Channel: Trade

April 9, 2010
Indo-UK service trade: sector analysis
Tables & Graphs

 

Surprisingly neither Information Technology nor the Financial services rank as top exports categories in the services trade between India and the UK. It is the Transport and Travel sectors that occupy the top two positions for both nations.
 
The services sector trade between any two nations is recorded under 11 categories. These are:
1. Transportation          5. Insurance                                     9. Other Business Services
2. Travel                         6. Financial                                       10. Personal, Cultural and Recreational
3. Communications     7. Computer and Information       11. Government
4. Construction             8. Royalties and License Fees

The top 5 service exports from India to UK recorded in 2008 are: 
Travel (GBP 856m); Transport (GBP 451m); Other Business Services (GBP 449m); Computer and Information (GBP 257m) and Communications (GBP 113m).
 
The most interesting category is that of the Computer and Information services. The real reason why this category does not make the number 1 position is because of way such services are accounted for. The recorded figures only demonstrate the direct exports of services from India. There are over 350 Indian IT companies that are already present in the UK and their earnings will not be recorded as the export of Indian services to the UK. The entry of those companies in the UK market would first have been recorded as foreign direct investment into the UK and subsequent earnings as repatriated profits, if that were the case.

The top 5 service exports from UK to India recorded in 2008 are:
Transport (GBP 468m); Travel (GBP 455m); Other Business Services (GBP 375m); Financial Services (GBP 246m) and Government (GBP 73m).
 
The major influx of Indian students to study in British universities is covered under the Travel sector which justifies its second position. However the Financial Services sector’s fourth position is understood but not justified. There is clearly tremendous room for improvement in this category.

The overall services trade between two countries has grown at a Compounded Annual Growth Rate (CAGR) of more than 14% in the last 5 years. High growth sectors with substantial trade volumes include: Other Business Services (GBP 824m / 51% CAGR); Financial Services (GBP 301m / 26.2% CAGR); Transport (GBP 919m / 13.7% CAGR).
 
The sectors that are vastly underperforming are: Insurance and Construction Services with trade volumes/CAGR of GBP 40m/2.7% and GBP 13m/67% respectively. The construction industry growth rates should be read in context of its very low starting base of just GBP 1m in the year 2004.
 
The sector that is likely to witness a big growth in the coming years is the Travel sector, since this includes education related travel services. The UK is likely to benefit from a greater influx of Indian students given that (a) there has been over a 50% drop in the number of applicants from India planning to travel to Australia for their education due to safety fears and (b) due to the recent passing of the Education bill in India that proposes to liberalise the education sector by allowing foreign universities to establish a local presence. The universities are very likely to offer joint programmes both in India as well as in the UK.
 
The science and technology industries offer the greatest potential. Both countries are great leaders in technology and innovation. However the export of science and technology related services has been muted. The UK companies find technology transfer processes greatly challenging whilst their Indian counterparts haven’t exploited the great knowledge based networks that are widely prevalent in the UK innovation eco-system.
 
The UK has a trade surplus with India in most sectors except three which are Travel, Communications and Computer related services. The last category is fairly self-explanatory whilst the reason for recording a deficit with India in the Travel sector is not. India exported GBP 856m of services to the UK. One such explanation was given a few years ago in a study of the spending patter of the Indian travellers to Britain. Most of the Indian visitors chose to stay with friends and relatives whereas the UK visitors to India had a greater spend in staying at hotels and other accommodations.
 
The Financial Services exports from UK to India remained flat at GBP 246m and are likely to see a major dip in the trade for year 2009 given the major economic recession. However the year 2010 has started with great optimism and possible growth in the number of Indian companies wanting to list on London Stock Exchange.
 
Both nations have a tremendous opportunity to boost their service sector exports. With the growth that India is witnessing its demand for consuming services is rising exponentially. That growth will also provide an opportunity to its own industry to supply services to the UK customer base.

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