Monday, November 27, 2006

>Small services earn India big money

They may seem insignificant, but they are actually raking in the big bucks. Not-so-hot items like business management and consultancy, advertising and trade fairs, legal advice and architectural & engineering services have earned the country a gross $12.9 billion in 2005-06.

Lost in the basket of miscellaneous services, the little known earnings from these streams make up for more than half of software services that are more widely talked about.

The contribution of these services to the Indian economy was revealed by a study on “invisibles” in India’s balance of payments by the Reserve Bank of India (RBI).

These services under the head “Business services” — which also include accounting and auditing services and environmental services (income out of trading in carbon credits) — earned the country a gross of $12.9 billion in FY06 as against $23.6 billion from software services.

And for the first time, these services earned a surplus of $2.5 billion as compared to a deficit of $500 million to $2 billion annually over the past six years. According to sources at the central bank, individually many of these services earned insignificant amounts. But in the past few years, income has grown so much that it has become necessary to report them separately.

Architectural and engineering services, comprising predominantly engineering services raked in a net of $3 billion in FY06. According to Nasscom, $10-15 billion of the $750 billion spent on engineering services is offshored. And India corners about 12% if this offshore market. It projects a strong potential for this segment as the global spend is expected to grow more than $1 trillion, with outsouricing also expected to grow.

India has the single largest pool of engineering talent among the emerging countries capable of taking on more work than Russia and China combined.

The current Indian graduate talent pool suitable for engineering services represents 28 % of the total in low-cost countries. But on the flip side, not all are equipped with the skill sets required to succeed in the market. Another business service-management and consultancy generated $1.6 billion during the year.

Of the 12 items classified as business services, eight are net forex earners. While the deficit under two heads — advertising and trade services has significantly narrowed. Gross advertising revenue jumped from $162 million in FY05 to $435 million in FY06. As a result, the deficit under this head halved to $172 million from $352 million in the previous year. Another area which has done well is environmental services. Net earnings, though small at present went up to $8 million in FY06 from a mere $1 million in the previous year.

With many polluting units (with emissions beyond the threshold level permitted by the Kyoto Protocol) in Europe committed to reduce their emission levels through purchase of credits from non-polluting units (those with emissions below the threshold level) from lesser developed countries, India has a strong potential in this area.

Besides, software and business services, even financial services have emerged as net earners of foreign exchange. Net inflows on account of financial services amounted to $1,087 million in 2005-06, according to the latest balance of payments figures.

Flows from financial services in the balance of payments are non-interest receivable and payable in respect of a financial entity. These essentially comprise brokerages, commissions and discounts earned by banks and other authorised dealers for various financial services rendered and guarantee fees on certain overseas borrowings.

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