Trade in Services | India | Economics

In this article we will discuss about:- 1. Categories of Services 2. World Trade in Services 3. India’s Export 4. India’s Import 5. India’s Balance.

Traditionally the countries, both developed and less developed, specialised in the exchange of goods. In the recent decades, the focus has shifted by a significant extent from the facilitation of trade in goods to the trade in services. According to UNDP, the international trade in services increased, by an average 12 percent per year between 1970 and 1990.

Between 1990 and 2000, it rose by more than three times, from US $ 800 billion in 1990 to US $ 2500 billion in 2000. In 2013, out of world GDP at current prices at U.S. $ 75.6 trillion, the share of services stood at 66 percent i.e., 49.9 trillion.

Categories of Services:

There can be in broad terms three categories of services:

(i) Such services as necessarily require the physical proximity of the user and provider of services. For instance, a construction firm having a construction contract abroad sends manpower from the home country to the construction site abroad. Similarly a firm sends its engineer abroad to rectify a plant problem abroad.

(ii) Such services in case of which the user of service is mobile but the provider of service is immobile. For instance, a patient requiring some specialised medical facilities moves over to a multi-specialty hospital in some foreign country.

(iii) There can be a third category of services in case of which both user and provider of services are mobile like the dry-docking facilities for ships.

Those services in case which physical proximity of thee user and provider is not essential are known as long distance services. For-instance, conventional banking, insurance and postal services in advanced countries are this type of services. The scope of such services has been on the increase with the advance of technology.

The integration of telecommunications and computer technology has made virtually all services tradable across the borders. In fact, all the commercial services have presently become tradable across the borders. The trend towards globalisation, reinforced by liberalisation policies and removal of regulatory obstacles has brought about a very spectacular expansion in the international investment and trade in services.

According to the World Trade Organisation (WTO), there are three broad categories of commercial services, namely transport, travel and other commercial service. A more detailed classification of services made by WTO includes transportation services, travel services, other commercial services, communication services, construction – services, insurance services, financial services, computer and information services, other business services and personal, cultural and recreation services.

World Trade in Services:

The volume of trade in export of commercial services was US $ 4.6 trillion in the year 2013. It is dominated by the developed countries with the exception of India and China which are included among 12 top exporters of these services. World export growth in these services rose by 5.6 percent in 2013. The decline in export growth in the different regions like North America, Europe and Asia was more or less similar. Europe and Asia was more or less similar.

The decline in import growth in that year was more pronounced in the EU compared with the USA and Japan. Fall in the growth of export and imports of commercial services in case of India in 2009 were by 15 percent and 9 percent respectively. In the case of China there rates were 12 percent and 10 percent respectively.

India was ranked 12th in the export commercial services in 2009. China was ranked at the 5th position in the same year. The respective ranks of India and China in the export of services were 11 and 2 in 2013. The growth rates of all kinds of services were hit on account of the global crisis. The Asian economies were less affected by the global meltdown than of the other regions.

India’s Export of Services:

The export of software services by India in 2009-10 accounted for 51.9 percent of the total export of services. It was followed by the export of non-soft services included business services, financial services and communication services which together accounted for 15.8 percent of the total export of services. The shares of travel, transportation and insurance in the total export of services in that year underwent decline.

In 2013-14, the share of export of software services in total export of services had fallen to 45.8 percent. The share of business services and financial services in total exports increased to 18.8 percent and 5.8 percent respectively compare with their shares in 2009-10. The shares of travel, transport, and communication services declined in the total exports in 2009-10. Between 2009-10 and 2013-14, the total exports of services of India declined from US $ 95.8 billion to US $ 73.0 billion.

India’s Import of Services:

In respect of India’s import of services, the largest share was that of transportation services which accounted for 24.4 percent of the total import of services in 2000-01. They were followed by travel, and financial services which respectively accounted for 19.2 percent and 13.5 percent of total imports of services in that year. The respective shares of business services and software services were 7.0 percent and 4.1 percent. In 2009-10, the share of business services in the import of services rose to 30.1 percent.

The proportion of communication services in the imports also increased to 2.3 percent in 2009-10 compared with the proportion of 0.9 percent in 2000-01. The shares of travel, transportation, software services and financial services in total import of services declined in 2009-10 compared with 2000-01. Between 2000-01 and 2009-10, the total imports of services increased by a large measure from US $ 14.6 billion to US $ 60.0 billion.

India’s Balance of Trade in Services:

There has been great concern about balance of trade deficit in case of merchandise goods coupled with persistent inflationary pressures derailing the growth momentum of the economy. On the other hand, trade in services has shown steady increase in trade surplus between 2000-01 and 2009-10.

The balance of trade surplus in services was US $ 17 billion in 2000-01. It reached the peak level of US $ 53.9 billion on-in 2008-09. It declined to US $ 35.7 billion in 2009-10 due to fall in exports of business services, slow growth of software services and rise in the import of business and financial services.