US BEA Explains Why US IT Import Figures 20X Lower Than India's IT Export Figures to US

A GAO study showed that U.S. data on offshoring of services to India are more than 20 times smaller than India’s data. What’s the story?
The GAO study showed that U.S. imports from India of business, professional, and technical (BPT) services as published by BEA are substantially lower than India’s data on exports of BPT services to the U.S. (chart 1, left panel).1 However, when adjusted to a similar conceptual basis using information from the GAO report, the difference is actually quite small (chart 1, center panel).

The large gap between the U.S. and Indian data mainly reflects differences in how BEA and India define BPT services. BEA data are consistent with international standards for balance of payments accounting; India’s data, which are based on data from an Indian trade association, do not conform to international standards.  In fact, a 2005 study published by the Reserve Bank of India (RBI) showed that computer services exports (a large component of BPT services) to the U.S. based on international standards are much lower than India’s published data (chart 1, right panel).2 In addition, a 2004 report by the OECD found that 97 percent of India’s exports of computer services to large OECD member countries were unaccounted for in those countries’ data on imports.3

Depending upon how one adjusts for important definitional differences, the gap between the U.S. and Indian estimates either entirely disappears or is substantially reduced.
Chart 1: U.S. and Indian Data on Trade in BPT Services, 2002
Chart 1: U.S. and Indian Data on Trade in BPT Services, 2002
Source: GAO; calculations by BEA
1 Government Accountability Office, “U.S. and India Data on Offshoring Show Significant Differences,” October 2005.
2 Reserve Bank of India, “Computer Services Exports from India: 2002-03,” Reserve Bank of India Bulletin, September 2005.
3 Organization for Economic Co-operation and DevelopmentInformation Technology Outlook 2004, October 2004.

What are the reasons for differences between U.S. and Indian data on trade in business, professional, and technical services?

The U.S. and Indian data on trade in business, professional, and technical (BPT) services are not directly comparable because of substantial definitional differences.  When the U.S. and Indian data are adjusted for definitional differences, the difference in estimates either entirely disappears or is substantially reduced.  Some major definitional differences are:
      Indian workers in the United States.  India’s data on trade in BPT services include services provided by Indian nationals who reside in the United States.  BEA follows international standards for balance-of-payments accounting by excluding the compensation paid by U.S. firms to U.S. residents.  Foreign workers who are in the United States for less than one year are considered to be foreign residents, and typically their earnings are included as compensation of employees (under “income” in the balance of payments accounts).  Workers who are in the United States for more than one year are considered to be U.S. residents, and so their earnings are excluded from the balance of payments accounts.  According to the GAO study, Indian officials acknowledged that temporary Indian workers in the U.S. have accounted for about 40 to 50 percent of their data on exports of BPT services.

b)      Sales through affiliated companies.  India’s data on services exports to North America include sales of services to affiliates of U.S. companies located in India or another foreign country, as well as sales by affiliates of Indian companies located in the United States to other U.S. residents.  According to international standards, BEA excludes these sales from U.S. trade in services because the transactions did not occur between a U.S. resident and a non-resident.  A U.S. company’s foreign affiliate that is located in India is an Indian resident, and so its transactions with other Indian residents should not be included in the balance of payments.  Similarly, an Indian company’s affiliate in the United States is a U.S. resident, and so its transactions with other U.S. residents should not be included. According to the GAO study, an Indian official stated that inclusion of sales to affiliates of U.S. companies is “likely a significant factor” accounting for differences between U.S. and Indian data.

c)      Sales of goods.  India’s data on trade in BPT services include some sales of goods, such as prepackaged software and software embedded on computer hardware.  The U.S. data on trade in these products are included in the goods trade data, not in the services trade data.  According to the GAO study, Indian officials stated that embedded and prepackaged software account for about 10-15 percent of India’s estimate of exports of BPT services to the U.S.

d)      Sales of technology-enabled services.  India’s data on trade in BPT services include some technology-enabled services (such as some financial services).  BEA includes these services in other services categories.

e)      Intrafirm trade.  Through 2006, U.S. data for trade in services are collected separately for cross-border trade between unaffiliated companies and for intrafirm (or affiliated) trade.  The surveys that BEA uses to collect data on unaffiliated trade are detailed enough to allow BEA to identify trade in BPT services vis-√†-vis India.  Affiliated trade, however, is collected on separate surveys, and data for individual foreign countries that separately identify BPT services are unavailable.  Therefore, reported BEA data for BPT trade with India cannot be directly compared with the Indian data, because BEA’s data for BPT services include only unaffiliated trade and India’s data on BPT services include both affiliated and unaffiliated trade.

How did BEA calculate the adjusted data shown in the chart above?

BEA adjusted both its own estimates and the Indian estimates to eliminate definitional differences between U.S. and Indian data.

BEA adjusted its own data to include an estimate of affiliated transactions, which are collected on surveys that do not allow for BPT services to be separately identified by individual foreign country. In order to estimate affiliated imports of BPT services from India, BEA used a ratio calculated from global affiliated and unaffiliated imports of BPT services. BEA used the same procedure to estimate affiliated imports of computer services (table 1).

Table 1: Adjustments to BEA’s data, 2002
[Millions of dollars]
  BPT ServicesComputer Services
Published BEA estimates (based on reported data)  
a.Global imports33,4884,315
b.   Affiliated imports23,9402,800
c.   Unaffiliated imports9,5481,515
d.Ratio [b/c]2.511.85
e.Unaffiliated imports from India 288201
Implied estimates (derived from global ratios)  
f.Affiliated imports from India [d*e]722371
g.Total imports from India [e+f]1,010572

Source: BEA.

Data from India on BPT exports to the U.S. were adjusted to remove the definitional differences with BEA data and international standards as described above. BEA based the adjustments on information provided in the GAO study. Not all differences were quantified in the study, so some differences remain (table 2).

Table 2: Adjustments to India’s BPT services data, 2002
[Millions of dollars]
  High estimateLow estimate
I.Exports of BPT services (published by India; chart 1, left panel)6,4646,464
II.Adjustments for definitional differences (derived from GAO report):  
 a. Indian workers in the U.S.40%50%
 b. Sales through affiliated companies20%30%
 c. Sales of goods10%15%
III.Total [a+b+c]70%95%
IV.Adjusted Indian estimate of exports of BPT services [I*(1-III)] (chart 1, center panel)1,939323

Source: GAO; calculations by BEA.

The ranges for adjustment factors (a) and (c) were provided by Indian officials and published in the GAO study. The effect of factor (b) was estimated by BEA at 20-30 percent, because the GAO study said that Indian officials thought the effect of this factor was “significant” but that the effect of factor (c) was “insignificant” at 10-15 percent.

The September 2005 RBI study on Indian sales of computer services provided data that corrected for some definitional differences but the estimates still were not directly comparable to U.S. estimates because the Indian estimates were presented based on trade negotiation categories (i.e., GATS rules) that included sales by Indian-owned companies in the United States to U.S. residents, sales by Indian workers in the United States, etc. BEA used data from the RBI study to calculate a ratio of Indian exports of computer services using balance of payments definitions to total (broadly defined) deliveries of Indian computer services using GATS rules at the global level; this ratio was 39%. In addition, the study provided data on the delivery of Indian computer services (broadly defined) to North America. BEA used the global ratio to estimate balance-of-payments basis exports of computer services to North America. BEA then estimated the portion of exports to North America attributable to the U.S. using information from an Indian software trade association (table 3).

Table 3: Adjustments to RBI’s Computer Services Data, 2002
[Millions of dollars]
  India's exports of computer services
a.Global delivery of services - broad definition31,133
b.Global exports - balance-of-payments basis12,077
c.Ratio [b/a]0.39
d.Delivery of services to North America - broad definition4,046
e.Exports to North America - balance-of-payments basis [c*d]1,569
f.Ratio (U.S./North America)0.82
g.Exports to United States [e*f] (chart 1, right panel)1,287

Source: RBI; NASSCOM; calculations by BEA. 

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Riaz Haq said…
Excerpt from PressTV Op Ed

Some 'sponsored' surveys and reports are painting the rosy picture of India, ignoring many realities that lie underneath the surface. As per the Grant Thornton Global Dynamism Index, India is the fifth best country in the world for dynamic growing businesses. The index is a reflection of the feasible environment it offers for expansion of businesses. Further, India's economic confidence reached 68 per cent in August 2012, marking a surge of 8 points from previous months, according to 'Ipsos Economic Pulse of the World' survey. As per a study by Deloitte Touche Tohmatsu Ltd (Deloitte), India is slated to be the second largest manufacturing country in the next five years, followed by Brazil. On the Ernst & Young's (E&Y) renewable attractiveness index, India is perched at fourth position. On the solar index, India is ranked second and on the wind index, it is ranked third, as per the latest study by E&Y and UBM India Pvt Ltd.

What these surveys tell ypu is that India is a rising power and Goliath and everything about India is hunky-dory. What they don’t tell you is that most of Indian states are mired in world's highest levels of poverty and some human development indicators are among the worst in the developing world. The hype about India as emerging global giant overlooks the simple fact that the growth is not inclusive and superficial to the extent that it is only on the surface and not getting penetrated deep enough to be sustainable and beneficial to all.

In modern India's context, dualism juxtaposes the hi-tech boom areas with the vast tracts of economy that have barely been touched by post-91 economic reforms. In Indian society, small islands of excellence, prosperity and possibilities are surrounded by a sea of mediocrity, deprivation and discontent.

India may be a full-fledged capitalist country, a liberal economy and a rising money power, but there are people who still eat grass, sell their children, hawk their kidneys, and commit suicides out of desperation. For every million new entrants to India's burgeoning middle class, there are tens of millions still trapped in grinding web of rural poverty, barely earning a dollar after a back-breaking labor. The Global Hunger Index (GHI) 2010 – a report by the International Food Policy Research Institute (IFPRI), ranks India below countries such as Rwanda and Sudan, putting it in the “alarming levels of hunger” range. While the cheerleaders drumbeat about the overall growth, they don’t seem to care about the poorest of the poor.

Countries like China and Vietnam, like India, have shown sharp growth in GDP rates. But unlike India, they have also succeeded in bringing down the levels of poverty and hunger. The major reasons for that is lack of education, abysmal quality of work, rampant corruption, sloppy implementation of projects and schemes, lack of proactive action in policies and the unchecked population growth. Development models have only created islands of prosperity and oceans of deprivation.

Some 65 per cent of people in India live on agriculture, which accounts for around 18 per cent of GDP. The World Development Report in 2008 stated that one per cent growth in agriculture is twice more effective in reducing poverty than similar growth in the non-agricultural sector. But lately, the focus hs shifted from agriculture to IT and telecom sectors.

Gender inequality and malnutrition are highly correlated, and it is no surprise that Global Gender Gap Report 2010 ranked India 112th out of 134 nations worldwide for gender equality. It reminds me of the arithmetic sum we used to solve in school days. It was about a monkey who climbs two feet and slips down one foot in a minute, so in how many minutes will the monkey take to climb a 25 feet pole. India's growth story looks very similar to this interesting monkey sum.
Riaz Haq said…
Every Aussie who takes an interest in such matters knows how a country goes from being undeveloped to developed. We've been watching our neighbours do the trick for years. It's called export-oriented growth.
It's all about building a big manufacturing sector. You encourage under-employed rural workers to move to the city and take jobs in factories.
Because your one big economic advantage is an abundant supply of cheap labour, you start by concentrating on making low-cost, simple, labour-intensive items such as textiles, clothing and footwear.
Since the locals don't have much capacity to buy this stuff, you concentrate on exporting it. Foreigners will lap it up because to them it's so cheap.

As the plan works and the country's income rises, you plough a fair bit back into raising the education level of your workers, which allows you to move to making more elaborate goods and to paying higher wages. You're on the way to being a developed country.
Over the decades we've seen a succession of countries climb this ladder: Japan, Hong Kong, South Korea, Taiwan, China and now even Vietnam and Bangladesh at the bottom. It's like pass-the-parcel: as each country's labour gets too expensive to be used to produce low-value thongs and T-shirts, some poorer country takes over and starts the climb to prosperity.
That's the way it's always done. Except for one country: India. Its economy started growing strongly in the 1990s and now it's the world's third-biggest (provided you measure it correctly, allowing for differences in purchasing power).
India has got this far without building a big, export-oriented manufacturing sector. It's done something that's probably unique: skipped the manufacturing stage and gone straight to the rich-country stage, in which most growth in jobs and production comes from services.
The Indians have done it by being so good with software and other information and communications technology and the things that hang off it, such as call centres. It's a big export earner.
It's an impressive effort, and there's no reason a developing country shouldn't have a big tech sector.
But, even so, the experts are saying India would be a lot better off if it had a bigger, more vibrant manufacturing sector, employing a lot more people who, by Indian standards, would be on good wages. This is a key theme in the Organisation for Economic Co-operation and Development's report on the Indian economy, issued this week.
The report offers suggestions on what could be done to encourage the growth of manufacturing, which go a fair way towards explaining why manufacturing never really got going the way it did in other "emerging market economies".
First, some basic facts. India has a population of 1250 million and before long it will overtake China's. About 29 per cent of the population is younger than 15.
Manufacturing accounts for only 13 per cent of India's gross domestic product, which is low compared with the other BRIICS emerging economies Brazil, Russia, Indonesia and China, but not South Africa.
Indian manufacturing probably accounts for a slightly smaller share of its total employment. Huh? It's normally the other way round. You'd expect it to be quite labour intensive. But despite abundant, low-skilled and relatively cheap labour, Indian manufacturing is surprisingly capital and skill intensive, the report says.
Almost two-thirds of manufacturing employment is in companies with fewer than 10 employees. That compares with Brazil's 9 per cent. This tells us the sector's many small firms mean it isn't exploiting its potential economies of scale.

Read more:
Riaz Haq said…
India conducted a nuclear test centuries ago; cow urine can cure diabetes and ancient India was adept at genetics and plastic surgery. These and more such incredible achievements datelined ancient India have come from votaries of Hindu culture.

If people with scientific temper are reaching boiling point, in the absence of technology to go back in time to ancient India for verification trips, little noise is being heard from their quarters.

Here is a sample of what is being claimed as 'Indian science'.

Nuking reason
The world acknowledges India has conducted two sets nuclear tests: in 1974 and 1998. Ramesh Pokhriyal Nishank, BJP MP from Haridwar and former Uttarakhand chief minister, disagrees. "Today we are talking about nuclear tests. Lakhs of years ago, Sage Kanad had conducted a nuclear test. Our knowledge and science do not lack anything," Nishank told Parliament. Nishank also batted for astrology, saying it is the topmost science in the world. He said our ancient astrologers dwarfed all other sciences.

Cow urine therapy

Promoting cow urine is a priority for the Rashtriya Swayamsevak Sangh (RSS), seen as the BJP's spiritual and ideological guide. It was reported in May that Madhya Pradesh-based promoters of medicines produced using cow urine or 'gau-mutra' hope that a BJP government at the Centre will help their business.

The RSS is keen on promoting a soft drink made from cow's urine, mixed with products such as aloe vera and gooseberry to fight diseases. "Cow urine offers a cure for around 70 to 80 incurable diseases like diabetes. All are curable by cow urine," said Om Prakash, head of the RSS's cow protection department, in 2009.

Faith in astrology
Union HRD Minister Smriti Irani will one day be the country's president: that prediction came from the BJP politician's astrologer in Bhilwara, Rajasthan. "She will become president... in five years," the astrologer told reporters last month after Irani's visit. Irani was asked about her faith in astrology when she is in charge of education. "What I am doing in my personal life is not the responsibility of media to report until and unless it affects my duties," she replied.

Karna a product of genetic engineering

Prime Minister Narendra Modi, speaking at the inauguration of a hospital in Mumbai in October, equated birth of Mahabharata's Karna to genetic engineering. He said, "We can feel proud of what our country achieved in medical science at one point of time. We all read about Karna in Mahabharata. If we think a little more, we realise that Mahabharata says Karna was not born from his mother's womb. This means that genetic science was present at that time. That is why Karna could be born outside his mother's womb."

Ganesha plastic surgery

At the same event, Modi also said, "We worship Lord Ganesha. There must have been some plastic surgeon at that time who got an elephant's head on the body of a human being and began the practice of plastic surgery."

Dinanath Batra claims stem cell research invented by an Indian

In his book Tejomay Bharat, Dinanath Batra, convenor of Shiksha Bachao Andolan Samiti, claimed stem cell research was invented by an Indian, Dr Ganpat Matapurkar, who was inspired by the Mahabharata.

Sanal Edamaruku, president of Indian Rationalist Association, said people need to differentiate between "myth and reality. "Myths are there in all parts of the world and in all cultures; if we can't differentiate myth and reality, something is seriously wrong," said Edamaruku in an e-mail from Helsinki.

Article 51A of the Constitution says Indian citizens have the duty to 'develop the scientific temper, humanism and the spirit of inquiry and reform'. It's an article that our elected representatives must remember--they are sworn to uphold the Constitution.
Riaz Haq said…
India survives on large external capital inflows in the form of investments and debts in the post-Cold War era with the West boosting India against China and Pakistan.

Indian economy would collapse without such inflows.

Read the following to get a sense of the magnitude of foreign capital inflows in India:

"Strong capital flows to India in the recent period reflect the sustained momentum in domestic
economic activity, better corporate performance, the positive investment climate, the longterm
view of India as an investment destination, and favourable liquidity conditions and
interest rates in the global market. Apart from this, the prevailing higher domestic interest
rate along with a higher and stable growth rate have created a lower risk perception, which
has attracted higher capital inflows.
The large excess of capital flows over and above those required to finance the current
account deficit (which is currently around 1.5% of GDP) resulted in reserve accretion of
$110.5 billion during 2007/08. India’s total foreign exchange reserves were $308.4 billion as
of 4 July 2008."

"Gross capital flows have increased nearly 22 times from $42.7 billion in 1991-92 to over $932.3 billion in 2010-11. As a
share of GDP, this amounted to an increase from 15.5% in 1991-92 to 55.2% in 2010-11. Much
of the increase in financial integration occurred between 2003-04 and 2007-08. Given the
impressive economic performance indicated by close to 9% growth rate, higher domestic
interest rates and a strong currency, India's risk perception was quite low during 2003 to 2007.
Furthermore, this period was associated with favorable global conditions in the form of ample
liquidity and low interest rates in the global markets—the so-called period of Great Moderation."

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