India software industry:Balance of Payments: Analyses and Implications (Term Paper Sample)

India Software Industry
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India Software Industry
International Trade
Balance of Payments: Analyses and Implications
In the first quarter of 2021-2022, India's current account balance experienced a surplus in the balance of payment. The increment was 6.5 US billion dollars, representing 0.9% of the country’s Gross Domestic Product (GDP) (“Reserve Bank of India”, 2021). In the fourth quarter of 2020, India had a Deficit of 8.1 US billion dollars, representing 1.0% of the GDP (“Reserve Bank of India”, 2021). The variation in the current account balance is brought about by the COVID-19pandemic wave, which keeps on changing. The increment represents the expansion of exports such as computer services and business activities.
The private transfer receipts represented that gets into the country from the Indian citizens employed in overseas countries. From the same source, the country inflow recorded was 11.9 US billion dollars from foreign investment, and the outflow was 0.5 US billion dollars. India lent a total of 0.5 US billion dollars in the first quarter of 2021, with an accretion of 31.9 US billion dollars of the foreign exchange reserve (“Reserve Bank of India”, 2021). This was an increment from the previous year's last quarter, which was 19.8 US billion dollars. India's balance of payment shows that the country is exporting more than importing (“Reserve Bank of India”, 2021). This is important because the government is able to fund domestic projects hence creating a favorable environment for trade.
Trading Relationships (Membership in Trading Blocs)
India is among the emerging economies in the world and has a critical role in the global economy. The country had a GDP growth rate of 6% before the onset of the COVID-19 pandemic and is an essential partner of the European Union (EU) (“India trade European commission”, 2021). This is because of the sizable market that India provides in the sector. EU is among the largest trading partner for India, accounting for approximately 62.8 Billion sterling pounds in terms of trade goods (“India trade European commission”, 2021). This represented 11.1 % of the total trade after the UK having 125%, China 12%, and the United States of America (USA) 11.7% (“India trade European commission”, 2021). India partners with great countries that help promote trade. Trade between India and the EU has dramatically increased by 12.5% (“India trade European commission”, 2021). In 2020, India had reached approximately €32.7 billion from the trading activities within this trading bloc (“India trade European commission”, 2021). The EU had increased its trading share from 8% to 18% within ten years, making the EU the first foreign investor. In terms of investment, EU foreign direct investment stock accounted for 75.8 Sterling billion in 2019 (“India trade European commission”, 2021). The trading block has dramatically enhanced the Indian economy as the EU sponsors more than 6,000 companies. These companies have created more than 1.7 million direct and 5 million indirect jobs (“India trade European commission”, 2021). The trading bloc has enhanced the economic performance in India.
Top Exports and Imports
The following are the top exports and their composition from India's imports and exports (2021) data. The leading exports in India were biofuels and related products, which include bituminous substances, mineral fuels, mineral waxes, mineral oils, and distillation products. These products represented 10% of the exports, with around 27 Billion US dollars (“India imports and exports”, 2021). The second group consists of precious metals, cultured or natural pearls, metal clad with precious metal, jewelry, and demi precious metals. These products represented 8.87%, with a total of 24 billion US dollars (“India imports and exports”, 2021). The third group is pharmaceutical products representing 6.68%, with a total of 18.4 billion US dollars. The fourth group is composed of mechanical parts or appliances, boilers, nuclear reactors, and machinery. This group represents 6.52%, with a total of 17.9 billion US dollars (“India imports and exports”, 2021). The fifth group comprises organic chemicals, representing 6.32%, with 17.4 billion US dollars (“India imports and exports”, 2021). These chemicals include nitro compounds, carboxylic, amines, phosphates, and ferrocene.
The sixth group comprises electronic accessories, equipment, and machinery such as articles, sound recorders, and television images. This represents 4.88%, with a total of 13.4 billion US dollars. The seventh group consists of vehicles and parts of the vehicle and tramway rolling sticks. This represents 4.71%, with a total of 12.9 billion US dollars (“India imports and exports”, 2021). The eighth group entails steel and iron, representing 3.85%, with 10.6 billion US dollars. Lastly, the group involves plastics representing 2.39% and a total of 6.6 billion US dollars (“India imports and exports”, 2021). The plastics exported include polystyrene, high-density polyethylene, and polypropylene.
The imports groups are as follows; the first group consists of crude oil, petroleum, and bituminous mineral. They are the leading and represent 17.5%, amounting to $64 billion. The second group includes gold in powder or platinum plated, representing 5.95% with $21 billion (“India imports and exports”, 2021). The third group entails diamonds representing 4.32% totaling $15.8 billion. The fourth group consists of solid fuels such as coal, representing 4.32%, amounting to $15.8 billion (“India imports and exports”, 2021). The fifth group comprises hydrocarbons and petroleum gases, representing 4.14%, amounting to $15.2 billion. From the data above, the value of the Indian export surpasses the value of the imports.
Foreign Direct Investments (Inflows, Outflows, and Stock)
Foreign Direct Investment (FDI) has a significant impact on driving economic growth and driving growth in India. Many foreign companies prefer investing in India rather than other countries because of low wages and low taxes. This favors the Indian economy as it increases the number of jobs within the country. In 2021, the FDI equity inflow in India between April and June was approximately 17.56 Bullion US dollars (“FDI in India”, 2021). The primary driver of the inflow was from the automobile with $4.66 billion, followed by the computer hardware and software sector generating $3.06 billion. The service and metallurgical industries were the third and fourth, generating $1.89 billion and $1.26 billion, respectively (“FDI in India”, 2021). The distribution inflow by region was distributed as follows in US billions; Karnataka (8.45), Delhi (1.95), Maharashtra (4.09), and Gujarat (765). In August, India reported $1.55 billion in FDI outflow, a decrement from the previous period (“India Foreign Direct Investment”, 2021). The FDI outflow In India since 2007 averages $1.848 billion (“India Foreign Direct Investment”, 2021). From the above India Foreign investment data source, in July 2021, India's FDI stock increased by $2235 million.
Tariff Policies (Country Average)
The first quarter of 2021 experienced an increment in tariff policies. The increment was 14.3% from 13% in the first quarter of 2015 (Mishra, 2021). The policymakers in India use trade policy measures to curb inflation by promoting domestic businesses and productions (Mishra, 2021). The tariffs rate in India is between zero and 150 percent. 67.8 percent of the tariffs range between 0% and 10%, 22.1 percent are between 10% and 30%, and 4% of the tariffs are above 30% (Mishra, 2021). The most common tariff in India is 10% and 7.5%, with the highest of 150% in alcoholic products (Mishra, 2021). From the same source, animal and their products have a tariff of 100%, which is the same in vegetables, fruits, plants such as tea and coffee. The same tariff is also applied to certain types of motor vehicles.
Non-Tariff Barriers
Non-tariff barriers in India are applied to products and commodities that have been banned, prohibited, or restricted. The restricted items must be licensed before importation, and they include certain types of chemicals, livestock products, and canalized items such as pharmaceuticals (“India trade barriers”, 2021). The banned products include oils from certain animals, fats, and grease. The restricted items are imported only by the government and its monopoly companies that are typically subjected to approval by the cabinet (“India trade barriers”, 2021). Nevertheless, the country normally faces problems of transparency regarding the importation of restricted items.
India Software Industry
Brief History and Milestones
The growth of the Indian software industry is attributed to the setup of Tata Consultancy Services (TCS) in Mumbai in 1967. During this period, the company began as a downstream computer service with its first manager from Tata Electric Companies (“Tata Consultancy Services”, 2021). In 1970, the company acquired ICL 1903, which was imported from Calcutta Electric Supply Company. In 1974, the company executed its first software project specifically for financial accounting for two United Kingdom (UK) organizations. In 1973, India came up with its first software export zone. In 1974, the company executed its first software project specifically for fi...