Channel: Trade

April 1, 2010
India-UK services trade: promises a great future
The world trade has witnessed serious economic turmoil since 2008 the effects of which compounded during 2009 and are still lingering in 2010.
Tables & Graphs
 
The world trade has witnessed serious economic turmoil since 2008 the effects of which compounded during 2009 and are still lingering on well into 2010. But despite this and rather surprisingly the services trade between India and UK almost defied downturn. It touched GBP 4.05b in the year 2008 when the crises really started. Although the figures of the year 2009 are not in as yet, so much still remains to be seen whether the services trade sector has really been hit but it is promising to note that this section of trade has had a consistent growth period of an average of 11% per annum for each of the last 5 years running.
 
There is much potential for the service trade between the two countries to go up since the services sector plays a major role in the GDP of both economies. In India the service sector makes up for about 60% and in the UK the contribution of the services sector is much larger with about two-thirds of the economy depending on it.
 
The UK to India services export basket is made up of Transportation (26%); Travel (25%); Other Business Services (21%); Financial Services (14%) and Licensing & Royalties (3%) in descending order of share of trade. The India to UK services export basket is made up of Travel (39%); Transportation (21%); Other Business Services (21%); Computer & Information Services (11%) and Communications (5%).
 
A careful analysis of the tables shows that the top three service exports from both nations are the same categories:  Transportation; Travel and Other Business Services.  Financial Services that is the most well recognised export of the British industry is ranked as its fourth top export to India and so does Computer & Information services for which Indian industry is known the world over. This clearly means that both countries are not being able to penetrate each other’s markets for sectors that they know best.
 
Additionally, the fact that the growth in the Financial Services exports from UK to India has largely remained flat and that the country recorded a negative growth in the royalty and license fees category is both a cause of concern as well as hope that when the markets do recover these sectors are likely to witness an upswing giving an extra boost to the trade.
 
To their credit both nations almost achieved a remarkable 30% growth rate in exports for at least once if not more in the last 5 years.
 
"A straight-line extrapolation of the service industry trade at a CAGR of 11% projects the trade to touch GBP 11.5bn in the year 2015, three times the current volume."
 
For UK the peak growth came in the years 2004 and 2006. The first rise can be attributed to the open-skies policy when air travel between India and UK got liberalised and the second rise can be attributed to the surge in financial services industry that witnessed a significant number of Indian companies raising capital on London Stock Exchange.
 
On the other hand for India there were two sharp rises in 2004 and more recently in 2008. The former can also be attributed to air-travel liberalisation and the latter due to high growth in Other Business Service export from India. The Other business service includes business and management consultancy services, architectural and engineering services, technical services and office maintenance services. Much of the growth in this category is due to the boom in the infrastructure sectors in India as well as the general growth in economy and inward investments.

The trade balance has largely been in favour of India which has recorded a surplus for every year since 2001 except the year 2006 when the UK exported GBP 12m worth of additional services to India. The trade deficit had largely been consistent but did sky rocket in the year 2008 to GBP 402m.

This perhaps demonstrates the robustness of Indian economy compared to the UK.
 
Projecting the future trade, the trends clearly demonstrate positive growth. As Indian economy grows at a phenomenal rate its appetite for consumption of services will also increase in line with the growth if not exponentially. A straight-line extrapolation of the service industry trade at a CAGR of 11% projects the trade to touch GBP 11.5b in the year 2015, three times the current volume.
 
The potential clearly is massive for both UK and Indian industries to boost their service sector exports to each other but it will take targeted policy interventions by Governments and by trade promotion entities on both sides.
 

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