Friday, November 28, 2014

US Government Explains 20X Difference Between US-India BPT Trade Figures


A GAO study showed that U.S. data on offshoring of services to India are more than 20 times smaller than India’s data. What’s the story?
The GAO study showed that U.S. imports from India of business, professional, and technical (BPT) services as published by BEA are substantially lower than India’s data on exports of BPT services to the U.S. (chart 1, left panel).1 However, when adjusted to a similar conceptual basis using information from the GAO report, the difference is actually quite small (chart 1, center panel).

The large gap between the U.S. and Indian data mainly reflects differences in how BEA and India define BPT services. BEA data are consistent with international standards for balance of payments accounting; India’s data, which are based on data from an Indian trade association, do not conform to international standards.  In fact, a 2005 study published by the Reserve Bank of India (RBI) showed that computer services exports (a large component of BPT services) to the U.S. based on international standards are much lower than India’s published data (chart 1, right panel).2 In addition, a 2004 report by the OECD found that 97 percent of India’s exports of computer services to large OECD member countries were unaccounted for in those countries’ data on imports.3

Depending upon how one adjusts for important definitional differences, the gap between the U.S. and Indian estimates either entirely disappears or is substantially reduced.
Chart 1: U.S. and Indian Data on Trade in BPT Services, 2002
Chart 1: U.S. and Indian Data on Trade in BPT Services, 2002
Source: GAO; calculations by BEA
1 Government Accountability Office, “U.S. and India Data on Offshoring Show Significant Differences,” October 2005.
2 Reserve Bank of India, “Computer Services Exports from India: 2002-03,” Reserve Bank of India Bulletin, September 2005.
3 Organization for Economic Co-operation and DevelopmentInformation Technology Outlook 2004, October 2004.


 
What are the reasons for differences between U.S. and Indian data on trade in business, professional, and technical services?

The U.S. and Indian data on trade in business, professional, and technical (BPT) services are not directly comparable because of substantial definitional differences.  When the U.S. and Indian data are adjusted for definitional differences, the difference in estimates either entirely disappears or is substantially reduced.  Some major definitional differences are:
      Indian workers in the United States.  India’s data on trade in BPT services include services provided by Indian nationals who reside in the United States.  BEA follows international standards for balance-of-payments accounting by excluding the compensation paid by U.S. firms to U.S. residents.  Foreign workers who are in the United States for less than one year are considered to be foreign residents, and typically their earnings are included as compensation of employees (under “income” in the balance of payments accounts).  Workers who are in the United States for more than one year are considered to be U.S. residents, and so their earnings are excluded from the balance of payments accounts.  According to the GAO study, Indian officials acknowledged that temporary Indian workers in the U.S. have accounted for about 40 to 50 percent of their data on exports of BPT services.

b)      Sales through affiliated companies.  India’s data on services exports to North America include sales of services to affiliates of U.S. companies located in India or another foreign country, as well as sales by affiliates of Indian companies located in the United States to other U.S. residents.  According to international standards, BEA excludes these sales from U.S. trade in services because the transactions did not occur between a U.S. resident and a non-resident.  A U.S. company’s foreign affiliate that is located in India is an Indian resident, and so its transactions with other Indian residents should not be included in the balance of payments.  Similarly, an Indian company’s affiliate in the United States is a U.S. resident, and so its transactions with other U.S. residents should not be included. According to the GAO study, an Indian official stated that inclusion of sales to affiliates of U.S. companies is “likely a significant factor” accounting for differences between U.S. and Indian data.

c)      Sales of goods.  India’s data on trade in BPT services include some sales of goods, such as prepackaged software and software embedded on computer hardware.  The U.S. data on trade in these products are included in the goods trade data, not in the services trade data.  According to the GAO study, Indian officials stated that embedded and prepackaged software account for about 10-15 percent of India’s estimate of exports of BPT services to the U.S.

d)      Sales of technology-enabled services.  India’s data on trade in BPT services include some technology-enabled services (such as some financial services).  BEA includes these services in other services categories.

e)      Intrafirm trade.  Through 2006, U.S. data for trade in services are collected separately for cross-border trade between unaffiliated companies and for intrafirm (or affiliated) trade.  The surveys that BEA uses to collect data on unaffiliated trade are detailed enough to allow BEA to identify trade in BPT services vis-à-vis India.  Affiliated trade, however, is collected on separate surveys, and data for individual foreign countries that separately identify BPT services are unavailable.  Therefore, reported BEA data for BPT trade with India cannot be directly compared with the Indian data, because BEA’s data for BPT services include only unaffiliated trade and India’s data on BPT services include both affiliated and unaffiliated trade.


 
How did BEA calculate the adjusted data shown in the chart above?

BEA adjusted both its own estimates and the Indian estimates to eliminate definitional differences between U.S. and Indian data.

BEA adjusted its own data to include an estimate of affiliated transactions, which are collected on surveys that do not allow for BPT services to be separately identified by individual foreign country. In order to estimate affiliated imports of BPT services from India, BEA used a ratio calculated from global affiliated and unaffiliated imports of BPT services. BEA used the same procedure to estimate affiliated imports of computer services (table 1).


Table 1: Adjustments to BEA’s data, 2002
[Millions of dollars]
 
  BPT ServicesComputer Services
    
Published BEA estimates (based on reported data)  
    
a.Global imports33,4884,315
b.   Affiliated imports23,9402,800
c.   Unaffiliated imports9,5481,515
d.Ratio [b/c]2.511.85
    
e.Unaffiliated imports from India 288201
    
Implied estimates (derived from global ratios)  
    
f.Affiliated imports from India [d*e]722371
    
g.Total imports from India [e+f]1,010572

Source: BEA.


Data from India on BPT exports to the U.S. were adjusted to remove the definitional differences with BEA data and international standards as described above. BEA based the adjustments on information provided in the GAO study. Not all differences were quantified in the study, so some differences remain (table 2).


Table 2: Adjustments to India’s BPT services data, 2002
[Millions of dollars]
 
  High estimateLow estimate
    
I.Exports of BPT services (published by India; chart 1, left panel)6,4646,464
    
II.Adjustments for definitional differences (derived from GAO report):  
 a. Indian workers in the U.S.40%50%
 b. Sales through affiliated companies20%30%
 c. Sales of goods10%15%
    
III.Total [a+b+c]70%95%
    
IV.Adjusted Indian estimate of exports of BPT services [I*(1-III)] (chart 1, center panel)1,939323

Source: GAO; calculations by BEA.


The ranges for adjustment factors (a) and (c) were provided by Indian officials and published in the GAO study. The effect of factor (b) was estimated by BEA at 20-30 percent, because the GAO study said that Indian officials thought the effect of this factor was “significant” but that the effect of factor (c) was “insignificant” at 10-15 percent.

The September 2005 RBI study on Indian sales of computer services provided data that corrected for some definitional differences but the estimates still were not directly comparable to U.S. estimates because the Indian estimates were presented based on trade negotiation categories (i.e., GATS rules) that included sales by Indian-owned companies in the United States to U.S. residents, sales by Indian workers in the United States, etc. BEA used data from the RBI study to calculate a ratio of Indian exports of computer services using balance of payments definitions to total (broadly defined) deliveries of Indian computer services using GATS rules at the global level; this ratio was 39%. In addition, the study provided data on the delivery of Indian computer services (broadly defined) to North America. BEA used the global ratio to estimate balance-of-payments basis exports of computer services to North America. BEA then estimated the portion of exports to North America attributable to the U.S. using information from an Indian software trade association (table 3).


Table 3: Adjustments to RBI’s Computer Services Data, 2002
[Millions of dollars]
 
  India's exports of computer services
a.Global delivery of services - broad definition31,133
b.Global exports - balance-of-payments basis12,077
c.Ratio [b/a]0.39
   
d.Delivery of services to North America - broad definition4,046
e.Exports to North America - balance-of-payments basis [c*d]1,569
   
f.Ratio (U.S./North America)0.82
   
g.Exports to United States [e*f] (chart 1, right panel)1,287

Source: RBI; NASSCOM; calculations by BEA. 


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28 comments:

Iqbal Singh said...

Does that mean that people in the US are unduly concerned about Outsourcing to India? Your figures show that politically it should not be a hot potato at all. This is good news for India. Is Tata Consultancy, Infosys, Wipro, IBM India and others on the NASDAQ padding their numbers?

On the other hand, India has a merchandise trade deficit on average of about $160 billion and yet it's foreign exchange reserves have grown slightly to $313 billion as of September. How is this gap being bridged?

Riaz Haq said...

Iqbal Singh: "Does that mean that people in the US are unduly concerned about Outsourcing to India?"

Americans care little about trade figures but care a lot about jobs and wages both of which are being depressed by H1-B workers imported by Indian body shops operating in the US.

Indian-American Prof Ron Hira has been quite vocal about some of these issues. Here's an excerpt from one of his Op Eds in NY Times:

The U.S. has benefited economically, culturally and scientifically from high skill immigration. Look at any university faculty or research laboratory and the fruits are obvious. But the public debate over high-skill immigration has been plagued by widely held myths. The H-1B visa program — guest worker permits held by an employer — is thoroughly corrupted and needs to be cleaned up immediately.

Loopholes enable employers to hire H-1B workers at below-market wages, and bypass American workers, never even entertaining their applications for a position. In fact, some firms replace American workers and their contractors with guest workers on H-1B and other visas, at times even having their American workers train their foreign replacements. This is not a hypothetical problem: According to news reports, companies like I.B.M., Nielsen and Pfizer have engaged in such practices.

The corrupted H-1B program allows companies to train H-1B workers here, and then rotate them and their jobs offshore.

The H-1B application process effectively does nothing to protect U.S. or foreign workers and their working conditions. And there is virtually no oversight of the weak regulations in place. A recent audit of the program by Department of Homeland Security found that more than one in five H-1Bs were granted under false pretenses, either outright fraud or serious technical violations.

To qualify for an H-1B one only needs to hold a bachelor’s degree, something that one in four Americans in the work force have. Worse, contrary to conventional wisdom, the program actually speeds up the offshoring of American jobs.

This is so obvious that India’s commerce minister, Kamal Nath, has called the H-1B the “outsourcing visa.” In 2008, Infosys, Wipro, Satyam and Tata Consultancy, all offshore outsourcing firms, were the top H-1B recipients. They use the H-1B and L-1 visa programs to facilitate the offshoring of American jobs to low-cost countries like India. Companies achieve this by bringing foreign workers to the U.S. for training and then rotating them back to their home country, with improved skills.

Employers can sponsor an H-1B worker for permanent immigration, but many never do so. For workers lucky enough to be sponsored, the wait for a green card can be as long as 10 years because the numbers of temporary work permits like the H-1B and L-1 being issued annually is far higher than for green cards.

While waiting for a green card H-1B workers are put in a horrible position. They effectively can’t change jobs or even take a promotion without going to the back of the green card line. This kills any bargaining power they might have with employers, depressing everyone’s wages and working conditions. In addition to reforming the H-1B and L-1 visas, we ought to clear out the backlog of those waiting for green cards and devise a more rational approach to high-skill immigration that is fair to American and foreign workers.

Both the American worker and the guest worker are harmed by the current immigration system. Who benefits from this mess? The corporations that can take advantage of exploitable workers.


http://roomfordebate.blogs.nytimes.com/2009/04/08/do-we-need-foreign-technology-workers/?_r=0

Roy said...

Not to forget that the report is from 2002,

Riaz Haq said...

Roy: "Not to forget that the report is from 2002"

The report is from 2006. But the issue is not what year the data is from or when the GAO study was done. The issue here is the methodology used by India which counts H1-B wages earned by Indian workers in the US as exports. That methodology wildly overstates India's BPT exports and remain in force today.

Bull said...

Mr Raiz , what u know about India and what r there standard of education , u can watch that video by most educated and intelligent Pakistani .watch that video on fb .https://www.facebook.com/video.php?v=10152890954539429

Can Pakistan also reach Mars? Dr. Pervaiz Hoodbhoy (Ph.D MIT)

Riaz Haq said...

Bull: "Mr Raiz , what u know about India and what r there standard of education , u can watch that video by most educated and intelligent Pakistani"

India's standard of education is very low. Its quality is very poor.


Pakistan's education is not good either but Pakistani children still outperform Indian children on basic math and reading skills.

http://www.riazhaq.com/2014/08/pakistani-children-outperform-indian.html

Internationally, Indian kids rank at the bottom on tests like PISA and TIMSS.

http://www.riazhaq.com/2011/12/pisa-timss-confirm-low-quality-of.html

Ratna said...

@iqbal
How do you bridge the trade merchandise gap of $ 160 billion and foreign reserves going up?

@ Riaz
No answer

2014
3.5 million ITes & BPO employees ( not H1-B ) in India. Average salary $6000 per annum = $19.5 billion. Add Company profit and other non payroll costs to that figure.

Total Revenue from foreign sources = 87 billion fiscal 2013/2014

2015
Projected = $105 billion foreign, local = $25 billion

If India can do this with poor education as you say how amazing it will be when education is better!!!!

Riaz Haq said...

Iqbal Singh: "How do you bridge the trade merchandise gap of $ 160 billion and foreign reserves going up?"

None of India's government figures are reliable, including its GDP and BoP figures.


In "Capital in the Twenty-First Century", French economist Thomas Piketty argues that the GDP growth rates of India and China are exaggerated.

Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data."

"In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

http://books.google.com/books?id=J222AgAAQBAJ&printsec=frontcover&dq=thomas+piketty&hl=en&sa=X&ei=R7g0VMO3PMfjoASlvIGYDg&sqi=2&ved=0CB0Q6AEwAA#v=snippet&q=Indian&f=false

Agni V said...

It amuses me, how Haq distorts the reality. His intent from this copied article is simple. To show that Indian earnings from IT are no where as large as Indians report. Nothing of that sort was the intent of original author of the report.

Firstly, though the report is from 2006 it is based on 2002-2003 data. Secondly, the entire purpose of the report was to show that the data captured by BAE and that by the Indian trade associations are pointing to the same facts. However Indian Trade associations are simply counting additional items which BAE does not recognize as per so called 'international standards'. Well, for one thing, Americans are actually the worst followers of international standards in every place, Imperial System of measurements, driving and what not. I doubt any of those standards are published standards and protocols. For exmaple, consider Microsoft or CitiBank operating IT functions out of India. In both the cases Microsoft India R&D Pvt Ltd and CitiBank Technology Centre India Pvt Ltd are fully owned subsidiaries of their respective parent companiesm yet BAE will not count the services produced in these in their export tabs as the money didn't change hands between owners of different countries. From an Indian point of view, these companies operate in what is called as Software Export Zones, so their services are by definition exported. There lies one big source of disparity in number reported. Either way both of them are telling truth from their perspective and certainly Indian Trade Association is not exaggerating and by reading the report I didn't find that original author had any intent to say that, he was merely clarifying the disparity in numbers seen in OECD imports and those reported by Indian counterparts as exports. In the end, the numbers are indeed what they are, money earned by India by providing IT and IT enabled services to foreigners. You dont want to call it export, fine. They are still in our collective pockets.

Mahesh said...

All Indian government figures are unreliable including its GDP and BoP figures.

In your view is this just the proverbial HOUSE OF CARDS? When is it going all come crashing down?

3rd quarter figures came out. GDP growth slowed to 5.3% compared to 5.7% for the same period 2013. Another lie?


Picketty work was very poorly taken out of context by you. His fantastic book illustrates how inequality is growing. Capital formation is becoming concentrated or there is less exchange of goods and services (the black hole) so in essence GDP figures as we know it don't reflect that.
The rich get richer faster and the poor don't benefit by GDP growth as they should.

Riaz Haq said...

Mahesh: "In your view is this just the proverbial HOUSE OF CARDS? When is it going all come crashing down?"

Growth hides a lot of structural problems like continuing large trade and budget deficits. Confidence is fragile thing and it can break suddenly at any time without a warning as we have seen in many countries before. In India's case, there's huge dependence on foreign inflows which could end quickly at the first sign of trouble.

Chandra Ramgopalam. PhD(Econ) said...

In "Capital in the Twenty-First Century", French economist Thomas Piketty argues that the GDP growth rates of India and China are exaggerated.

"Exaggerated" yes but in terms of uneven growth. Prominent economist Picketty is the foremost authority on inequality and GDP growth. He is citing China and India as examples; however, it applies to all fast growing emerging economies - Pakistan included.

He proposes GDP growth should be lowered using a negative factor derived from inequality factors. However, measuring inequality is an inexact science.

If you use quotes, please explain it properly.

Anonymous said...

'In India's case, there's huge dependence on foreign inflows which could end quickly at the first sign of trouble.'

This is your conclusion based on what?

Services is surplus
Remittances is surplus
Trade in manufactured goods is surplus(The deficit is almost entirely oil and gold imports whose international prices is collapsing)
FDI is positive

Sum all the above and the gap is only 30 billion for a usd 2 trillion economy.

India's FX reserves are 300 billion +

FIIs are over and above this rock solid edifice.

Mahesh said...

Riaz Sir,

Could you be more specific than "foreign inflows"?
FII are what you call hot money most likely coming from overseas mutual funds. FDI are investments in infrastructure, projects etc - and these are more permanent.

Out of total foreign investment 2013/2014 fiscal of $45 billion, $30 billion is FDI and $15 billion is FII.

The FOB trade deficit is $175 billion. Services exports of $85 billion, FDI & FII of $45 billion and net remittances of $70 billion allowed Foreign exchange reserves to go up by $25 billion to #318 billion.

Therefore today, even if the hot money ($15 billion) somehow vanishes as you have implied, the country is in a sound position.

Read the Wall Street Journal 11/29/2014, page A8 illustrating fall in India's growth to 5.3% last qtr, yet WSJ's Raymond Zhong says "India is on a firmer footing than last year, when news of possible tightening in US monetary policy roiled Indian markets and triggered massive capital flight"

Tushar said...

Theresa Rivas of Barron's Magazine on November 26, wrote ,

"We expect a large capital account surplus in 2015, of about US$50bn, due to rising FDI and strong portfolio inflows. The Modi administration has focused on attracting FDI to kick-start the investment cycle. Foreign trips by the Prime Minister have resulted in a number of governments committing to invest in India. Exhibit 2 shows FDI pledges by Japan, the US and China totalling US$96bn over the next few years. In addition, the government has opened up the railways and the defence and construction sectors, which should attract greater FDI. If Parliament passes the insurance bill in the winter session, it would raise FDI limits from 26% currently to 49% in insurance. Moreover, better medium-term growth prospects for India can act as a catalyst for FDI inflows. Indeed, FDI inflows have increased since the May parliamentary elections, and are now averaging over US$3bn a month."

I feel strongly that your pessimism for the Indian Economy is perhaps unfounded.

Agni V said...

Gold and precious gems make a 11 % of India's import. Both are a bit controversial, in the sense that you do not consume them you can also sell them later for much higher price. In that sense I doubt India and Indians are losing money or buying more than selling. They are simply converting value from INR into gold, some thing which the richest of the folks in the west do as well to hedge against inflation risks. If you discount gold and precious gems from import account you more than even. Also please look at this

http://www.tradingeconomics.com/india/current-account

India's current account deficit is improving like anything.

Riaz Haq said...

Excerpt from PressTV Op Ed

Some 'sponsored' surveys and reports are painting the rosy picture of India, ignoring many realities that lie underneath the surface. As per the Grant Thornton Global Dynamism Index, India is the fifth best country in the world for dynamic growing businesses. The index is a reflection of the feasible environment it offers for expansion of businesses. Further, India's economic confidence reached 68 per cent in August 2012, marking a surge of 8 points from previous months, according to 'Ipsos Economic Pulse of the World' survey. As per a study by Deloitte Touche Tohmatsu Ltd (Deloitte), India is slated to be the second largest manufacturing country in the next five years, followed by Brazil. On the Ernst & Young's (E&Y) renewable attractiveness index, India is perched at fourth position. On the solar index, India is ranked second and on the wind index, it is ranked third, as per the latest study by E&Y and UBM India Pvt Ltd.

What these surveys tell ypu is that India is a rising power and Goliath and everything about India is hunky-dory. What they don’t tell you is that most of Indian states are mired in world's highest levels of poverty and some human development indicators are among the worst in the developing world. The hype about India as emerging global giant overlooks the simple fact that the growth is not inclusive and superficial to the extent that it is only on the surface and not getting penetrated deep enough to be sustainable and beneficial to all.


In modern India's context, dualism juxtaposes the hi-tech boom areas with the vast tracts of economy that have barely been touched by post-91 economic reforms. In Indian society, small islands of excellence, prosperity and possibilities are surrounded by a sea of mediocrity, deprivation and discontent.

India may be a full-fledged capitalist country, a liberal economy and a rising money power, but there are people who still eat grass, sell their children, hawk their kidneys, and commit suicides out of desperation. For every million new entrants to India's burgeoning middle class, there are tens of millions still trapped in grinding web of rural poverty, barely earning a dollar after a back-breaking labor. The Global Hunger Index (GHI) 2010 – a report by the International Food Policy Research Institute (IFPRI), ranks India below countries such as Rwanda and Sudan, putting it in the “alarming levels of hunger” range. While the cheerleaders drumbeat about the overall growth, they don’t seem to care about the poorest of the poor.

Countries like China and Vietnam, like India, have shown sharp growth in GDP rates. But unlike India, they have also succeeded in bringing down the levels of poverty and hunger. The major reasons for that is lack of education, abysmal quality of work, rampant corruption, sloppy implementation of projects and schemes, lack of proactive action in policies and the unchecked population growth. Development models have only created islands of prosperity and oceans of deprivation.

Some 65 per cent of people in India live on agriculture, which accounts for around 18 per cent of GDP. The World Development Report in 2008 stated that one per cent growth in agriculture is twice more effective in reducing poverty than similar growth in the non-agricultural sector. But lately, the focus hs shifted from agriculture to IT and telecom sectors.

Gender inequality and malnutrition are highly correlated, and it is no surprise that Global Gender Gap Report 2010 ranked India 112th out of 134 nations worldwide for gender equality. It reminds me of the arithmetic sum we used to solve in school days. It was about a monkey who climbs two feet and slips down one foot in a minute, so in how many minutes will the monkey take to climb a 25 feet pole. India's growth story looks very similar to this interesting monkey sum.


http://www.presstv.com/detail/2013/04/11/297730/the-myths-about-indias-growth-story/

Agni V said...

Haq bhai,PressTV is based out of Iran, not exactly a country I will rely on for their openess and accuracy of reports. I wonder if their "Analysts" ever visited India. Read this ...

http://www.livemint.com/Politics/rUGpGL9KeroKGBf0xQw4kK/India-betters-its-rank-in-Global-Hunger-Index.html

It says according to 2014 report of global hunger index, india is now ranking 55, above both pakistan and bangladesh (tied for 57). She has made some real good strides to reduce hunger. She is nowhere near sub saharan countries.

China has much worse income inequality compared to India, if Gini index is to be believed. India is well, simply not as rich as china presently but we are getting there.

About the agriculture point. I just want to roll eyes. Indian government provides a hell lot of subsidies to our farmers, and any more push in agriculture will be wasteful. It will be better to provide push for value addition like processing produce into better sellable items. As far as IT goes, all our government does is to provide land at a very reasonable price for SEZs and favourable tax regimes thats it! Rest is all private companies setting their business here. Actually IT and ITES have been very instrumental in pulling lots of people out of poverty.

Now come Gender inequalities, you will be surprised to know that according to 2014 data (http://en.wikipedia.org/wiki/Global_Gender_Gap_Report), India is above likes of UAE, South Korea, Quatar, Saudi Arabia etc. And btw, none of these south korea quatar saudi arabia etc are really malnutrition prone countries. This thesis is not supported by the data.

Please in the future choose sources which are reliable and not just because they have a particular religion. Love and Peace. --- Abu Smit Agni Vesh Singh

Riaz Haq said...

Agni V: "Haq bhai,PressTV is based out of Iran, not exactly a country I will rely on for their openess and accuracy of reports."

The Op Ed writer is an Indian in New Delhi who knows the ground reality there.

Having made a slight improvement in one or two areas does not make India an emerging superpower as India's cheerleaders in India and the West would ave us believe.


Here's how Indian journalist Pankaj Mishra described the reasons for western hype of India and things Indian since the end of cold war:

"Born of certain geopolitical needs and exigencies, this vision was always most useful to those who have built up India as an investment destination and a strategic counterweight to China, and who have sought to bribe and cajole Pakistan’s military-intelligence establishment into the war on terrorism.

Seen through the narrow lens of the West’s security and economic interests, the great internal contradictions and tumult within these two large nation-states disappear. In the Western view, the credit-fueled consumerism among the Indian middle class appears a much bigger phenomenon than the extraordinary Maoist uprising in Central India."

http://www.bloombergview.com/articles/2012-04-22/pakistan-s-unplanned-revolution-rewrites-its-future

Riaz Haq said...

Every Aussie who takes an interest in such matters knows how a country goes from being undeveloped to developed. We've been watching our neighbours do the trick for years. It's called export-oriented growth.
It's all about building a big manufacturing sector. You encourage under-employed rural workers to move to the city and take jobs in factories.
Because your one big economic advantage is an abundant supply of cheap labour, you start by concentrating on making low-cost, simple, labour-intensive items such as textiles, clothing and footwear.
Since the locals don't have much capacity to buy this stuff, you concentrate on exporting it. Foreigners will lap it up because to them it's so cheap.

As the plan works and the country's income rises, you plough a fair bit back into raising the education level of your workers, which allows you to move to making more elaborate goods and to paying higher wages. You're on the way to being a developed country.
Over the decades we've seen a succession of countries climb this ladder: Japan, Hong Kong, South Korea, Taiwan, China and now even Vietnam and Bangladesh at the bottom. It's like pass-the-parcel: as each country's labour gets too expensive to be used to produce low-value thongs and T-shirts, some poorer country takes over and starts the climb to prosperity.
That's the way it's always done. Except for one country: India. Its economy started growing strongly in the 1990s and now it's the world's third-biggest (provided you measure it correctly, allowing for differences in purchasing power).
India has got this far without building a big, export-oriented manufacturing sector. It's done something that's probably unique: skipped the manufacturing stage and gone straight to the rich-country stage, in which most growth in jobs and production comes from services.
The Indians have done it by being so good with software and other information and communications technology and the things that hang off it, such as call centres. It's a big export earner.
It's an impressive effort, and there's no reason a developing country shouldn't have a big tech sector.
But, even so, the experts are saying India would be a lot better off if it had a bigger, more vibrant manufacturing sector, employing a lot more people who, by Indian standards, would be on good wages. This is a key theme in the Organisation for Economic Co-operation and Development's report on the Indian economy, issued this week.
The report offers suggestions on what could be done to encourage the growth of manufacturing, which go a fair way towards explaining why manufacturing never really got going the way it did in other "emerging market economies".
First, some basic facts. India has a population of 1250 million and before long it will overtake China's. About 29 per cent of the population is younger than 15.
Manufacturing accounts for only 13 per cent of India's gross domestic product, which is low compared with the other BRIICS emerging economies Brazil, Russia, Indonesia and China, but not South Africa.
Indian manufacturing probably accounts for a slightly smaller share of its total employment. Huh? It's normally the other way round. You'd expect it to be quite labour intensive. But despite abundant, low-skilled and relatively cheap labour, Indian manufacturing is surprisingly capital and skill intensive, the report says.
Almost two-thirds of manufacturing employment is in companies with fewer than 10 employees. That compares with Brazil's 9 per cent. This tells us the sector's many small firms mean it isn't exploiting its potential economies of scale.


Read more: http://www.smh.com.au/business/comment-and-analysis/india-developing-despite-ignoring-manufacturing-sector-20141121-11r4xo.html

http://www.oecd.org/economy/economic-survey-india.htm

Anonymous said...

with increased automation # of workers in manufacturing is falling globally.

Even in China the workshop of the world manufacturing employment has been falling for every year of the past 15 years.

Most jobs globally not just in
India are going to come from services as manufacturing gets even more automated and things like 3D printing become more and more mainstream and labour an insignificant input most manufacturing will happen near consumption markets.(this will happen in the next 10 years).

India by accident got it right!

Riaz Haq said...

The reason vast majority of Indians are mired in deep multi-dimensional poverty is because not only does India lack of manufacturing (just 13% and declining) but it also has very low value added per capita in agriculture which employs over two thirds of India. In fact, India's value added per capita in agri is about a half of Pakistan's.

http://www.riazhaq.com/2014/10/india-pakistan-economic-comparison-2014.html

http://www.riazhaq.com/2014/10/multi-dimensional-poverty-index.html

Anonymous said...

Currently the whole data of PPP and hence poverty line is undergoing a bit of adjustment.

Different blogs are showing different data, the blog you pointed,

http://www.cgdev.org/blog/global-absolute-poverty-fell-almost-half-tuesday

shows number of abject poors in India at 102 million, or 8% of total population, assuming Indian population being 1.25 billion. I totally disagree to believe that, it is closer to 20% or may be 25%. I won't argue about the number of poors in the world till the correct data and scales are released by World Bank so we can see a better picture.

Now moving on to entire manufacturing thing, while manufacturing gives a lot of jobs, it is capital intensive and also pollutes the environment like anything. Look for reports of pollution in Beijin and Shenzeng. Indian chose IT and ITES because cost of setting up a code shop was minimal compared to a smelting plant and the rewards were amazing. Better being code coolie than a real coolie. It worked for the educated class really well.

Now, I think post Modi the manufacturing sector will pick up as he makes investing capital in India easier. This will cover those without higher education. India is very well on its path to become a superpower.

Meanwhile, Pakistan will keep on lying about its GDP growth rate and you will keep on saying that it grew 4.1% while real growth was merely 3.3%.

http://tribune.com.pk/story/733818/fy14-growth-rate-was-3-3-govt-admits-to-imf/

Riaz Haq said...

Anon: "Look for reports of pollution in Beijin and Shenzeng."

The world's top 4 dirtiest cities are all in India.

And half of the top 20 dirtiest cities are India, according to WHO:

Here's an excerpt from a 2014 NY Times story:

New Delhi’s air is the most polluted in the world, according to an international report that quantifies pollution levels, confirming findings by experts confounded by the lack of attention to the city’s problem.

The findings by the World Health Organization, released on Wednesday, show that the cities ranking second through fourth are also in India, in the central Hindi belt.

For years, experts have wondered why so much international attention has focused on air pollution in Beijing when some say conditions are as bad or even worse in South Asia.
-------
China’s extensive pollution problems have grown out of efforts by the country’s leaders to develop manufacturing and industrial capacity no matter the cost. But India has little to show for its toxic air. The country’s economy is sputtering, its small manufacturing sector has been shrinking, and efforts to build roads and open coal and metal mines have foundered on corruption and environmental concerns. Pakistan, which had three cities among the world’s 10 most polluted, has even less to show for its pollution levels, as economic growth there has been well below India’s for decades.

http://www.nytimes.com/2014/05/09/world/asia/cities-in-india-among-the-most-polluted-who-says.html?_r=0

http://binscorner.com/pages/2/25-dirtiest-cities-in-the-world.html

Half of the top 20 cities in the world with the highest levels of PM2.5 were in India, according to the pollution data released by the WHO, which included 1,600 cities. Other cities with high levels were located in Pakistan and Bangladesh.


http://www.cnn.com/2014/05/08/world/asia/india-pollution-who/

Riddhi5879 said...

You Must not show export import data of other countries. If you have any stunning figure of your country please show that to the world other than Army arsenal which even you can guarantee about the veracity of your own report. If you are really educationist then you must always do which is good for your country not which will destroy your country . If you want to make every Pakistani proud make them proud with reforms in education system, agriculture, science & tech your space program employment opportunity not with accumulation of weapons at the cost of conman Pakistani's hunger. 80 % of Pakistan still lives in 19th century.

Riaz Haq said...

On popular demand, I post a graph of the difference between the GDP data and the RBI Balance of Payments (BoP) data. This is referencing my posts on how the Q4 data has been ‘fudged’ and India is likely to have seen GDP contraction (in real terms, that is, accounting for inflation). Read: Has India Plunged Into Recession? GDP Data Fudge Reveals Details and India *HAS* Seen Negative GDP Growth, BoP Confirms Data Fudge
image
(Click for a larger picture)
As you can see the March 2012 quarter is very strange – Exports are larger in the MOSPI figure than the BoP figure tells us, and GDP imports are much smaller than BoP data.
But there’s an important takeaway.
Exports may have been understated in GDP figures in the first three quarters of this year, by about 65,000 cr. The discrepancy in Q4 is about 87,000 cr. So the difference, for the whole year, is a manageable 22,000 cr. You might be able to explain that by saying that they’ve stuffed the corrections into the last quarter. (I don’t believe that – they keep revising earlier quarter numbers with every GDP release – so if you update the past figures, you’re not allowed the excuse that you stuff corrections into the last quarter).
But Imports remain a mystery. Even if you account for stuffing (Imports have been overstated in the GDP in the Sep and Dec quarters) the difference for the full year, between the MOSPI GDP Data and the RBI BoP, is about 120,000 cr., which is a fairly large number to miss.
The difference in imports is so large that even if you rejig for past quarter misses, it will still result in much lower GDP growth. Reworking the numbers for a (-120,000 cr.) net export figure – negative because we imported more than we exported – we still get a nominal growth number of about 4.5%. Subtracting inflation of 7% and, like we’ve talked about, a GDP contraction. Even if we eke out positive growth for the year, It’s not looking good for the last quarter.
I’ve also been told that I’m being silly for believing any of the numbers in the GDP releases, since they are largely figments of people’s imagination. While I hope that is not true, it’s not a theory that can be written off, so please use appropriate pinches of salt.

http://capitalmind.in/2012/07/gdp-data-fudge-vs-bop-recent-differences/

Riaz Haq said...

India survives on large external capital inflows in the form of investments and debts in the post-Cold War era with the West boosting India against China and Pakistan.

Indian economy would collapse without such inflows.

Read the following to get a sense of the magnitude of foreign capital inflows in India:

"Strong capital flows to India in the recent period reflect the sustained momentum in domestic
economic activity, better corporate performance, the positive investment climate, the longterm
view of India as an investment destination, and favourable liquidity conditions and
interest rates in the global market. Apart from this, the prevailing higher domestic interest
rate along with a higher and stable growth rate have created a lower risk perception, which
has attracted higher capital inflows.
The large excess of capital flows over and above those required to finance the current
account deficit (which is currently around 1.5% of GDP) resulted in reserve accretion of
$110.5 billion during 2007/08. India’s total foreign exchange reserves were $308.4 billion as
of 4 July 2008."

http://www.bis.org/publ/bppdf/bispap44m.pdf

"Gross capital flows have increased nearly 22 times from $42.7 billion in 1991-92 to over $932.3 billion in 2010-11. As a
share of GDP, this amounted to an increase from 15.5% in 1991-92 to 55.2% in 2010-11. Much
of the increase in financial integration occurred between 2003-04 and 2007-08. Given the
impressive economic performance indicated by close to 9% growth rate, higher domestic
interest rates and a strong currency, India's risk perception was quite low during 2003 to 2007.
Furthermore, this period was associated with favorable global conditions in the form of ample
liquidity and low interest rates in the global markets—the so-called period of Great Moderation."


http://www.adb.org/sites/default/files/publication/30234/management-capital-flows-india.pdf

Riaz Haq said...

NBP, KARANDAAZ #Pakistan to work to improve financial inclusion. Focus on G2P and P2G #mobilemoney transactions http://pakobserver.net/detailnews.asp?id=278596 …

National Bank of Pakistan (NBP) and Karandaaz Pakistan signed a Memorandum of Understanding (MoU) for jointly working on multiple strategies to create the much-required Digital Financial Ecosystem, through a suite of financial transactions to facilitate the citizens of Pakistan with a focus on Government to Person (G2P) and Person to Government (P2G) transactions. The two institutions agreed to collaboratively develop a comprehensive digital financial services strategy for NBP; develop and deploy the required technology as well as roll out a mobile financial system that will add multiple channels of transactions.

The signing took place at the Karandaaz Pakistan’s office in Islamabad and was attended by senior management from both organizations including Mudassir H. Khan – SEVP/Group Chief CRBG NBP, Azfar Jamal – EVP/Head of Remote Banking & ADC and Mr. Imdad Aslam Interim CEO of Karandaaz Pakistan. Speaking at the occasion, Mudassir H. Khan, stated, “By leveraging on the expertise of Banking and Telcos, NBP aims to achieve its long term goal of financial inclusion in Pakistan and also bridge the service-divide between rural and urban. Development of a Financial Eco-system in partnership with Telecom service providers will be catalyst to extend the financial outreach and convenience to every citizen of Pakistan. NBP is working to enable every possible channel by aggregating all the P2G and G2P transactions.

We are excited to have Karandaaz Pakistan joining us in this initiative, whereby Karandaaz, which is a Bill & Malinda Gates Foundation & DFID sponsored entity, will provide their rich experience and expertise to NBP in building the much required financial ecosystem in Pakistan”. Speaking at the event, Imdad Aslam, Interim CEO of the company, stated, “The potential of G2P payments to accelerate financial inclusion in the short to medium term is tremendous and cannot be over emphasized. On the one hand, governments can determine the way they disburse payments to their beneficiaries and drive them towards digital payment streams, which in turn can enable the creation of financial products that address the barriers to financial inclusion.

On the other hand, social benefit payments, intended for the marginalized and vulnerable, inevitably reach some of the most financially excluded populations. Digitization of such payments, therefore, presents great opportunity to increase recipients’ access to financial services and provide them with a financial transaction history.” Concluding the event on a high note, Imdad Aslam said, “The cost of digitization is overshadowed by the benefits to individuals, financial institutions and the government over time, and we expect to see the same in this case.”