Issues in the Global Economy - Essay Example

Issues in the Global Economy Table of Contents Table of Contents 2 Introduction 3 Discussion 4 Destinations of its Commercial Services 4 Importance of India’s Commercial Services Exports Account for the Country 6 Critical Evolution on How India Is Participating In Global Trade in Services 8 Conclusion 12 References 14 Introduction Global economy refers to the economy of the world which is different from the economies of individual countries in which each economy is related with the others. Globalisation in the market has led the countries to trade among others and has removed a lot of restrictions of business across the borders. Correspondingly, countries have started to think globally where they are bound to be affected by the state of other nations’ economy. Moreover, due to such activities people now can sell their commodities in the global market while consumers can enjoy a wide range of products and services (Economic Watch, 2010). As the act of globalisation has led to reduce the restriction in the trading system beyond their area of operation, it at times misleads the entire market as the scope of unfair trade practices will also increase in the world. To reduce such practices in the market, World Trade Organisation (WTO), an international organisation came into existence in 1995 to deal with such situation by creating rules and regulations to trade between the nations along with playing a role of watchdog in trading goods and services so that the world economic growth is fostered with correspondence to benefiting countries (WTO, 2011). With these considerations, the study intends to explore the main destinations of commercial services of India, which is one of the nation’s belonging to WTO and is a rapid growing economy. Besides, the importance of India’s commercial services exports account for the nation would also be identified. Subsequently, India’s participation in global trade in services is also exemplified in the study. Discussion Destinations of its Commercial Services India is one of the fastest growing economies and moreover globalisation in the Indian market has led to new opportunities with more challenges and responsibilities. Since the inception in the year 1995, India joined WTO for governance of international trade with augmented opportunities with the member countries and to challenge policies of other developing countries. Advancement in science and technology in the field of transportation and communication in recent years due to globalisation in the economy with more liberalised policies and on-going requirements made the entire world market as a local market for India along with facilitating it to think beyond its territories and trade goods and services across the border. However, trade in services is far different from trade in goods, in terms of inherent nature of both. Services or the commercial services are categorised as invisible, intangible, transience and non-storable. Nonetheless, all such characteristics are not applied in all the services simultaneously. Commercial services are the set of services that the member countries of WTO or the business organisations provide for others commercial applications. For example, hotel service can be ensured to be attainable where the customer wishes to stay it could be beyond there geographical location. Commercial services mainly include transportation, travel and other commercial services such as communication, telecommunication, construction, financial, insurance, computer services, and other personal services. According to Markus Hyvonen and Hao Wang, in their survey stated that since 1990s Indian service sector has increased subsequently, deregulation in the financial market and increased competition widening the range of service industry. This growth can be measured with strong productivity in the services sector. Besides, this growth in the service industry in India is supported by foreign investment mainly in telecom industry. This has led to the service sector’s rapid growth over the last two decades. Furthermore, this statement is supported by the fact that 2011 Indian service sector export amounted to 8% of India’s Gross Domestic Product (GDP) (Hyvonen & Wang, 2012). Figure 1: Services Exports Growth in India From 1981-2011 Source: (Hyvonen & Wang, 2012) The main components in Indian service sector include Information Technology (IT) which is one of the biggest and fastest growing service sectors. It has measured a growth rate of 30% annually (Hyvonen & Wang, 2012). India attained a rank of seventh in the global services related to trade in the entire world according to WTO in 2011 (The Economic Times, 2011). As per data revealed by the Government of India during 2008, the United States (USA) and the United Kingdom (UK) were the major top destinations of exports in the IT software and service sector for India. Subsequently, the USA’s share decreased from 68% to 60% from the year 2005 to 2008 and Europe’s share increased from 23% to 31% during same period of time (Government of India, 2010).The data regarding the top destinations of export of commercial services for the year 2011 is presented below: Figure 2 Source: (Hyvonen & Wang, 2012) Importance of India’s Commercial Services Exports Account for the Country Export plays a very important role in the economy of any country. A healthy substantial development in the trade or in the foreign exchange reserve will enable to maintain the country’s growth constantly in a very high rate. In nations such as India which are growing at a very faster rate, the commercial services exporting is a strong factor which contributes to its GDP. The trend of globalisation and liberalisation has opened the Indian economy further in the previous two decades. The official figure reveals the fact that export and import between 1990 and 2008 increased and the share of export in the Indian GDP also increased from 7.13% to 23.48% (Mukherjee & Mukherjee, 2012). The high growth countries are always characterised by the rapid expansion in their export. In the context of India, the second largest population in the world with huge amount of manpower, more development and emphasis in the field of commercial services exports has led to better employment opportunities, which ultimately has affected the economic growth as well. There have been a lot of advancements and variations in the performance and growth of various sub-sectors of services. Commercial services including IT and communications have been witnessing the fastest pace of growth in the Indian context than other services sectors’ growth. Other commercial services such as real estate, insurance services, transport, defence and personal and storage services have been growing at the same rate as the overall services sector has shown. After the period of 1990s, this sector also has played a substantial role in the GDP of the country. India enjoys a global competitiveness in the field of IT and Information Technology enabled services (ITeS) which has led to increase its activity of export of such services. The demand of such service in the global market will ultimately result in an increase in the revenue prospects. Accordingly, it will affect the economic growth by increasing the number of jobs along with allocating the labour towards higher productive sectors. Apart from the above the services, exports have also increased the tax revenue and domestic demands like the demand for the infrastructure. From the above mentioned facets, it is quite comprehendible that commercial services play an important part for in India’s economic growth by creating opportunities for employment, ensuring the rise in the overall aggregate demand and stabilising the current account deficits through more exports which in turn leads to the multiplier effect on the economy of the country (Singh, 2013; Mukherjee, 2013). Critical Evolution on How India Is Participating In Global Trade in Services Global economy is a complex system made up of different economies. Over the last few decades, various changes have been witnessed in the global economy, which include recession as well as period of prosperity. In this regard, the performance of service sector for a country such as India is vital for its growth and poverty reduction. This is owing to the reason that India is having one of the fastest growing economies wherein service trade covers the largest part in the economy through rendering services such as finance, transportation and communication along with health and education that significantly affects the other sectors of the economy. In the recent years, Indian economy witnessed a huge boost in in the growth of its service sector. India’s service trade to its GDP had risen to 48% of its GDP in the year 2006-07 from the earlier figure during 2000-01 which was 29.20% of the GDP; consequently this remarkable rise can be mainly attributed to the faster growth of global services in trade. During the phase of 1950-51 and 2003-04 the share of the agriculture sector towards the GDP dropped from 55.28% to 21.74 % whereas the share of commercial services augmented to 58.83% from 34.07%. It was noticed significantly that the share of agriculture sector declined, on the other hand the service sector witnessed massive boom in the economy (Burange & et. al., 2009). Even World Bank attributes that the growth in the Indian economy during 1990s was driven by the service sector. The service sector not only waves the domestic market, but also their presence is felt in the country’s external trading. India emerged as the one of the top most countries in exporting and importing of services. The share of services trade was about 30% of total trade in India during 2001 which was far above the world average which governed them comparative advantage in the field of services exports. According to the report of World Trade 2012 about the commercial service trading data, it reveals that India was amongst the top traders of commercial services trading in 2012 with US$ 130 billion which was 4.3% of the world (World Trade, 2012). Figure 3: List of Leading Importers and Exporters related to World Trade in Commercial Services Source: (World Bank, 2014) World Bank report regarding the share of trade in the service industry on the percentage of GDP which is sum of the service exported and imported divided with the value of GDP in 2012 was 14.8% as compared to the year 2009 which was 12.7%. This reflects that India is significantly outperforming in service trading (World Bank, 2014). Trade in services is expanding rapidly over worldwide regions due to technological improvements in the market which has reduced cross-border trading and has facilitated the growth of new categories of exports, which were previously not tradable services. The export of services over global regions has expanded in today’s time frame even faster than the exports of goods. The pace of growth in the service export is reflected in the global market of tradable service which was 0.50% in the year 1990 to 3.3% in the year 2010 and in terms of merchandise or goods exports, it is noticed that only 1% increase had taken place in between the year 1990-2010 (Eichengreen & Gupta, 2012). Figure 4: Share of Goods and Services Exports in between 1990-2010 by India Source: (Eichengreen & Gupta, 2012) As per the reports of Reserve Bank of India, the value of service exported for both the traditional and other services during 2004 to 2011 has been evaluated. Traditional services include travel, insurance and transportation whereas the modern services include software, financial services and communication. Data reveals that the share of modern services has risen from 63% in 2004 to 74% during the same time in 2011. On the other hand, the total export of the country had increased from 8.7% in year 1991 to 20% in the financial year 2010-11.With the advancement in the technology and business procedures, a subsequent rise in the requirement of service trading has materialised. Besides, the share of software service has also grown from 10% to 15% in between the period of 2001-2011 (Eichengreen & Gupta, 2012). Figure 5: Trend of Growth of Modern Services in India Source: (Eichengreen & Gupta, 2012) According to a report published in The Hindu, India was ranked tenth in the export of services over worldwide segment and 20th in terms of merchandise export in the year 2010 as per a lately published WTO report. Moreover, in the year 2009 it was ranked 12th and 22nd respectively. In terms of value of exports of services traded, it was estimated to be around US$110 billion and Indian goods export went up by 31% in the year 2010 which facilitated it to expand its market share to 1.4% from 1.2% earlier. Indian government plays a prior role in promoting of export by deregulating various restrictions on the export of goods and services by creating different Export Promotional Zones (EPZ) and offering financial assistance in order to promote overall economy of the country (The Hindu, 2011). Conclusion From the foregoing discussion, it has been comprehended that the activities performed in the global economy take into consideration the on-going performance of economies of individual countries. It is further determined that globalisation is the key determinant which has led individual economies around the world to conduct trade activities and minimise retractions amid nations so that economies flourish further in the long run. Global trade activities help the countries in improving the qualities, standard of living and ultimately the growth of the country as well. In 1995, WTO emerged and replaced the General Agreement on Tariffs and Trade (GATT) in order to regulate the trade and tariffs worldwide so as to remove the disputes among the member countries. Since the year 1991, India has adopted the liberalisation policies and principles of free trading which has enabled to liberalise its economy in international trade with significant growth as a member country of WTO. It plays a vital role in the global economy and boosts up the world trade. From the above study, it is quite apparent that India is one of the top most exporters and importers in the global merchandise trading along with the commercial service. Moreover, commercial services exports play a dominant role in the economic development of the country which is supported by statistics provided by various sources above. Indian government is providing due assistance and taking different remedial measures in order to boost the services trade which has facilitated it to be regarded as a leading nation in the world in terms of trade. References Burange, L. G. & et. al., 2009. India’s Trade in Services. University of Mumbai, No. UDE31/3/2009, pp. 1-36. Economic Watch, 2010. Global Economy. Economic Report [Online] Available at: http://www.economywatch.com/world_economy/world-economic-indicators/global-economy/define-global-economy.html [Accessed June 12, 2014]. Eichengreen, B. & Gupta, P., 2012. Export of Services: Indian Experience in Perspective. Working Paper. [Online] Available at: http://www.nipfp.org.in/media/medialibrary/2013/04/wp_2012_102_0.pdf [Accessed June 12, 2014]. Government of India, 2010. Export Destinations. IT Software, Services and BPO [Online] Available at: http://deity.gov.in/content/export-destinations [Accessed June 12, 2014]. Hyvonen, M. & Wang, H., 2012. India’s Services Exports. 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