Count it differently

A study by the US government accountability office (the equivalent of India's office of the CAG) has highlighted huge differences between Indian and US balance of payments figures for "business, professional and technical" (BPT) services. Since Indian exports to the US and US imports from India for the same category should be near identical, this should be a matter of concern. The study itself goes on to state that the differences are largely on account of varying definitions used and can be reconciled satisfactorily by making allowances for them. But the US study also goes on to say that the figures it uses, those put out by the US Bureau of Economic Analysis (BEA), are based on internationally accepted norms for the categorisation of balance of payments data, whereas the figures used and accepted by the Indian government are those put out in the first place by a trade association (obviously Nasscom), and are not in consonance with these international norms. Is there a case for the Indian government to change the way it goes about this business, so as to conform to global norms, particularly when the RBI itself has said in a study that India's computer services exports (a big component of BPT) to the US will be far lower if they are computed in accordance with international standards?

It is not as if the services export dollars are not actually coming into India. Nasscom's numbers are compiled from what its members report and are mostly accounted for by large, respected Indian firms and foreign firms based in India. As export earnings are tax-free and scrutinised by the Indian tax authorities, they implicitly endorse the Nasscom figures. On the other hand, the logic of what the US BEA does is self-evident. It does not include under BoP figures what is earned by Indians in the US if they stay there for over a year, which makes them residents in the US. Similarly excluded are payments by US affiliates in India to their Indian vendors (both resident in India) or payments by US firms to Indian affiliates in the US (both US residents). This is because BoP figures should only capture earnings of non-residents and transactions between residents and non-residents.

But it is not enough for the dollars to actually come in; categorisation is also important. Otherwise, numbers lose comparability and even credibility. If IT exports are a matter of pride for India, then other nations should not question the numbers as, for example, many experts do China's FDI figures. The definitional problem for India lies rooted in history. Nasscom reports income from services offshored to India and exported. This began with Indian firms offering software services which were mostly delivered onshore by Indian engineers deputed overseas, during the era of "body shopping". The hard currency incomes of these firms have been seen for what they are""earnings from services exports. Foreign firms setting up Indian facilities have come here to offshore some of their services. Hard currency earnings for India from these firms are also seen as earnings from services exports. A part of services exports gets captured under invisibles and the RBI uses Nasscom figures for its quarterly BoP estimates, as it does only an annual survey of invisibles. Both the RBI and the government should bring Indian BoP figures in line with international reporting practice.