India's falling earnings from service exports pose risks: DBS Bank economist Radhika Rao

S V Krishnamachari
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All is not well on the export front for India, as far as services are concerned. The net earnings are on a free fall and could stay that way, especially in the context of increasing protectionism being displayed by the Donald Trump Administration of the US. 

"Pressure on India's current account balance from a goods trade deficit is routinely offset by higher service trade earnings. These service surpluses are however moderating of late. On 12-month trailing sum basis, this surplus is down to $63 billion (3.0% of GDP) in Jan 2017 from $74 billion in Jan 2015," Radhika Rao, group economist at DBS Bank, said in a note on Wednesday (April 5).

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"These earnings face further downside risks from US's protectionist trade stance. India is vulnerable from US's services trade deficit with it," she added.

The nine-month period that ended December 2016 saw net earnings from services fall 7.2 per cent to $49.7 billion from $53.6 billion in the corresponding period last year.

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"Net services receipts moderated on a y-o-y basis, primarily owing to the fall in earnings from software, financial services and charges for intellectual property rights," the Reserve Bank of India (RBI) said in an update last month.

In sharp contrast, India's current account deficit rose to $7.9 billion for the December 2016 quarter, from $3.4 billion for the December 2015 quarter, mainly due to "decline in net invisibles receipts."

The Trump Administration's decision on tightening the norms for issuing H1-B visas will have significant impact on India.

"Over 60 per cent of software exports head to the US (and Canada), including offshoring activity. India also accounted for two-thirds of non-immigrant visas (H1B work visas) issued by the US between 1997-2015. It remains to be seen if these fresh clamps also impact broad cross-border service trade with the US, posing a risk for service sector earnings. Apart from trade, US is also the second biggest source of overseas remittances for India, after the Gulf countries," Rao wrote.

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