Economic liberalization in the 1990s removed many restrictions on trade and payments. At the same time, information technology and related migration of engineers emerged as major exports. The results could be seen in balance of payments figures, which I analysed in Business World of 26 August 2003.
The advance of the invisibles
For ages India has been a typically underdeveloped
country, with a chronic deficit in the balance of payments. But the deficit has
been falling in recent years; last year the fall went too far and a surplus emerged.
Those were the years when software exports shot up; were they responsible for
the turnabout? NASSCOM has been putting out upbeat figures year after year; the
government even created a ministry of information technology to cheer it on.
But officially, the government did not know that there were any software
exports; Reserve Bank dumped them into services not elsewhere specified, which
showed neither such large exports nor a big rise. Now, however, it has come up
with its own figures of software exports. They were $7.2 billion in 2001-02 –
close enough to NASSCOM’s $7.8 billion. But then it counts software imports of
$672 million; so net exports were only $6.5 billion.
Still, the official figures give
credence to NASSCOM’s figures, and we can give an answer to the question – was
the software boom behind the rise in service exports? Receipts from services
went up $12.4 billion between 1997-98 and 2001-2– from $23.2 billion to $35.6
billion. Payments went up $8.3 billion to $21.6 billion. The surplus on services
increased $4 billion. NASSCOM figures show an increase of $6 billion in five
years. So IT exports very likely contributed more than the net increase in
service exports.
There was another, minor source
of improvement: net income payments fell from $3.5 billion to $2.7 billion.
Traditionally, India has been a host to foreign investment, on which a
substantial income is paid out every year. Despite the investment inflows in
recent years, investment income paid out rose very little – it was $5 billion in
1997-98, and $5.4 billion in 2001-02. But income received from abroad increased
much more – from $1.6 billion in 1997-98 to $2.7 billion in 2001-02 – even
though Indian individuals were not allowed to invest abroad till last year. The
receipts include taxes paid in India on foreign investors’ income; but they can
increase no faster than the income. Perhaps the investments made abroad by
Indian companies have begun to pay off. More likely, Reserve Bank is parking
its bulging reserves in foreign bills and bonds.
The government has never been
liberal with Indians wanting to take a holiday abroad; as a result, India has
always had a big surplus on tourism. But it shrank from $1.5 billion in 1997-98
to $628 million in 2001-02. For the first time, there was a payments deficit on
tourism in the first quarter of 2003. Has the government opened the taps of
foreign exchange? Have Indians begun to explore the world? They have, but in a
small way; the foreign exchange they drew from their basic travel quota – the
thousand dollars or whatever they get automatically – increased from $340
million to $483 million. The big increase was in business travel expenses –
from $1.4 to $2.3 billion. I am sure that businessmen do not entirely resist
pleasures when they travel; it is also likely that businessmen draw foreign
exchange as businessmen even when they take their wives and children with them.
Still, they must be doing some business. So a good deal of the travel is
directed towards higher exports.
If Indian businessmen are traveling,
politicians and bureaucrats are not far behind. The money India spends on
missions abroad exceeds what foreign governments spend in India. Besides,
foreign diplomats save a lot; in 2001-02 they sent back $71 million of the $178
million that was spent on them. It is not recorded if Indian diplomats send
their savings back to India; they probably park their savings in Virgin
Islands.
Although a huge number of
software engineers went abroad, NRI remittances were stuck around $12 billion
in most years. Reserve Bank distinguishes between money sent by NRIs – about $8
billion a year – and Rupees taken out of their deposits – about $4 billion.
That does not really explain why all those nouveau riche NRIs have not been
increasing their remittances. But net additions to NRI deposits increased from
$4.3 billion in 1997-98 to $13.1 billion in 2001-02. So they are stashing up
deposits; over the next years they will reward their parents or boy friends in
India, and remittances will show an increase.
One area in which Reserve Bank
still remains muddled, however, is transportation. Here it distinguishes
between air transport, sea transport, and freight on exports and imports. What
are these transport charges, if they are not freight on merchandise trade? They
could be transport costs of passengers; but hardly anyone travels by boat any
more. I suspect this is a quirk of reporting arrangements: if exports are
carried by GESCO for TELCO, the cost figures as freight on exports if reported
by TELCO and shipping receipts if reported by GESCO. And if both report it? I
hope RBI does not then double-count it. It still has some homework to do.
It has been working hard on the
capital account; it has now started including there the changes in the Rupee
assets of foreign investors in India, and in foreign exchange assets of Indian
companies investing abroad. That, it says, is the international practice; a
side benefit is that reinvested profits are included in foreign investment, and
India looks less far behind China in foreign investment. But the scope for
inaccuracy is vastly increased. All visible progress in the recording of
payments has invisible costs.
