Balance of Payment (BoP) for 2017-18, as per the RBI data, shows a reasonable jump of over 13% in exports. this has come after a gap of five years during which it has shrunk by nearly the same amount. However, the gans were more than negated by even sharper increase of 20% in imports. But these brief numbers do little justice to the complex dynamics of goods, services and financial trade. A brief attempt to give more sense to the numbers..
The balance of Payment data is classified into two parts –
1. Current Account.
2. Financial or Capital Account.
Current account consist of Merchandise or manufactured products and Invisibles (why it has been given this name, we don’t know!). For FY18, exports of merchandise stood at close to $310 bn whereas imports were nearly $470 bn leading to a trade deficit of $ 160 bn. (The break up of exports, imports in some other article). While the deficit is acceptable if it is arising due to imports of capital goods/ technology driven items etc, a persistent deficit like this is not a pleasant situation. Government’s “Make in India” initiative attempts to bridge this trade deficit which stands at about $700 bn cumulatively over last five years and $ 1.45 trillion over 10 years.
The year marks a turnaround of sorts for exports which has risen by 10%. While imports has risen by even higher 20%, a good part of that would be due to sharp increase in oil prices. Both of them had shrunk by about the same percentage over FY12-17. While the exports growth is in contradiction with the protectionist policies being advocated by US government that may impact FY19’s trade figures.
Invisibles earnings for the year stands at $283 bn whereas outgo on this account is $172 bn, providing a surplus of $110 bn. The segment has provided a surplus of over $1 trillion in last 10 years, covering a good part of the trade deficit.
Invisibles, as a category, is quite complex and comprises of a large number of distinct segments, each having a definitive contribution. At level one, it comprise of Services, Transfers and Income from abroad. Within this, services comprises of Travel (largely, tourism), Transport, Insurance, G.n.i.e.(government, not included elsewhere, an interesting category!) and miscellaneous. It is interesting to note that as per the international convention, software services and business consultancy services are not separate categories but included in miscellaneous. (The probable reason for that could be that these did not exist in olden times when the classifications were finalised).
Within services, most notable is exports of software services which stands at $ 77 bn. The segment which grew at a scorching pace of 23.5% CAGR during FY02-12 is going through some re-alignment, having grown at only about 4% CAGR since then. Another important fact to consider is that software services has provided surplus of over $600 bn, nearly 60% of net “Invisibles”. (Wonder who was footing the bill for trade deficit before the software era??!)
A lot more still remaining…!