India's IT Exports Highly Exaggerated
By Riaz Haq
CA
A 2005 study by US General Accounting Office (GAO) found that the Indian government's figures for software and technology exports to the United States were 20 times higher than the US figures for import of the same from India.
The US General Accounting Office looked at the 2003 data showing the United States reported $420 million in unaffiliated imports of BPT (business, professional, and technical) services from India, while India reported approximately $8.7 billion in exports of affiliated and unaffiliated BPT services to the United States.
The GAO found at least five definitional and methodological factors that contribute to the difference between US and Indian data on BPT services. First, India and the United States follow different practices in accounting for the earnings of temporary Indian workers residing in the United States. Second, India defines certain services, such as software embedded on computer hardware, differently than the United States. Third, India and the United States follow different practices for counting sales by India to US-owned firms located outside of the United States. The United States follows International Monetary Fund standards for each of these factors.
Fourth, BEA (Bureau of Economic Analysis) does not report country-specific data for particular types of services due to concerns about the quality of responses it receives from firms when they allocate their affiliated imports to detailed types of services. As a result, US data on BPT services include only unaffiliated imports from India, while Indian data include both affiliated and unaffiliated exports. Fifth, other differences, such as identifying all services importers, may also contribute to the data gap.
In theory, India follows what is known as BPM 6 (MSITS) reporting method for software and information-enabled technology services (ITES) which counts sales to all multinationals, earning of overseas offices, salaries of non-immigrant overseas workers as India's exports. In practice, India violates it. BPM 6 allows the salaries of first year of migrant workers to be included in a country's service exports. India continuously and cumulatively adds all the earnings of its migrants to the US in its software exports. If 50,000 Indians migrate on H1B visas each year, and they each earn $50,000 a year, that's a $2.5 billion addition to their exports each year. Cumulatively over 10 years, this would be $25 billion in exports year after year and growing.
There has neither been any acknowledgement nor any correction of the Indian government's methodology for reporting software and IT services exports since the GAO report was published in 2005. This raises serious questions about the accuracy of India's claims of $60 billion to $70 billion IT software and service exports being currently reported. If the 20X exaggeration still persists, the Indian IT exports could be as little as $3 billion to $4 billion today based on the US methodology.
Unlike the Reserve Bank of India's claimed BPM 6 methodology, the State Bank of Pakistan uses a much more conservative BPM 5 reporting system which does not include sales to multinationals located in Pakistan and earning of overseas offices and salaries of non-immigrant Pakistani overseas workers in Pakistan's exports figures. If the State Bank switched to the BPM 6 method, Pakistan's software and IT exports of $294 million for 2012-2013 could easily become at least $5 billion.
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