The balance of payment (BoP) figures for the third quarter of 2008-09, which is the first report card on India?s external sector after the global slowdown, once again reiterates the resilience of India?s services exports and shows how the steady diversification of earnings has minimised the risks. Numbers show that services exports continued to grow, albeit marginally, even while the other inflows in the current account from export of goods, remittances and investments declined. While year on year growth of earnings from services picked up by 0.5% to $24.7 billion in the third quarter of 2008-09, that of goods exports fell by 10.4% to $36.7 billion, the first fall in the decade.
The positive growth of services even pushed up the share of invisibles to 13.7% of the GDP, despite the fall in its other two components (remittances and investments incomes), and placed it slightly ahead of the earnings from goods exports, which shrunk to 12.8% in the quarter. The fall in growth of remittances from Indian expatriates working abroad, the second largest component of invisible earnings, reverses the positive trends registered during the boom in oil prices and in the IT sector. Though the 1.2% fall in remittances to $11.1 billion in the third quarter of 2008-09 may not be a cause of immediate worry, as India still ranks at the top in this category, it signals a steep fall as these inflows grew by as much as 49.8% in the third quarter of 2007-08 and they still remained buoyant, posting a 43.5% increase, in the second quarter of 2008-09.
Growth in investment earnings, the other major component of invisible inflows which has picked up in recent years due to the growing investments made by Indian companies abroad, has also been hit by the slowdown. Investment income which went up from $3.4 billion in the first quarter of 2008-09 to $3.9 billion in the second slipped to just $3 billion in the third. Global trends indicate that it would certainly be sometime before the earnings from Indian investments abroad pick up once again to boost inflows from this account. The decline in the flow of remittances and investment income was not entirely unexpected given that the global slowdown was bound to push down both employment and investment earnings, especially from the reduction of the foreign currency assets.
So, what is of more concern is the wobbling numbers in some important sectors of the services exports which constrained its overall growth. Of the five major components of services exports, namely travel, transportation, insurance and software and IT enabled services, three fared poorly. The worst hit was the insurance sector where the earning fell by 21.5% to $344 million in the third quarter. But the small share of the sector makes the losses rather insignificant. Of more concern is the 13.9% fall in inflows from travel to $2.9 billion, which points to the shrinking spending by the foreign tourists visiting India which is bound to hurt the prospects of the leisure industry. Similarly, the 9.6% fall in earnings from transportation, namely air and shipping services, to $2.5 billion was also across expected lines given the shrinking trade and tourist volumes. In the case of IT and related services, the trends in earnings vary sharply. Growth of software exports, the largest component with quarterly earnings exceeding $10 billion, saw fluctuating trends with the acceleration in growth from 31.9% in the first quarter of 2008-09 to 41.9% in the second being suddenly reversed with growth decelerating to 11.8% in the third quarter.
The scenario was however far worse in other IT related areas like the business and communication services segments whose export earnings in the third quarter fell by 5.6% and 9% respectively. In business services, some segments like management and consultancy and trade related services have fared well and the main reason for the decline is the fall in the category of architectural, engineering and technical services. The only consolation is that the export growth in the financial services sector remains at a sturdy 26%. But the sharp fluctuations in the recent quarter and its small size reduces it overall impact.
?p.raghavan@expressindia.com