India’s services exports on rebound after COVID shock: Commonwealth Report

India’s monthly services exports have largely rebounded after an initial COVID-19 shock, finds a new Commonwealth trade analysis released in London on Tuesday.

The 2021 ‘Commonwealth Trade Review’ concludes that the Commonwealth countries are estimated to have lost up to USD 345 billion worth of trade in 2020, including USD 60 billion in intra-Commonwealth trade.

As a result of COVID-19, India’s overall merchandise exports and imports 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 information and communications technology (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, the report 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,” said Baroness Patricia Scotland, the Secretary-General of the Commonwealth.

“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,” she said.

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 FDI story for the country is also found “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 USD 13 billion in 2020, a 29.5 per cent increase over the average annual inflows for 2017-2019, the report said.

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, it said.

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 USD 70 billion.

The value of India’s ICT services exports to Commonwealth countries has almost doubled, going from USD 9 billion in 2010 to USD 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 USD 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 USD 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.

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