FE Editorial : Offshoring blues

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SummaryWith services growth in September just about touching $12 billion, Q2 results look a bit better than those in Q1—as compared to $33.4 billion in Q1, Q2 services exports were $34.4 billion.

Services exports as flat as the proverbial chapatti

With services growth in September just about touching $12 billion, Q2 results look a bit better than those in Q1—as compared to $33.4 billion in Q1, Q2 services exports were $34.4 billion. Nothing can, however, mask the fact that the services export growth story, like that of physical exports, has lost its way thanks to the crisis in global growth prospects. Apart from two months, services exports since April 2011 have been in the range of $11.2-11.3 billion each month—in March 2012, they were $12.9 billion and in May 2012 they were $12.1 billion. In September 2011, the figure was $11.2 billion and in September 2012, the figure has barely grown, to $11.9 billion. Keep in mind the rupee has weakened by over 20% since April 2011—even in real terms, after taking into account relative inflation levels in each country, the fall is quite high. Despite this, however, business refuses to come in. When global growth slows, the value of the currency, though traditionally seen as a game-changer for exports, doesn’t really matter that much.

The hope for a revival in services exports hinges on software services, which makes up half of the total services exports—but just last week, industry body Nasscom lowered its year’s projected growth in exports to 11% from the earlier 11-14% projection. Theoretically, the US slowdown, and the fear of the fiscal cliff, shouldn’t have hit India’s exports since US firms would logically look for suppliers who could help them cut costs. But, as we’ve seen, this is not happening. A lot will now depend on how President Obama’s policies shape up. If he goes by election rhetoric, he will make life tougher for software exporters from countries like India. Even without this, though, as software exporters pointed out when President Obama got re-elected, a lot more software work by Indian companies is now taking place in the US. That doesn’t augur well for financing of the trade deficit.

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