Why in the News?
As of 2024–25, India’s “invisibles” trade—comprising services exports and private money transfers—has not only surpassed its merchandise exports but also emerged as a key stabiliser of the current account deficit.
What are Invisible Exports (in India’s context)?
- What is it: Invisible exports refer to international trade in services and income flows that do not involve physical goods crossing borders. These transactions are digital or financial, rather than visible at ports or airports.
- Types of Services Included: They comprise a wide range of service-based exports such as IT services, financial consulting, legal and accounting services, R&D, and BPO operations.
- Inclusion of Remittances: Private remittances—money sent home by Indians working abroad—are counted as part of invisibles in India’s Balance of Payments (BoP).
- BoP Classification: These transactions are recorded under the “Current Account” of the BoP, specifically in the sub-categories of services, primary income, and secondary income.
- Characteristics: Unlike physical exports, invisible exports do not require shipping, face fewer trade barriers, and rely heavily on skilled human capital.
- Leading Examples: India’s key invisible exports include software and IT-enabled services (by firms like Infosys, TCS, Wipro), Global Capability Centers, financial and legal services, and education, tourism, and medical services.
- Role of Migrant Remittances: Remittances from NRIs and migrant workers play a crucial role and are one of the largest components of India’s invisible receipts.
Their Contribution in Trade
- Higher Value than Goods Exports: In 2024–25, India’s gross invisible receipts reached $576.5 billion, surpassing merchandise exports of $441.8 billion. Services alone brought in $387.5 billion, a major leap from $26.9 billion in 2003–04, while remittances added $135.4 billion.
- Buffer Against Trade Deficits: While the merchandise trade deficit stood at $287.2 billion, a net invisible surplus of $263.8 billion helped reduce the overall current account deficit to just $23.4 billion, providing crucial stability.
- Resilience Across Global Crises: Invisible exports remained strong during major disruptions like the 2008 financial crisis, COVID-19 pandemic, and ongoing geopolitical tensions, showcasing greater resilience than merchandise trade.
- Human Capital-Driven Growth: Services exports are powered by India’s skilled workforce, not physical infrastructure. India thrives as the “office of the world”, moving beyond the traditional “back office” label.
- Less Policy Dependence: Growth in invisible exports occurred largely without heavy government incentives or trade agreements. India still lacks strong service-sector provisions in its major trade deals.
| [UPSC 2006] Assertion (A): Balance of Payments represents a better picture of a country’s economic transactions with the rest of the world than the Balance of Trade.
Reason (R): Balance of Payments takes into account the exchange of both visible and invisible items whereas Balance of Trade does not. Options: (a) Both A and R are individually true and R is the correct explanation of A ** (b) Both A and R are individually true and R is not the correct explanation of A (c) A is true but R is false (d) A is false but R is true |
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