international competitiveness; the information technology revolution; the modes of delivery of services opened up by advances in communication technology which have enabled the reaping of the returns to knowledge advantage. The interaction of these forces with the changes underway in the domestic macroeconomic environment has enabled India to emerge as the preferred habitat for the financial savings of its expatriate diasporas.
Inward remittances from Indians located overseas have surged in response to the reforms carried out since 1993. India’s traditional advantage in exports of labour has benefited in recent years from a distinct shift in the destination pattern of the outflow of natural persons away from the Middle East in favour of Europe and America. In 2003-04, India was the world’s leading recipient of remittances, accounting for about 20 per cent of global flows. This position is expected to be maintained in 2004-05. According to the IMF’s Balance of Payments Statistics Yearbook, India ranked 18th among the world’s leading exporters of services, with a share of 1.3 per cent in world exports, having moved up from the 27th position in 1990 when its share was 0.6 per cent. Among these commercial services, India is fast emerging among the top ten tourism-exporting countries of the world. According to the World Travel and Tourism Council, India became the second fastest growing tourism economy in the world.
The information technology industry in India has fortified its position as a world leader. In the Business Process Outsourcing segment, India has maintained its lead as the best outsourcing destination, particularly for the US and European companies. India accounted for 3.4 per cent of global IT spending in 2003-04. As regards IT enabled services, India renders two-thirds of all offshored services worldwide. Indian companies have also made rapid strides in securing shares in the world markets for communication and management services.
The sustained buoyancy in invisible earnings has provided the impetus for embarking on a graduated but widening liberalisation of the exchange and payments regime for the gamut of invisible imports. The institution of a market-determined exchange rate system in 1993 was followed by a progressive freeing up of bullion imports,
* Prepared in the Division of International Finance, Department of Economic Analysis and Policy.
acceptance of the obligations of current account convertibility under Article VIII of the IMF’s Articles of Agreement, enhancing of indicative limits for purchasing foreign exchange for various invisible payments up to the current level of US $ 25,000 and even higher in specific cases, drastic simplification of documentation and retention of earnings/unspent exchange in foreign currency deposits. Even as invisible imports have expanded, they have had a salutary effect on exports of both goods and services by reducing the anti-export bias embedded in the earlier regime. Payments for communication services, construction services, financial services, royalties, copyrights and license fees, management services and transportation services have risen significantly, reflecting the ongoing technological transformation of the economy and the modernisation of Indian industry. The impact of liberalisation is also evident in a spurt in outbound tourist traffic from India. Currently, about 4.5 million Indians annually travel abroad, which exceeds the number of international tourist arrivals in India.
Since 1995, international trade in services has moved into centre-stage in international trade policy negotiations with the first set of international rules for trade in service being brought into force under the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). Negotiations commenced on January 1, 2004 which are based on request-offer approach. India, which has been a signatory to the GATS since its inception, has made initial commitments binding it not to introduce restrictions that could adversely impact international trade in services. India has made ‘requests’ to trading partners to consider liberalisation in computer-related services, architecture services, health services, audio-visual services, tourism, maritime services and financial services. India has also received requests from about 50 countries to take commitments in a range of service sectors with regard to transparency in domestic regulations, simplification of procedures, elimination of differential treatment of foreign service suppliers and facilitation of the movement of natural persons. The GATS also covers commitments to liberalise the modes of delivery of services – cross-border trade, consumption abroad, commercial presence and movement of natural persons – and it is in the context of mode four that India is an important stakeholder in the negotiations in view of its position as a dominant remittance-receiving economy.
In the recent period, the setting of trade policy in India has reflected the strategic importance of India’s comparative advantage in trade in services. The service sector has been identified as a thrust sector for trade policy. The EXIM Policy and the Union Budget for 2003-04 have sought to promote exports of services through access to service providers to duty free imports, advance licenses, venture capital funds and by formulation of specific action plans for service sectors. The Foreign Trade Policy, 2004-2009 has announced the setting up of the Services Export Promotion Council to map opportunities for key services in important markets and to develop strategic market access programmes.
The rising importance of trade in invisibles in India’s balance of payments provides a unique opportunity for exploiting competitive advantage and positioning national interests strategically in the ongoing negotiations under the GATS. Recent trade policy initiatives to boost exports of services hinge around a better understanding of the underlying dynamics of invisible trade for the identification of niches of competitiveness and growth impulses in the service sector. It is in this context that the EXIM Policy, 2003-04 set up an empowered Group for the collection and maintenance of data relating to exports of services. This article seeks to contribute to this endeavour by providing disaggregated information on India’s trade in invisibles for the period 2000-01 to 2004-05 (April-September). By doing so, it extends the analysis on invisibles set out in the article entitled "Invisibles in India’s Balance of Payments: 2000-01 and 2001-02", published in RBI Bulletin, May 2003. The data on invisibles, which are presented in Tables 1 to 4, are extracted from balance of payments records and their classification broadly conforms to the recommendations of the International Monetary Fund’s Balance of Payments Statistics Manual (1993). Henceforth, the data on invisibles will be regularly released in the RBI Bulletin.
|
Table 1 : Invisibles Receipts by Category of Transactions: 2000-01 to 2003-04 |
| |
|
|
|
|
(Rs. crore) |
|
|
(US $ million) |
|
|
Items |
|
|
|
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
|
a) |
SERVICES |
|
|
|
|
|
|
|
|
| |
i) |
TRAVEL ACCOUNT |
|
|
|
|
|
|
|
|
| |
|
Tourist Expenses in India |
16064 |
14975 |
15991 |
18873 |
3497 |
3137 |
3312 |
4122 |
| |
|
TOTAL |
16064 |
14975 |
15991 |
18873 |
3497 |
3137 |
3312 |
4122 |
| |
ii) |
TRANSPORTATION ACCOUNT |
|
|
|
|
|
|
|
|
| |
|
a) |
Sea Transport |
|
|
|
|
|
|
|
|
| |
|
|
Surplus remitted by Indian |
|
|
|
|
|
|
|
|
| |
|
|
companies operating abroad |
157 |
344 |
241 |
162 |
34 |
71 |
50 |
35 |
| |
|
|
Operating expenses of foreign |
|
|
|
|
|
|
|
|
| |
|
|
companies in India |
398 |
495 |
695 |
1141 |
87 |
103 |
145 |
248 |
| |
|
|
Charter hire charges |
453 |
407 |
401 |
398 |
99 |
85 |
83 |
87 |
| |
|
b) |
Air Transport |
|
|
|
|
|
|
|
|
| |
|
|
Surplus remitted by Indian |
|
|
|
|
|
|
|
|
| |
|
|
companies operating abroad |
851 |
739 |
820 |
457 |
185 |
154 |
170 |
100 |
| |
|
|
Operating expenses of foreign |
|
|
|
|
|
|
|
|
| |
|
|
companies in India |
94 |
44 |
21 |
78 |
22 |
10 |
5 |
18 |
| |
|
|
Charter hire charges |
19 |
85 |
21 |
79 |
4 |
18 |
5 |
17 |
| |
|
c) |
Freight on exports |
6670 |
7053 |
8775 |
11329 |
1458 |
1476 |
1815 |
2470 |
| |
|
d) |
Others |
722 |
1159 |
1287 |
1314 |
157 |
244 |
263 |
285 |
| |
|
TOTAL |
9364 |
10326 |
12261 |
14958 |
2046 |
2161 |
2536 |
3260 |
| |
iii) |
INSURANCE ACCOUNT |
|
|
|
|
|
|
|
|
| |
|
a) |
Insurance on export |
1111 |
1179 |
1466 |
1711 |
243 |
247 |
303 |
373 |
| |
|
b) |
Premium |
|
|
|
|
|
|
|
|
| |
|
|
Life |
4 |
26 |
101 |
3 |
1 |
5 |
21 |
0 |
| |
|
|
Non-life |
24 |
32 |
28 |
52 |
5 |
8 |
6 |
12 |
| |
|
|
Reinsurance from foreign companies |
18 |
40 |
76 |
42 |
4 |
8 |
16 |
9 |
| |
|
c) |
Commission on Business received |
|
|
|
|
|
|
|
|
| |
|
|
from foreign companies |
7 |
15 |
18 |
3 |
2 |
4 |
4 |
0 |
| |
|
d) |
Others |
70 |
82 |
94 |
116 |
15 |
16 |
19 |
26 |
| |
|
TOTAL |
1234 |
1374 |
1783 |
1927 |
270 |
288 |
369 |
420 |
| |
iv) |
Government Not Included Elsewhere |
|
|
|
|
|
|
|
|
| |
|
a) |
Maintenance of foreign embassies |
|
|
|
|
|
|
|
|
| |
|
|
and diplomatic missions in India |
1019 |
935 |
860 |
999 |
222 |
195 |
178 |
217 |
| |
|
b) |
Maintenance of international and |
|
|
|
|
|
|
|
|
| |
|
|
regional institutions in India |
1967 |
1532 |
557 |
300 |
429 |
323 |
115 |
65 |
| |
|
TOTAL |
2986 |
2467 |
1417 |
1299 |
651 |
518 |
293 |
282 |
| |
v) |
MISCELLANEOUS ACCOUNT |
|
|
|
|
|
|
|
|
| |
|
Communication services |
5262 |
3585 |
3931 |
4801 |
1138 |
752 |
812 |
1047 |
| |
|
Construction services |
2430 |
696 |
863 |
2129 |
536 |
144 |
178 |
465 |
| |
|
Financial services |
1577 |
1387 |
3276 |
1447 |
347 |
292 |
676 |
315 |
| |
|
Software services |
29013 |
36038 |
46424 |
55986 |
6341 |
7556 |
9600 |
12200 |
| |
|
News agency services |
511 |
43 |
284 |
274 |
114 |
9 |
59 |
59 |
| |
|
Royalties, copyright and license fees |
272 |
104 |
111 |
110 |
60 |
22 |
23 |
24 |
| |
|
Management services |
1522 |
2464 |
3890 |
6197 |
334 |
519 |
807 |
1354 |
| |
|
Other services |
4320 |
8280 |
10188 |
6435 |
934 |
1742 |
2098 |
1401 |
| |
|
TOTAL |
44907 |
52597 |
68967 |
77379 |
9804 |
11036 |
14253 |
16865 |
|
R : Revised. |
|
|
|
|
|
|
|
|
|
|
Table 1 : Invisibles Receipts by Category of Transactions: 2000-01 to 2003-04 (Concld.) |
| |
|
|
|
(Rs. crore) |
|
|
(US $ million) |
|
|
Items |
|
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
|
b) |
TRANSFERS |
|
|
|
|
|
|
|
|
| |
i) |
OFFICIAL TRANSFERS |
|
|
|
|
|
|
|
|
| |
|
Donations received from Non- residents |
393 |
211 |
156 |
437 |
85 |
44 |
32 |
95 |
| |
|
Grant under PL 480 II |
439 |
323 |
280 |
161 |
97 |
68 |
58 |
35 |
| |
|
Grants from other Governments |
324 |
1663 |
1738 |
1974 |
70 |
346 |
361 |
433 |
| |
|
TOTAL |
1156 |
2197 |
2174 |
2572 |
252 |
458 |
451 |
563 |
| |
ii) |
PRIVATE TRANSFERS |
|
|
|
|
|
|
|
|
| |
|
Inward remittance from Indian workers |
|
|
|
|
|
|
|
|
| |
|
abroad for family maintenance etc. |
35507 |
31361 |
47915 |
49683 |
7747 |
6569 |
9914 |
10798 |
| |
|
Local withdrawals/redemptions from |
|
|
|
|
|
|
|
|
| |
|
non-resident deposits |
21577 |
40654 |
32147 |
53521 |
4727 |
8546 |
6644 |
11685 |
| |
|
Gold and silver brought through |
|
|
|
|
|
|
|
|
| |
|
passenger baggage |
44 |
61 |
89 |
86 |
10 |
13 |
18 |
19 |
| |
|
Personal gifts/donations to charitable/ |
|
|
|
|
|
|
|
|
| |
|
religious institutions in India. |
2664 |
3016 |
2964 |
3137 |
581 |
632 |
613 |
681 |
| |
|
TOTAL |
59792 |
75092 |
83115 |
106427 |
13065 |
15760 |
17189 |
23183 |
|
c) |
INCOME ACCOUNT |
|
|
|
|
|
|
|
|
| |
i) |
Compensation of Employees |
|
|
|
|
|
|
|
|
| |
|
Wages received by Indians working on |
|
|
|
|
|
|
|
|
| |
|
foreign contracts |
585 |
593 |
565 |
709 |
128 |
125 |
117 |
155 |
| |
ii) |
Investment Income |
|
|
|
|
|
|
|
|
| |
|
Interest received on loans to non-residents |
696 |
2802 |
1955 |
4156 |
151 |
589 |
404 |
908 |
| |
|
Dividend/profit received by Indians |
|
|
|
|
|
|
|
|
| |
|
on foreign investment |
54 |
273 |
64 |
96 |
11 |
57 |
14 |
22 |
| |
|
Reinvested Earning |
1553 |
3339 |
5342 |
4099 |
340 |
700 |
1104 |
892 |
| |
|
Interest received on debentures, FRNs, CPs, |
|
|
|
|
|
|
|
|
| |
|
fixed deposits and funds held abroad by ADs |
|
|
|
|
|
|
|
|
| |
|
out of foreign currency loans/export proceeds |
86 |
63 |
69 |
123 |
18 |
13 |
14 |
26 |
| |
|
Interest received on overdraft of VOSTRO |
|
|
|
|
|
|
|
|
| |
|
accounts of foreign correspondents/branches |
|
|
|
|
|
|
|
|
| |
|
by the ADs |
26 |
3 |
5 |
2 |
6 |
0 |
0 |
0 |
| |
|
Payment of taxes by the non-residents/refund |
|
|
|
|
|
|
|
|
| |
|
of taxes by foreign governments to Indians |
313 |
626 |
100 |
729 |
70 |
131 |
21 |
159 |
| |
|
Interest/discount etc. earnings on |
|
|
|
|
|
|
|
|
| |
|
RBI investment |
8927 |
8344 |
8885 |
9708 |
1950 |
1757 |
1835 |
2115 |
| |
|
Interest/remuneration on SDR holdings |
35 |
37 |
64 |
46 |
8 |
7 |
13 |
10 |
| |
|
TOTAL |
11690 |
15487 |
16484 |
18959 |
2554 |
3254 |
3405 |
4132 |
|
R : Revised. |
|
|
|
|
|
|
|
|
|
Table 2 : Invisibles Payments by Category of Transactions: 2000-01 to 2003-04 (Concld.) |
| |
|
|
|
(Rs. crore) |
|
|
(US $ million) |
|
|
Items |
|
|
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
2000-01 R |
2001-02 R |
2002-03 |
2003-04 |
|
b) |
TRANSFERS |
|
|
|
|
|
|
|
|
| |
i) |
OFFICIAL TRANSFERS |
|
|
|
|
|
|
|
|
| |
|
Grants/donations from official sector |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
| |
|
TOTAL |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
| |
ii) |
PRIVATE TRANSFERS |
|
|
|
|
|
|
|
|
| |
|
Remittances by foreign workers |
|
|
|
|
|
|
|
|
| |
|
for family maintenance etc. |
581 |
1392 |
3668 |
1361 |
124 |
292 |
757 |
296 |
| |
|
Personal gifts/donations to charitable/ |
|
|
|
|
|
|
|
|
| |
|
religious institutions in India. |
400 |
337 |
218 |
247 |
87 |
70 |
45 |
54 |
| |
|
TOTAL |
981 |
1729 |
3886 |
1608 |
211 |
362 |
802 |
350 |
| |
INCOME |
|
|
|
|
|
|
|
|
| |
i) |
Compensation of Employees |
|
|
|
|
|
|
|
|
| |
|
Payment of wages/salary to Non-residents |
|
|
|
|
|
|
|
|
| |
|
working in India |
2123 |
2318 |
2892 |
3835 |
468 |
487 |
598 |
836 |
| |
|
TOTAL |
2123 |
2318 |
2892 |
3835 |
468 |
487 |
598 |
836 |
| |
ii) |
Investment Income |
|
|
|
|
|
|
|
|
| |
|
Payment of interest on non-resident |
|
|
|
|
|
|
|
|
| |
|
deposits |
8276 |
8621 |
6845 |
6854 |
1811 |
1808 |
1413 |
1492 |
| |
|
Payment of interest on loans from |
|
|
|
|
|
|
|
|
| |
|
non-residents |
13401 |
13599 |
12565 |
14751 |
2930 |
2855 |
2594 |
3217 |
| |
|
Payment of dividend/profit to non-resident |
|
|
|
|
|
|
|
|
| |
|
share holders |
4676 |
3397 |
2237 |
4041 |
1047 |
712 |
462 |
878 |
| |
|
Reinvested Earning |
6177 |
7841 |
8866 |
8271 |
1352 |
1644 |
1832 |
1800 |
| |
|
Payment of interest on debentures, |
|
|
|
|
|
|
|
|
| |
|
FRNs CPs fixed deposits, Government |
|
|
|
|
|
|
|
|
| |
|
securities etc. |
271 |
103 |
207 |
69 |
60 |
23 |
43 |
15 |
| |
|
Charges on SDRs |
73 |
248 |
96 |
74 |
16 |
52 |
20 |
16 |
| |
|
Interest paid on overdraft on |
|
|
|
|
|
|
|
|
| |
|
NOSTRO Account |
2 |
2 |
22 |
4 |
0 |
0 |
4 |
1 |
| |
|
Payment of taxes by the Indians/refund of |
|
|
|
|
|
|
|
|
| |
|
taxes by government to non-residents |
9 |
19 |
9 |
19 |
2 |
4 |
2 |
4 |
| |
|
TOTAL |
32885 |
33830 |
30847 |
34083 |
7218 |
7098 |
6370 |
7423 |
|
R : Revised. |
|
|
|
|
|
|
|
|
|
Table 3 : Invisibles Receipts by Category of Transactions: 2004-05 (April-September) |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
(Rs. crore) |
|
(US $ million) |
| |
|
|
|
|
|
|
|
|
Items |
|
|
|
Apr-Jun 04 |
July-Sept 04 |
Apr-Jun 04 |
July-Sept 04 |
| |
|
|
|
|
|
|
|
|
a) |
SERVICES |
|
|
|
|
| |
i) |
TRAVEL ACCOUNT |
|
|
|
|
| |
|
Tourist Expenses in India |
3859 |
4867 |
860 |
1054 |
| |
TOTAL |
|
3859 |
4867 |
860 |
1054 |
| |
ii) |
TRANSPORTATION ACCOUNT |
|
|
|
|
| |
|
a) |
Sea Transport |
|
|
|
|
| |
|
|
Surplus remitted by Indian |
458 |
225 |
102 |
49 |
| |
|
|
companies operating abroad |
|
|
|
|
| |
|
|
Operating expenses of foreign |
|
|
|
|
| |
|
|
companies in India |
1586 |
512 |
353 |
111 |
| |
|
|
Charter hire charges |
116 |
13 |
26 |
3 |
| |
|
b) |
Air Transport |
|
|
|
|
| |
|
|
Surplus remitted by Indian |
|
|
|
|
| |
|
|
companies operating abroad |
342 |
156 |
76 |
34 |
| |
|
|
Operating expenses of foreign |
|
|
|
|
| |
|
|
Companies in India |
100 |
120 |
22 |
43 |
| |
|
|
Charter hire charges |
3 |
0 |
1 |
0 |
| |
|
c) |
Freight on exports |
2919 |
3228 |
650 |
699 |
| |
|
d) |
Others |
283 |
255 |
63 |
38 |
| |
|
TOTAL |
5807 |
4509 |
1293 |
977 |
| |
iii) |
INSURANCE ACCOUNT |
|
|
|
|
| |
|
a) |
Insurance on export |
467 |
499 |
104 |
108 |
| |
|
b) |
Premium |
|
|
|
|
| |
|
|
Life |
96 |
5 |
21 |
1 |
| |
|
|
Non-life |
824 |
358 |
184 |
78 |
| |
|
|
Reinsurance from foreign companies |
41 |
23 |
9 |
5 |
| |
|
c) |
Commission on Business received |
|
|
|
|
| |
|
|
from foreign companies |
74 |
31 |
17 |
7 |
| |
|
d) |
Others |
68 |
52 |
15 |
11 |
| |
|
TOTAL |
1570 |
968 |
350 |
210 |
| |
iv) |
GOVERNMENT NOT INCLUDED |
|
|
|
|
| |
|
ELSEWHERE |
|
|
|
|
| |
|
a) |
Maintenance of foreign embassies |
|
|
|
|
| |
|
|
and diplomatic missions in India |
441 |
240 |
98 |
52 |
| |
|
b) |
Maintenance of international and |
|
|
|
|
| |
|
|
regional institutions in India |
414 |
140 |
92 |
30 |
| |
|
TOTAL |
855 |
380 |
190 |
82 |
| |
v) |
MISCELLANEOUS ACCOUNT |
|
|
|
|
| |
|
Communication services |
2324 |
1855 |
518 |
402 |
| |
|
Construction services |
399 |
276 |
89 |
60 |
| |
|
Financial services |
791 |
396 |
176 |
86 |
| |
|
Software services |
15716 |
16786 |
3501 |
3637 |
| |
|
News agency services |
451 |
305 |
100 |
66 |
| |
|
Royalties, copyright and license fees |
75 |
69 |
17 |
15 |
| |
|
Management services |
1136 |
1766 |
253 |
383 |
| |
|
Other Business services |
9718 |
7959 |
2165 |
1724 |
| |
|
Personal, Cultural & Recreational services |
187 |
72 |
42 |
16 |
| |
|
Refunds/rebates on accounts of imports, |
|
|
|
|
| |
|
bidding process etc. |
423 |
487 |
94 |
106 |
| |
|
Other services |
2511 |
1579 |
558 |
340 |
| |
|
TOTAL |
33731 |
31550 |
7513 |
6835 |