The context

Global trade in services is an important component of total international trade. In 2019, global exports of services were USD 6.2 trillion (24.5 percent of combined merchandise and services trade) but services exports declined to USD 5 trillion in 2020 (22.1 percent of the combined total)¹.

UNCTAD (United Nations Conference for Trade and Development) projects that “… trade in services has not yet reached its pre-pandemic level, while merchandise trade is projected to have surpassed it by 15%”².

It is in the above context that this column examines aggregate indicators of India’s services trade and compares them with selected high and middle-income countries (Data obtained from the Trade Profiles of the world trade Organization (WTO)). For most countries data are for 2019, pre-pandemic year, but for some countries, data are for 2020, the pandemic year.With these caveats, Table 1 provides the aggregate indicators of selected countries.

On the basis of data in Table 1, the following observations may be made.

• The share of services in exports is more concentrated than in imports.
• USA is by far the largest exporter (14.1 percent share), and importer (9.9 percent share) of services. It has a large positive balance of trade of USD 289 billion in services. This helps USA to partially offset its large merchandise trade deficit (USD 924.2 billion in 2019).
• The second largest global trader in services is United Kingdom with the share of 6.8 percent in global exports, and 4.9 percent in global imports. It exhibits a services trade surplus of USD 132.6 billion, helping to offset deficit in merchandize trade.
• The other high-income countries with significant positive trade balance in services are Spain (USD 71. 5 billion), and France (USD 24.2 billion).

Table 1

Global Trade in Services (in Billion USD) Data for 2019

HIGHER INCOME COUNTRIES

MIDDLE INCOME COUNTRIES

Note: Figures in bracket are percentage of the total Global trade in Services

• Data for 2020
• Source: Estimated from the World Trade Organization ³

• High-income countries, such as Germany, Japan, and Singapore, which are major exporters of services are also large importers of services. As a consequence, their trade balance in services is negligible or negative.
• Among the sample of middle-income countries, India has the highest global share of exports (USD 213.7 billion, 3.5 percent of global share), and of imports (USD 178.1 billion, 3.1 percent of global share).  India’s positive balances in services trade helps to finance merchandise trade deficit of USD 161.8 billion in 2019.  
• But India’s exports, imports, and trade balance is much smaller that of USA and United Kingdom. India thus has considerable scope in diversifying and increasing the scale and scope of services trade.
• Recent trends in India’s services trade are encouraging. Thus, for April-January 2021-22 period, India’s services exports were USD 209.8 billion (38.4 percent of combined merchandise and services trade), and the trade balance in services trade was positive USD 88.7 billion. This is far higher than positive balance of USD 35.6 billion in 2019. The positive balance in services is helping to finance more than half of the deficit in merchandise trade during his period⁴.

• Thailand and UAE are other two countries with relatively large share of global services trade. While Thailand exhibits large services trade surplus of USD 23.1 billion, the UAE exhibits essentially has balanced trade in services.
• Among the middle-income countries, Brazil exhibits the largest deficit in services trade of USD 33.8 billion, followed by Nigeria (USD 15.9 billion), and Indonesia (USD 8.5 billion)

Composition of Trade in Services

An analysis of composition of services trade for India suggests the following.

First, India’s exports of services are dominated by “Other Commercial Services”, accounting for three-fourths of the total. In 2019, exports in this category were USD 161.4 billion, while imports were USD 86.2 billion, providing a surplus of USD 75.2 billion.

• This category includes IT related services in which India has a competitive advantage. It also includes financial sector services in which India is attempting to raise the share of such services undertaken with in India rather than sourced from abroad.
• India has established International Financial Services Centres Authority (IFCSA), to help develop international financial centres within India⁵.Currently, GIFT (Gujarat International Financial Tech) City in Gujarat is India’s only international financial centre⁶.
• IFSCA aims to nurture additional centres in the future. To the extent this aim is realized, India’s current deficit in trade in financial services would relatively narrow.
• Dominance of exports of “Other Commercial Services” in services trade is also a feature of service trade profile of USA and UK. But their scale and scope of exports in this category is much larger, a trait India needs to learn to emulate.

Second, India is quite weak in exporting services in the transportation sector. Thus, not only are India’s exports of these services small (USD 21.1 billion), but unlike in the overall services trade, it exhibits very large deficit in this category of nearly USD 50 billion. This can be expected to grow significantly as India’s overall trade grows, unless urgent outcome-oriented policy interventions are undertaken.

• Sagarmala program as part of India’s Blue economy initiative, and port-led development with emphasis on coastal zones are designed to improve India’s services trade in transport, while improving India’s overall global competitiveness⁷.

Third, travel services are another weak area in India’s services trade. The size of travel exports from India at USD 30.7 billion in 2019 remains relatively low as compared to many of the countries in Table 1. Thus, Thailand travel exports were twice that of India in 2019, and its imports much lower. For USA, travel services exports were about six and a half times that of India. France also exhibited travel service exports twice that of India.

• As India develops new tourist attractions, such as the Statue of Unity, Kashi Vishwanath Temple, Statue of Equality, and as India enhances its tourism and transport infrastructure, there are prospects for improving performance in travel services.

Fourth, India needs to substantially increase its exports of “Goods Related Services”. These include manufacturing services on physical inputs owned by others include activities such as processing, assembly, labelling and packing that are undertaken by enterprises that do not own the goods. This category also includes maintenance and repair work by residents on goods that are owned by non-residents and vice versa.

• In 2019, India’s exports in this category at USD 0.4 billion were paltry as compared to Vietnam (USD 10.8 billion); and USA (USD 27.9 billion).

Concluding Remarks

In India’s global trade, services trade plays a significant role. Surplus in services trade has financed India’s persistently large merchandise trade deficit.

India’s services trade surplus however is much smaller than that of USA and UK. Moreover, composition of India’s services trade is dominated by “Other Commercial services”. Even within this category scale and scope of these services needs to be enhanced and deficit in financial services trade narrowed.

India is taking initiatives to address weak performance in services trade sub-components of Transportation, Travel, and “Goods Related services”.

India aims to reach services export of USD 800 billion USD before end of this decade. This is an ambitious and challenging but achievable goal if the initiatives envisioned are implemented competently in outcome-oriented manner, and if there are no geo-political and geo-economic developments seriously threatening the global economic environment.

1. https://unctad.org/webflyer/handbook-statistics-2021 - Accessed on 15 February 2022
2. https://unctad.org/news/global-merchandise-trade-exceeds-pre-covid-19-level-services-recovery-falls-short - Accessed on 15 February 2022.
3. https://www.wto.org/english/res_e/statis_e/trade_profiles_list_e.htm -Accessed on 12 February 2022
4. https://commerce.gov.in/wp-content/uploads/2022/02/Press-Release-January-2022.pdf -Accessed on 15 February 2022
5. https://www.ifsca.gov.in/-Accessed on 15 February 2022
6. http://www.giftgujarat.in/ -Accessed on 15 February 2022
7. https://sagarmala.gov.in/about-sagarmala/vision-objectives -Accessed on 15 February 2022

Image source: World Trade Organisation