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India to Face Tough Fight from China in Services Exports: Report

India to Face Tough Fight from China in Services Exports: Report

The Philippines has already taken away a lot of business from India in the BPO sector. Will China do the same in the software sector?

A report from State Bank of India says China is going to emerge as a threat to India for global services business.

"In the first step the import substitution measure of China would affect India's services export to China. In medium term, when China starts exporting services it may eat up India's share in the international market," the report says.

In 2013, India's net services export was at $18 billion while China was a net importer of $124.5 billion worth of services, the report said. Within India's net services export pie, software sector's net contribution was $16.8 billion.

Despite being a big importer of services, China sees current account surpluses unlike most its emerging market peers due to its huge merchandise exports.

The authors of the report however say that it will be a while before China gives a strong competition to India for global services business given India's demographic advantage. "Given the demographic structure of the Chinese economy with growing ageing population such structural transformation process would take a while to materialize," the report says.

In recent years, the Chinese authorities have been focusing on rebalancing its economy towards domestic consumption and services sector. This has led to contribution from its service sector jump to 49 per cent of gross domestic product in the quarter ending March 2014, from 41 per cent in quarter ending September 2008, says the report.

China has traditionally focused on investment- and export-led growth but the global financial crises of 2008 put brakes to the model.The shift towards services has also been driven by China's rapidly ageing demographic structure that would demand more and more services including hospital, health and insurance etc, says the report.

The report also noted that China's push toward service sector could result in higher wages, undercutting China's cheap production advantage in the global market.