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.
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
Source: GAO; calculations by BEA
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 Development, Information 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:
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-Ă -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]
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 Services | Computer Services | ||
Published BEA estimates (based on reported data) | |||
a. | Global imports | 33,488 | 4,315 |
b. | Affiliated imports | 23,940 | 2,800 |
c. | Unaffiliated imports | 9,548 | 1,515 |
d. | Ratio [b/c] | 2.51 | 1.85 |
e. | Unaffiliated imports from India | 288 | 201 |
Implied estimates (derived from global ratios) | |||
f. | Affiliated imports from India [d*e] | 722 | 371 |
g. | Total imports from India [e+f] | 1,010 | 572 |
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 estimate | Low estimate | ||
I. | Exports of BPT services (published by India; chart 1, left panel) | 6,464 | 6,464 |
II. | Adjustments for definitional differences (derived from GAO report): | ||
a. Indian workers in the U.S. | 40% | 50% | |
b. Sales through affiliated companies | 20% | 30% | |
c. Sales of goods | 10% | 15% | |
III. | Total [a+b+c] | 70% | 95% |
IV. | Adjusted Indian estimate of exports of BPT services [I*(1-III)] (chart 1, center panel) | 1,939 | 323 |
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 definition | 31,133 |
b. | Global exports - balance-of-payments basis | 12,077 |
c. | Ratio [b/a] | 0.39 |
d. | Delivery of services to North America - broad definition | 4,046 |
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.
Related Links:
Haq's Musings
Does China Seek to Dominate India?
India's IT Exports Wildly Exaggerated
China's Checkbook Diplomacy
Japan to Finance, Build Karachi Mass Transit System
Pak-China Economic Corridor
Soaring Chinese Imports and Twin Deficits in India
India-Israel Military Relations
Pakistan's Military Production
BRIC, Chindia, and the "Indian Miracle"
India's "Indigenous" Weapons
Pakistan's Telecom Boom
India's Growing Defense Budget
Comments
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.
http://www.presstv.com/detail/2013/04/11/297730/the-myths-about-indias-growth-story/
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."
http://www.bis.org/publ/bppdf/bispap44m.pdf
"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."
http://www.adb.org/sites/default/files/publication/30234/management-capital-flows-india.pdf
https://www.nasdaq.com/articles/indias-infosys-tumbles-15-on-downbeat-revenue-outlook
BENGALURU, April 17 (Reuters) - Infosys Ltd INFY.NS shares slumped nearly 15% on Monday and dragged stocks of peers, after the IT services exporter's dismal revenue outlook highlighted the impact of banking turmoil in major markets, the United States and Europe.
Infosys' outlook followed a disappointing quarterly report from larger rival Tata Consultancy Services TCS.NS, highlighting worries for the sector which earns more than 25% of its revenue from just the U.S. and European banking, financial, services and insurance sector.
The collapse of two mid-sized U.S. lenders in March had left the financial ecosystem shaken and driven an extraordinary government effort to reassure depositors and backstop the system.
Infosys saw its biggest intraday percentage drop since October 2019, and dragged other IT stocks, with the Nifty IT index .NIFTYIT dropping as much as 7.6%.
India's second-largest IT services firm on Thursday said it expects revenue growth of 4%-7% for the fiscal year ending March 2024, well below analysts' expectations of 10.7% growth, as clients deferred spending due to growing fears of a recession. The previous slowest growth was a 5.8% increase in fiscal 2018.
"Given the uncertain environment in the near term, growth can be back ended for Infosys, in our view," PhillipCapital said in a note.
The Bengaluru-based company's net profit of 61.28 billion rupees ($748.21 million) in the January-March quarter also missed analysts' expectations of 66.24 billion rupees, according to Refinitiv IBES.