Services exports growth at 4% as global uncertainties take toll.

New Delhi: Global uncertainties, especially in the euro zone, have taken a severe toll on India’s services sector. In the year ended March, services exports grew at the slowest pace in a decade, barring the crisis year of 2009-10. The single-digit growth pace was surprising as merchandise exports expanded at nearly 20% in the same year.

According to provisional Reserve Bank of India (RBI) data, services exports grew 4% to $137 billion (around Rs 7.5 trillion today) in the last fiscal year, while services imports contracted 3.8% to $81.1 billion.

While the year started off well, with such exports registering a robust 24.9% growth in the first quarter, the second quarter saw a sharp slowdown to 4.1%. In the third quarter, they contracted 5.4% and remained flat in the fourth.

The central bank began releasing monthly data in April 2011 on trade in services with a lag of 45 days and at a more disaggregated level on a quarterly basis beginning in the first quarter of 2010-11.

The sector ranges from information technology (IT) to services provided by Indian doctors and nurses abroad. RBI’s classification includes transport, travel, construction, insurance and pensions, financial services, telecommunications, computer and information services, and personal, cultural and recreational services, among others.

While disaggregated data for the fourth quarter will be available on 30 June, data till the third quarter shows software services exports growth declined to 9.4% in the third quarter from 21.3% in the first quarter. Non-software miscellaneous services contracted 34% in the third quarter, while it grew 24.4% in the first quarter. Other key services export sectors such as travel and transportation decelerated, but still grew at robust rates of 14.4% and 23.4%, respectively, in the third quarter.

Services are critical to India’s economic well-being as they constitute more than half the country’s gross domestic product (GDP), having risen from a 33.5% share in 1950-51 to 56.3% in 2011-12. In terms of size, software is a key category, accounting for 41.7% of total services exports in 2010-11.

The numbers are lower than expected, said Kunal Kumar Kundu, India general manager and senior economist at Roubini Global Economics. “This means services sector GDP growth in 2011-12 could be worse than expected,” he added.

Indian IT and business process outsourcing services lobby group Nasscom estimates that onsite and offshore software exports grew 16.3% to $69.6 billion, said Som Mittal, its president.

Nasscom has projected a growth rate of 11-14% for the current year, which may be too optimistic, according to companies and analysts. Nasscom will review its growth projection in October when more industry data is available, he said.

“International companies are cautious about taking decisions,” Mittal said. “However, they need us more than before to change their business model. But obviously, the uncertain global environment will impact us.”

The Economic Survey for 2011-12 said the outlook for the services sector in the domestic economy is linked to its prospects externally. “While software services exports have continued to be steady, the unfolding events in the euro area could lead to some sluggishness in this sector,” it said. “The fair-weather business services exports, which have already shown signs of deceleration, may not get better.”

Rupee depreciation may help Indian software companies at a relative level, Kundu said. “However, with European countries opting for austerity measures, it will not help Indian software companies,” he said.

India needs to take a different approach to boost services exports, said Lalit Bhasin, chairman of the Services Export Promotion Council. “It is easier to sell goods abroad because people need them on a daily basis. You need to constantly upgrade and promote your service offerings. You cannot keep selling what is outdated and not demanded now,” he added.

The overall trend in the economy affects the services export sector more than manufacturing.

“There has to be a proper economic climate,” Bhasin said. “Foreign direct investment is not being allowed in many sectors. No development is taking place except in some sectors like healthcare and hospitality. The education sector has almost stagnated and nothing much is happening in the entertainment sector.”

While the commerce ministry regularly updates its foreign trade policy and sets yearly targets for merchandise export growth, it hardly gives any guidance or announces measures to boost services export growth. Former commerce secretary Rahul Khullar had said earlier this month that merchandise exports may grow at around 10-15% in 2012-13.

The government and the commerce department need to come up with concrete steps to promote services trade, Bhasin said. “We have told them the industry does not need any lip service,” he said. “What it needs is focused measures and separate strategies for each services sector.”

Commerce minister Anand Sharma has said he will announce the annual supplement to the foreign trade policy on 5 June.

Kundu said sops won’t be enough to boost services exports. “The current trend reflects the overall global dynamics. The worst in Europe is yet to come. I don’t think the government can do much. In the current global environment, one cannot do much by planning,” he said.

Source : livemint.com