Information & communications technology exports have helped India rebound with promising services exports, according to a new Commonwealth Trade Review.
India’s strong information and communications technology (ICT) sector played a crucial role in the country’s monthly services exports being largely on the rebound after an initial Covid-19 shock, according to a new Commonwealth trade analysis released in London this week.
The 2021 ‘Commonwealth Trade Review’ concludes that Commonwealth countries are estimated to have lost up to $345 billion worth of trade in 2020, including $60 billion in intra-Commonwealth trade. As a result of Covid-19, India’s overall merchandise exports and imports also took a knock and are estimated to have declined by 11.4 per cent and 11.9 per cent, respectively, between March and November 2020.
However, even pre-pandemic, a large share of India’s ICT services were exported via Mode 1 – or cross-border supply enabled through digital means – and thus were relatively more insulated from the adverse effects of the pandemic.
Baroness Patricia Scotland, the Secretary-General of the Commonwealth, said: “India is a major driver of intra-Commonwealth trade and all parts of the Commonwealth need to work together if we are to recover swiftly and effectively from the COVID-19 crisis.
“India along with all Commonwealth members can harness the ‘Commonwealth advantage’ to provide a post-pandemic tailwind that supports a more inclusive, resilient and sustainable recovery.”
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The relatively high incidence of COVID-19 in India, in terms of numbers of infections and deaths, is a key explanatory factor for the trade figures, based on the Commonwealth analysis of raw World Trade Organisation (WTO) and Reserve Bank of India (RBI) data. The abrupt recession caused by COVID-19 further dampened India’s trade growth, but it found that monthly services exports have “largely rebounded after an initial COVID-19 shock in the first half of 2019, supported by exports of ICT-related services”.
The foreign direct investment (FDI) story for the country is also found to be in “stark contrast to the large declines in FDI witnessed globally and in most Commonwealth countries amid the COVID-19 pandemic”. Overall FDI inflows to India are estimated to have expanded by more than $13 billion in 2020, a 29.5 per cent increase over the average annual inflows for 2017-2019.
The growth in FDI inflows to India was spurred by investments in consulting and digital sectors, including significant greenfield investment, and merger and acquisition (M&A) deals in energy and infrastructure.
According to the analysis, in 2019, India was the second-largest global exporter of ICT services (after Ireland), and the largest ICT exporter in the Commonwealth, with exports of these services totaling $70 billion. The value of India’s ICT services exports to Commonwealth countries has almost doubled, going from $9 billion in 2010 to $17 billion in 2019.
“The pandemic has provided India with another opportunity to capitalise on this capacity as more and more services activities have moved online. The preliminary estimates show that the growth rate of the IT sector for 2019-20 has been approximately 10 per cent,” it notes.
The review, entitled ‘Energising Commonwealth Trade in a Digital World: Paths to Recovery Post-COVID’, is seen as a timely and comprehensive analysis of the impact of the pandemic on the trade and investment flows of Commonwealth member countries. It finds that the Covid-19 pandemic has taken a heavy toll globally, substantially impacting all Commonwealth members economies and leading to $1.15 trillion in foregone gross domestic product (GDP) in just one year. Compared to pre-pandemic growth trends in 2020, Commonwealth economies contracted by approximately 10 per cent.
A reassuring finding from the review has been pegged as the assessment that the Commonwealth trade advantage has remained strong and resilient, and is now estimated at 21 per cent, on average. On the investment side, this advantage has almost tripled since 2015, to around 27 per cent.
Looking beyond the pandemic, intra-Commonwealth exports are expected to rebound and surpass $700 billion by 2022. However, FDI inflows to the Commonwealth are expected to decline by 18 per cent in 2021, and a further 7 per cent in 2022.
In absolute terms, Asian economies suffered the largest decline in exports (at $146 billion), followed by African ($20 billion), Caribbean ($4.2 billion) and Pacific members (1.3 billion). However, relatively Caribbean Small Island Developing States (SIDS) underwent a greater slump. Their global exports shrank by almost 20 per cent. These SIDS largely rely on the exports of services, particularly travel and tourism, which were hit hard in this pandemic.
For FDI, the drop affected all developed and developing countries but to a varying degree, with Australia and Rwanda notably experiencing a 50 per cent decline in inflows compared with the pre-pandemic (2017-2019) average.
Only eight Commonwealth developing countries recorded higher overall FDI inflows in 2020 compared with this previous average. Besides India in Asia, the others were The Gambia, Malawi and Sierra Leone in Africa, Belize, Guyana and Trinidad and Tobago among Caribbean SIDS and Papua New Guinea in the Pacific.
The Commonwealth review warns that the pandemic’s disproportionate impact on already vulnerable economies, societies and healthcare systems exacerbates existing challenges to achieving the UN Sustainable Development Goals.