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The contribution of "invisibles" to India's healthy balance of payments (BoP) situation during the 1990s is now well-known. In 2001-02, for instance, India's net earnings from tourism, software exports, remittances, Reserve Bank of India's income from investments abroad and a number of other activities that make up invisibles were as much as $14.05 billion. This more than neutralised deficit of $12.7 billion in trade of manufactured and agricultural goods. But does the surplus in invisibles signify the emergence of India as an exporter of services? Not really. While exports of services like computer software and now of IT-enabled services have been growing rapidly, the surplus in invisibles is still more the result of "non-service sector" activities. The latest disaggregated statistics on invisibles released earlier this month by the RBI reveal that even as the composition of invisibles trade is changing, it remains broadly the same as it has been during the past decade. Part of the reason for the wrong interpretation of India's earnings from invisibles is the inability to recognise that "invisibles" in the BoP statistics make up so many activities, of which export of software is only one. Invisibles in the BoP statistics are categorised into three different groups: (i) services, (ii) transfers and (iii) income. Services comprise trade in tourism, transport and a sub-group of "miscellaneous" services. It is the latter, which in the RBI data, comprises software exports as well as trade in financial, construction, telecom and other services. These are the "pure" service activities which are traded. The main component of the Transfers group is remittances by Indians working abroad and also redemption of NRI bank deposits which are converted into rupees. These are called private transfers, as against public (government) transfers. Income covers many heterogenous activities: dividends repatriated by foreign companies and interest on NRI bank deposits (both payments) as also the interest earned by RBI in deploying its foreign exchange reserves (a receipt which has become important as reserves have grown). What do the RBI numbers say about these different categories? First, the net earnings from all services traded in 2001-02 was $4.2 billion, which was just 30 per of net invisibles. During April-December 2002, the proportion was 34 per cent. In other words, the combined (net) income from tourism, travel and miscellaneous services (which include software and ITES) contribute to just a third of invisibles income. The buoyancy in invisible receipts is therefore the result of "trade" in non-service activities, not of services. Second, net earnings from the transfers and income categories are as much as 67 per cent of invisible receipts. In fact, private transfers (comprising mainly remittances) contributed to as much as 86 per cent of net invisibles receipts in 2001-02. (Investment income accounted for a negative 20 per cent). Third, private transfers continue to outstrip software earnings. In 2001-02, net private transfers were almost double software earnings: $12.1 billion versus $6.5 billion. Therefore, if there is one component that continues to contribute to the invisibles phenomenon, it remains the category of private transfers — remittances by Indians working abroad and redemption of NRI deposits in rupees. This does not mean that the pattern of invisible receipts has not been changing. Indeed, over the years the net receipts from private transfers has been steady, while that from "miscellaneous services" (under which software is categorised) has grown rapidly. As recently as 1997-98, private transfers contributed to 115 per cent of total net invisibles receipts, while the contribution of miscellaneous services was under 4 per cent. The turning point was 1999-2000, when income from trade in the miscellaneous services category shot up (on account of the Year 2000 business that drove software exports). In 2001-02, the respective shares of private transfers and miscellaneous services were 86 and 27 per cent, respectively. The growth of earnings by miscellaneous services has been dramatic, but the contribution of transfers/remittances still dominates. Statistics on a net basis, and that too of broad categories, may mask the underlying picture, but not in this case. The disaggregated data presented by the RBI show that on a gross basis India's earnings in invisibles in 2001-02 came from a heterogenous group in which software and other services are important but are only two of many kinds of activities. The accompanying table lists the main areas of gross receipts and payments. Of interest should be the fact that expenditure on "import" of services like financial (insurance, audit etc), management, and "others" (advertising, exhibitions etc) is becoming as important as "export" of certain kinds of services. On the whole it remains a fact that remittances and private transfers of other kinds continue to drive India's surplus in invisibles. Software exports are important and are growing, as are other kinds of services; but income from these exports is still very small compared to what Indian workers abroad are remitting home every year.
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