynamics in India-IT-ITES

1. In recent years, India has witnessedsignificant growth in R&D, informationtechnology (IT), IT-enabled services (ITESand offshoring activities leading to explosive

growth in knowledge-based industries.2. Foreign affiliates have been established inautomobiles, food processing, electronics,IT, transport, communications and financial

services to take advantage of hugedomestic market and exports opportunitiesdue to lower costs and higher rates of return .


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Das 13

2.3 Offshoring and BPO5. Outsourcing increased in IT, distribution,

contact centres, back office operations,R&D and manufacturing.6. India emerged as a major player in IT-ITES

and outsourcing hub due to high quality,skilled manpower, and low operations cost.

7. Favourable time zone differences alsohelped Indian organizations run round-theoperations and render better services.

8. Indian IT companies have started movingup the value chains by exporting ITconsulting in systems integration, hardwaresupport, installation and processingservices.


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2.3 Exports of non-softwareservices

9. There has been sharp acceleration in exportsof non-software services such as construction,communications, and management services.

10.Workers remittances remained buoyant during 2005 benefiting from robust global

output growth, market based exchange rate,current account convertibility and speederand cost effective money transferarrangements through post offices andcommercial banks.

11.Globally, remittances have emerged as thesecond important source of funds todeveloping countries after foreign direct investment.


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2.5 Sources of BPOs

Countries like India, Brazil, China,Dominica, Israel, Philippines,Rumania, Russian Federation havewitnessed a surge of BusinessProcess Outsourcing catering tothe needs of developed countries.FDI from developed countries in

the BPO sectors of these countriesare also growing.


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2.6 India- Service Trade in 2005-06 ($bln)Items Net Receipts Payments

1. Non-factor ser 22.265 60.610 38.3451.1 Travel 1.368 7.789 6.421

1.2 Transport -1.117 6.277 7.394

1.3 Insuran+govt -118 1.345 1.465

1.4 Software etc. 22.132 45.197 23.065

2. Invest.income -5.599 5.651 11.2503. Remittances 24.096 24.553 0.458

4. Official transfer 0.181 0.667 0.486

5. Invisibles 40.942 91.481 50.539


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2.7 Composition of service exportsof India (per cent)

Period Travel Trans Insurance Govt M isc1950s 8.6 32.9 7.7 23.4 27.31960s 10.5 34.6 5.2 29.7 19.91970s 25.5 37.3 4.7 10.8 21.81980s 5.9 17.1 2.4 3.1 41.11990s 33.0 20.3 2.3 1.8 42.62000-01 21.5 12.6 1.7 4.0 60.32005-06 12.9 10.4 1.7 0.5 74.5Note: M isc includes business, professional,financial, software and other modern services.


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2.8 Composition of service importsof India (per cent)

Period Travel Trans Insurance Govt M isc1950s 18.3 22.6 6.7 22.6 29.81960s 9.5 29.5 2.4 16.9 39.01970s 7.5 36.9 1.1 9.4 40.8

1980s 11.8 31.5 0.5 4.2 49.61990s 14.6 30.6 0.3 2.7 49.82005-06 12.7 14.6 1.9 0.9 69.9Note: M isc includes business, financial, software

and other modern services.


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3 External SectorIs Under Control


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3 .1 Manageable Current AccountBalance on External Sector (as % of GDP)

-3.1

-0.3

-1.7

-0.4

-1.0

-1.7

-1.2-1.4

-1.0 -1.0

-0.5

0.7

1.2

2.3

-0.8

-1.3

-4

-3

-2

-1

0

1

2

3

1 9 9 0

- 9 1

1 9 9 1

- 9 2

1 9 9 2

- 9 3

1 9 9 3

- 9 4

1 9 9 4

- 9 5

1 9 9 5

- 9 6

1 9 9 6

- 9 7

1 9 9 7

- 9 8

1 9 9 8

- 9 9

1 9 9 9

- 0 0

2 0 0 0

- 0 1

2 0 0 1

- 0 2

2 0 0 2

- 0 3

2 0 0 3

- 0 4

2 0 0 4

- 0 5

2 0 0 5

- 0 6


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3.2 Acceleration inExport Growth Rate

9.0

-1.5

3.8

2018.4

20.8

5.3 4.6

-5.1

10.8

21

-1.6

20.3 21.1

23.9

27.5

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.030.0

1 9 9 0

- 9 1

1 9 9 1 - 9 2

1 9 9 2 - 9 3

1 9 9 3

- 9 4

1 9 9 4 - 9 5

1 9 9 5

- 9 6

1 9 9 6

- 9 7

1 9 9 7 -

9 8

1 9 9 8

- 9 9

1 9 9 9

- 0 0

2 0 0 0

- 0 1

2 0 0 1 - 0 2

2 0 0 2 - 0 3

2 0 0 3

- 0 4

2 0 0 4 - 0 5

2 0 0 5

- 0 6

.


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3.3 Steady Increase inExport/GDP ratios (per cent)

5.8

6.9 7.38.3 8.3

9.1 8.9 8.7 8.3 8.4

9.99.4

10.6 10.811.8

13.1

0

2

4

6

8

10

1214

1 9 9 0

- 9 1

1 9 9 1

- 9 2

1 9 9 2

- 9 3

1 9 9 3

- 9 4

1 9 9 4

- 9 5

1 9 9 5

- 9 6

1 9 9 6

- 9 7

1 9 9 7

- 9 8

1 9 9 8

- 9 9

1 9 9 9

- 0 0

2 0 0 0

- 0 1

2 0 0 1

- 0 2

2 0 0 2

- 0 3

2 0 0 3

- 0 4

2 0 0 4

- 0 5

2 0 0 5

- 0 6

i n U S

$

b i l l i o n


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3.4 Stability inExport/Import ratios

66.2

86.7

77.684.8

74.8 7469.7 69.7 72.1 67.8

78 7983 81

69 67

0

1020304050

60708090

100

1 9 9 0

- 9 1

1 9 9 2

- 9 3

1 9 9 4

- 9 5

1 9 9 6

- 9 7

1 9 9 8

- 9 9

2 0 0 0

- 0 1

2 0 0 2

- 0 3

2 0 0 4

- 0 5

i n U S

$ b

i l l i o n


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3 .5 Steady Increase inImport/GDP Ratios (per cent)

8.87.9

9.611.1

12.3 12.7 12.5 12.511.5

12.4 12.7 11.812.8 13.3

17.1

19.6

0

5

10

15

20

25

1 9 9 0

- 9 1

1 9 9 1

- 9 2

1 9 9 2

- 9 3

1 9 9 3

- 9 4

1 9 9 4

- 9 5

1 9 9 5

- 9 6

1 9 9 6

- 9 7

1 9 9 7

- 9 8

1 9 9 8

- 9 9

1 9 9 9

- 0 0

2 0 0 0

- 0 1

2 0 0 1

- 0 2

2 0 0 2

- 0 3

2 0 0 3

- 0 4

2 0 0 4

- 0 5

2 0 0 5

- 0 6

i n U S

$

b i l l i o n


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3 .6 Significant Improvement inInvisibles/GDP Ratios (per cent)

-0.1

0.7 0.6

1.1

1.81.6

2.72.4

2.2

3

2.2

3.13.3

4.34.5

5.1

-1

0

1

2

3

5

1 0 -

1

1 1 -

2

1 2 -

3

1 3 -

1 -

5

1 5 -

1 -

7

1 7 -

1 - 1

- 0 0

2 0 0 0

- 0 1

2 0 0 1

- 0 2

2 0 0 2

- 0 3

2 0 0 3

- 0

2 0 0

- 0 5

2 0 0 5

- 0

i n U S

$ b i l l i o n


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3 .7 Substantial increase in ForeignInvestment Inflows (US$ billion)

0.1 0.1 0.6

4.25.1 4.9

6.05.4

2.3

5.15.9

6.7

4.6

14.8

12.5

18.2

-5

0

5

10

15

20

1 9 9 0 - 9

1

1 9 9 1 - 9

2

1 9 9 2 - 9

3

1 9 9 3 - 9

4

1 9 9 4 - 9 5

1 9 9 5 - 9

6

1 9 9 6 - 9 7

1 9 9 7 - 9

8

1 9 9 8 - 9

9

1 9 9 9 - 0

0

2 0 0 0 - 0

1

2 0 0 1 - 0

2

2 0 0 2 - 0

3

2 0 0 3 - 0

4

2 0 0 4 - 0 5

2 0 0 5 - 0

6

i n U S

$

b i l l i o n


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3.8 FDI Outstanding (%)

Sectors Aug 1 99 1 Aug 20031 . Plantation & agriculture 9.5 1 .42. Mining 0.3 0. 13. Power 0. 1 1 6.54. Manufacturing 84.9 50.45. Services 5.2 32.4

a)Financial & real estate na 6.4b)Telecommunications na 1 9.8

c) Transport na 1 .9

d)Hotels and retail trade na 2.7e) Others na 1 .6Total 1 00 1 00


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3 .9 Significant reduction in ExternalDebt Service Ratio (at end March)

(% of gross current receipts)35.330.2

27.525.4 25.9 26.2

23.0

19.5 18.817.1 16.2

13.415.8

5.9

9.7

05

10

15

20

25

30

35

40

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6 1 9

9 7 1 9

9 8 1 9

9 9 2 0

0 0 2 0

0 1 2 0

0 2 2 0

0 3 2 0

0 4 2 0

0 5 2 0

0 6


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3 .10 Reduction in Concessional to TotalExternal Debt Ratio (end March)

45.9 44.8 44.5 44.4 45.3 4542.3

39.5 38.5 38.935.5 36.0 36.8 36.4 35.5 34.5

05

1015202530

35404550

1 9 9 1

1 9 9 3

1 9 9 5 1 9

9 7 1 9

9 9 2 0

0 1 2 0

0 3 2 0

0 5


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3.03.2

2.7

1.3 1.3 1.4

1.8

1.3

1.00.9

0.80.6

0.90.7 0.65 0.6

.

.

1.

1..

.

3.

3.

1 1

1 1 3

1 1 1 1 1 1 1 3

3 .11 Reduction in Short Term Debtto GDP Ratio (end March)


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10.2

8.3

7.0

3.94.3

5.4

7.2

5.4

4.44.0

3.62.8

4.44

6.1

7

2

2

2 3 2 2 2

2 2

3 2 2 2

3 .12 Reduction in Short Term Debt toTotal External Debt Ratio (end March)


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382

12698

24 21 30 30 19 15 11 9 5 6 6 5 4

33

3

3 .13 Reduction in Short Term Debt toTotal Foreign Exch. Ratio (end March)


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5.8 9.2 9.819.3 25.2

26.4 29.432.5

38.0 42.3

55

76

113

146

159

21.7

4

4

4

3 4 3 4

i n U S

$ b i l l i o n

3 .14 S u b sta n tia l Bu ild-up o f Fo re ig n Excha n ge Reserves (e n d-March)


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2.5

5.3 4.9

8.6 8.4

6.5 6.98.2 8.2 8.6

11.3

13.8

18

16

11

6

2

2

2

2 2

3 3 5

2 2

2

2 2

3

2 3

2

5

2 5

i n U S

$ b i l l i o n

3 .15 S teady Impr o veme n t in Imp o rt Co ver o f FER (No . o f m o n ths) (e n d-March)


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4. 1 Group Project Works

Each Group will comprise five/ six MembersIt will make a SWOT Analysis of Marketing of IndianServices Abroad in the framework of SWOT AnalysisEach Group will deal with one sector or a sub-sectorfrom the following list:

(i) Business and professional services(ii) Communications services(iii) Construction and engineering services(iv) Educational services(v) Financial services

(vi) Health Services(vii) Tourism and travel services(viii) Recreational, cultural an sporting services(ix) Transport services(x) Role of FDI in services production and trade


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4.2 Model Outline for the Project1. Status of the sector- capacity, production, investment,

employment, prices, external trade2 . Contribution of the sector to the Indian economy3 . Destination for Indian exports and Sources of imports4 . Global production and trade in the sector5 . Major Indian competitors in the global market

6.

Domestic and global policies and regulation7 . FDI policies and caps for the sector8 . India s commitment to WTO under GATS in the

sector, and progress until now9 . A survey of domestic service providers (optional)

10. SWOT (Strength, Weakness, Opportunities andThreats ) Analysis for Indian exports11. Role of the Managers to promote Indian services

trade1 2. Concluding observations


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4.3 Questions to be answered1. What has been the evolution of trade in services vis--vis the

general economy since1

995? (This assessment could be donewith the help of economic trends and other national indicators) . Has GATS played any part in contributing to economic growth?

2. Has GATS brought about more employment?3. Have there been synergies between trade in services and trade

in agricultural and industrial sectors? Has there been growth inthese sectors due to GATs?

4. Has the economy become more diversified as a result of GATS?5. To what extent have nationality, visa and residency

requirements prohibited the movement of natural persons fromIndia since 1 995? Has the same been true for the movement of natural persons from the developed countries into India?

6. Are any fiscal and other incentives given for investment inservices sectors? To what extent have these helped foreigninvestment from developed countries? Are there any tradedistortive impact of these benefits?


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4.4 Questions to be answered7. Has GATs brought about greater access to basic

infrastructure (for example, water, energy, healthcare, transport etc) to a larger number of peopleespecially the poor ? Has there been an increaseor decrease in the standards of services providedespecially to populations that are poor,vulnerable or socially disadvantaged?

8. Has GATS contributed to greater access totelecommunications and internet services byIndian people?

9. Has GATS led to an increase in privatisation of services? What has been its impact on prices andquality of services?


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4.5 Impact on domestic economy

1 . Direct Economic Impact(a) Price effects

Benefits for mobile users(consumption abroad)Domestic price reductions

(b) Supply effects in domestic marketIncreased quantitiesImproved quality/ more choicesLower priceStability/reliability of suppliesRegulatory adjustments (prudentialrules, competition law, etc.)


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4.6 Indirect Economic ImpactPerformance of user industries

(profitability, production, employment,trade)Industrial diversification

Impacts on domestic factorendowment (skills, technology, etc.)Other macroeconomic effects (cyclicalresilience, etc.)


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4.7 Non-economic Factors

Distributional objectives ("equity")Impact on low-incomeconsumers/consumer groups

Impact on disadvantaged regionsGeneral environmental/healthimplicationsSafety, security and other public-policy concerns


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4.8 External Trade

a) Expansion of trade/ trade relatedproduction and employment

b) Impacts on domestic factor

endowment ("brain drain")(?)c) Foreign exchange earnings,

exchange-rate effects ( welfare gains)

d) Increasing remittances andinvestment income


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5. Review Questions1. (a) Which regions and countries are the

major sources for service exports?(b) Which regions and countries are themajor destinations for service exports?

(c) Indicate the major factors which have

contributed to the rapid rise of servicesproduction and trade.2. Indicate the services sectors which have

attracted most of the global foreigninvestment.

3. (a) Indicate major services exports of Indiaand the factors contributing these exports.(b) What regions/ countries are the majordestinations for Indian services exports?


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Thank you

Global Services-5-6 Prof. Tarun Das

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