Draft Report of the High Level Group on Services Sector

Growing Exports of Commercial Services from India

India has emerged as one of the leading exporters of commercial services in the world. In recent years, India's merchandise exports to the rest of the world crossed the 1 per cent mark (global ranking 28^th as exporter), growing at an average 25 per cent over the last 3 years, but the net merchandise trade balance is negative. But India's invisible (net) inflows continue to compensate the growing trade deficit to a large extent; in 2005-06, India’s commercial services exports constituted around 37 per cent of the country’s global exports (goods and services). Indian export of commercial services has been among the fastest growing globally in the past 15 years, and grew at over 17 per cent per annum in the 1990s as compared to the world average of 5.6 per cent. Between 2001 and 2006, on average, India’s exports of commercial services grew at over 30 per cent against the world average of 10 per cent; in 2005-06, India’s services exports grew by 35 per cent.

With the advancement in technology and increase in internationalisation of product processes, in 2006 global trade in services is estimated in WTO International Trade Statistics at US $ 2755 billion, comprising transportation services (US $ 630 billion or 22.87 per cent ), travel services (US $ 745 billion or 27.04 per cent) and Other Commercial Services (US $1380 billion or 50.09 per cent). In 2006, India exported US $72.8 billion of commercial services, equivalent to 2.7 per cent of global services trade, having grown at 34 per cent over last year’s exports (see Table 1e below for details). In 2005, with a share of 2.2 per cent and US $54.4 billion of world exports in commercial services, India had already moved up to the 10^th position in the world from 16^th in 2004.³

Table 1e below highlights India’s performance in exports of commercial services in the present decade. Data showing detailed break up of exports of commercial services are available for 2005. Against world exports of US $ 576 billion in transportation services⁴ India’s share was US $ 5.76 billion. In travel services⁵ India’s export in that year was US $ 6.55 billion against the world exports of US $ 685 billion. In other commercial services, India’s export aggregated US $ 42.06 billion against world exports US $ 1197.2 billion, constituting more than three per cent against less than one per cent in the other two categories. In 2005 the main contribution in India’s export performance in other commercial services was of other business services⁶ (US $ 20.5 billion out of world exports of US $595 billion) and computer and information services⁷ (US $ 16 billion out of world exports of US $105 billion). A significant feature of India’s services sector is India’s emergence as a world leader in IT&BPO services. India accounted for 65 per cent of the global market in offshore IT services and 46 per cent of the global BPO market in 2004-05.

Table 1e: Exports of Commercial Services

	2000	2001	2002	2003	2004	2005	2006
Global Exports (US $ billion)	1,493.8	1,498.0	1,607.8	1,842.2	2,210.9	2,451.9	2,710.8
India's Exports (US $ billion)	16.0	16.8	19.1	23.1	37.2	54.4	72.8
RoG (y-o-y) of India’s exports (%)		4.8	13.8	20.7	61.0	46.4	33.8
India's Share in World Exports (%)	1.1	1.1	1.2	1.3	1.7	2.2	2.7

Source: Calculations based on data from International Trade Statistics, WTO, several issues.

Statistical analyses indicate that India continues to exhibit a strong revealed comparative advantage⁸ (RCA) in services.

Figure 3: India’s RCA vs Share in Global Commercial Service Exports

Source: WTO International Trade and Tariff Database, Statistical Program – Time Series, accessed January 2008 (for data on country and world exports)

Computation of RCA for the three categories of commercial services shows that while in transportation services and travel services, India’s competitive position has been on the decline, it has been sharply rising in respect of other commercial services, mainly on account of computer services and other business services, in which areas we have already seen that India has substantial exports.

Figure 4

Source: WTO International Trade and Tariff Database, Statistical Program – Time Series, accessed January 2008 (for data on country and world exports).