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NCAER Seminar
Colonial Legacy, Services Trade and LDCs

Anirudh Shingal
World Trade Institute, University of Bern

NCAER is organizing a seminar on “Colonial legacy, services trade and LDCs” by Dr Anirudh Shingal, Senior Research Fellow at the World Trade Institute, University of Bern on Monday, October 16, 2017 from 4:00-5:30 pm at the NCAER Conference Room.

Services trade constitutes an important part of global trade. WTO data suggest that commercial services trade on average accounted for 21% of total international trade in 2014. In more than half the countries with data on global merchandise and services trade, this share was much higher.  If trade in value added (“servicification”) is accounted for, the share of services trade goes up to nearly 50%. Nearly two-thirds of all WTO-notified PTAs since 2000 include services trade provisions, compared to less than 10% earlier.

Yet, existing work examining the trade effects of the British and French colonial legacy does not consider services trade or the specific impact on LDCs. Shingal’s work bridges this gap by providing evidence from the Commonwealth and Francophonie countries using a large, recent panel dataset of 241 countries over 1995-2010. Commonwealth membership is found to increase services exports by more than 56% in the baseline estimates, and a Francophonie country is associated with four times more trade. Both effects are significantly larger than the corresponding effects for goods trade. Descriptive statistics reveal the growing reliance of small, low-income former colonies on their respective colonial groups. Corroborating this, the paper finds much larger than average services trade effects for ex-colonies that are LDCs, possibly emphasizing the importance of colonial relationships for countries with still weak institutional capacity. These findings illustrate that market access goes beyond standard trade barriers: the informal networks represented by colonial linkages, as opposed to institutionalized trade agreements or investment treaties, continue to generate positive effects on trade more than half a century after independence.

These results are robust to the rise of China during the period under study, both as an export competitor and a market, and to the potential impact of Brexit, when the UK will no longer be able to serve as a strategic destination for Commonwealth exports to the EU.

Anirudh Shingal is Senior Research Fellow at the World Trade Institute, University of Bern, where he also teaches undergraduate and graduate economics. His research interests are in international trade and regional economics.  He has consulted for the Swiss government, the World Bank, IFC, and ADB, the UK Foreign Office, and ITC/UNDP.  He was a consultant at the World Bank during 2002-05, a Research Associate and Associate Tutor at the University of Sussex during 2005-09, and a consultant at NCAER during 1999-2000.  Shingal has a PhD in Economics from Sussex, masters in International Law and Economics from the University of Bern and in Economics from the Delhi School of Economics, and a BA in Economics from St Stephen’s College, Delhi.

For queries, please contact Ms Sudesh Bala at sbala@ncaer.org or on 91-11-2345-2722.

NCAER organized a seminar on “Colonial legacy, services trade and LDCs” by Dr Anirudh Shingal, Senior Research Fellow at the World Trade Institute, University of Bern.

Services trade constitutes an important part of global trade. WTO data suggest that commercial services trade on average accounted for 21% of total international trade in 2014. In more than half the countries with data on global merchandise and services trade, this share was much higher. If trade in value added (“servicification”) is accounted for, the share of services trade goes up to nearly 50%. Nearly two-thirds of all WTO-notified PTAs since 2000 include services trade provisions, compared to less than 10% earlier.

Yet, existing work examining the trade effects of the British and French colonial legacy does not consider services trade or the specific impact on LDCs. Shingal’s work bridges this gap by providing evidence from the Commonwealth and Francophonie countries using a large, recent panel dataset of 241 countries over 1995-2010. Commonwealth membership is found to increase services exports by more than 56% in the baseline estimates, and a Francophonie country is associated with four times more trade. Both effects are significantly larger than the corresponding effects for goods trade. Descriptive statistics reveal the growing reliance of small, low-income former colonies on their respective colonial groups. Corroborating this, the paper finds much larger than average services trade effects for ex-colonies that are LDCs, possibly emphasizing the importance of colonial relationships for countries with still weak institutional capacity. These findings illustrate that market access goes beyond standard trade barriers: the informal networks represented by colonial linkages, as opposed to institutionalized trade agreements or investment treaties, continue to generate positive effects on trade more than half a century after independence.

These results are robust to the rise of China during the period under study, both as an export competitor and a market, and to the potential impact of Brexit, when the UK will no longer be able to serve as a strategic destination for Commonwealth exports to the EU.

Anirudh Shingal is Senior Research Fellow at the World Trade Institute, University of Bern, where he also teaches undergraduate and graduate economics. His research interests are in international trade and regional economics. He has consulted for the Swiss government, the World Bank, IFC, and ADB, the UK Foreign Office, and ITC/UNDP. He was a consultant at the World Bank during 2002-05, a Research Associate and Associate Tutor at the University of Sussex during 2005-09, and a consultant at NCAER during 1999-2000. Shingal has a PhD in Economics from Sussex, masters in International Law and Economics from the University of Bern and in Economics from the Delhi School of Economics, and a BA in Economics from St Stephen’s College, Delhi.

NCAER along with the Indira Gandhi Institute for Development Research, Mumbai and the National Institute of Public Finance and Policy, New Delhi is conducting an impact assessment study of the Government of India’s Digital India Land Records Modernization Programme in Himachal Pradesh (by NCAER), Maharashtra (IGIDR) and Rajasthan (NIPFP). In this round table, a discussion on the synthesis report of the three states, being put together by NCAER, was held.

The participants in this discussion included, Peter Rabley (on video call), Venture-Partner, Omidyar Network (ON), Shreya Deb, Principal (Investments), Omidyar Network and Sushant Kumar, Senior Manager (Intellectual Capital), Omidyar Network (on video call) apart from the members of the Technical Advisory Committee. The team members from all the three Impact Assessment Agencies (IAAs) – NCAER, IGIDR and NIPFP were present.

The Technical Advisory Committee of this study comprises of Namita Wahi, Centre for Policy Research (CPR), Jagdeesh Rao Puppala, Foundation for Ecological Security (FES, on video call), Pranab Ranjan Chaudhary, Natural Resources Management Consultants (NRMC), Sanjoy Patnaik, Centre for Rights and Resources and Deepika Jha, representing Amlanjyoti Goswami, Indian Institute for Human Settlements (IIHS).

Deepak Sanan (NCAER), Senior Advisor for the project, coordinated the proceedings of the meeting. D B Gupta (NCAER), leads the project at NCAER. Shekhar Shah, Director-General, NCAER, who joined the discussions on video call, welcomed the Omidyar Network team and all the TAC members and explained the context of the discussions. He acknowledged the support of ON for this impact assessment and also highlighted the significance of a joint effort that was reflected in the course of this work in capacity building in this area of research. Deepak Sanan, provided an overview of the pilot impact assessment with respect to its inception, training sessions, the role of TAC meetings in continuous review of the work and finally the next steps to disseminate the findings and policy suggestions stemming from the impact assessment.

This was followed by a presentation on the synthesis report by NCAER’s Prerna Prabhakar who detailed the salient features of the study and its major findings and Deepak Sanan flagged the lessons learnt from this impact assessment for expanding this work to other states and comparative analysis at the national level. He also talked about the way forward with respect to the DI-LRMP design where he discussed the idea of a Property Record and Services Index (PRSI) to rank states in terms of digitization efforts as well as well as real time updation of records. The use of such an index to incentivise the states’ efforts at securing comprehensive land records updated in real time by linking central funding to performance in this regard was stressed by the synthesis report.

This was followed by extensive discussions around the impact assessment findings as well as the suggestions on assessing performance and related inputs for DILRMP design. The discussion concluded with an action plan on dissemination of the impact assessment findings.

NCAER forecasts growth based on both quarterly and annual models. The quarterly model forecasts that Gross Value Added at Basic Prices in (2011-12) prices will grow at 6.6 per cent in 2017–18.  For the first quarter it forecasts 5.6 per cent year-on-year growth.

NCAER retains its forecast of a growth of 7.3 per cent for 2017–18 from the last quarter for GVA (Gross Value Added) at basic prices. These forecasts at constant (2011–12) prices are based on NCAER’s annual GDP model.

The forecast for the growth of Gross Domestic Product (GDP) at market prices in 2017–18 has, however, been reduced to 7.4 per cent at constant (2011–12) prices. Real agriculture GVA is forecast to grow at 3.8 per cent, real industry GVA at 6.3 per cent, and real services GVA at 8.5 per cent in 2017–18. The Wholesale Price Index (WPI) inflation is projected at 6.7 per cent for 2017–18. The growth rates in exports and imports, in dollar terms, are estimated at 6.9 per cent and 7.0 per cent, respectively, in 2017–18. The current account balance and central fiscal deficit, as percentages of GDP, are projected at –1.0 per cent and 3.2 per cent, respectively, for 2017–18. These estimates have been revised upwards from February 2017.

In the agricultural sector, the fourth advance estimates of crop output released on August 16, 2017, reveal that the total output of food grains during 2016–17, estimated at 275.7 million tonnes, touched a new record as compared to the earlier record of 265.0 million tonnes achieved in 2013–14. The situation with regard to rainfall until the middle of August 2017 indicates that of the four main regions of the country, only two (east and north) have so far experienced normal rainfall.  Several sub-divisions of the other two regions – western region and southern region have witnessed deficient rainfall. Further, for the country as a whole, of the total 36 sub-divisions, about a little over a quarter (28 per cent) have experienced deficient rainfall. In contrast, last year saw a much better monsoon rainfall. However, a comparison over the last five years shows that the rainfall situation in 2017–18 is better than that witnessed in 2012–13, 2014–15, and even in 2015–16. Going forward, forecasts by the Meteorological Department suggest that the second half of the southwest monsoon season (August–September) is likely to see normal rainfall (94 per cent–106 per cent of the Long Period Average) in the country as a whole. If they turn out to be true, these forecasts could prove to be a boost for the economy, in general, and the agricultural sector, in particular.

As regards the industrial sector, the Index of Industrial Production (IIP) of this quarter (April–June) exhibited weak growth, especially in the month of June 2017, recording a massive decline in the growth rate from over 7 per cent in 2016–17: Q1 to just 2 per cent in 2017–18: Q1. The use-based classification of all the six categories of goods, that is, primary goods, capital goods, intermediate goods, infrastructure/construction goods, consumer durables, and consumer non-durables, shows that except for consumer non-durables, all other categories showed a significant slowdown in 2017–18: Q1  as compared to 2016–17: Q1,  Consumer non-durables, on the other hand, attained a growth of 7.7 per cent in the first quarter of 2017–18, which was marginally higher than the corresponding figure of 7.6 per cent in the same quarter of 2016–17.  It must, however, be pointed out that even the consumer non-durables category exhibited a slow-down as compared to 2016–17: Q4, when it recorded a growth of 8.8 per cent. Capital goods, the bell weather for investment spending in the economy, exhibited the most drastic decline at –3.9 per cent in 2017–18: Q1, falling from 13 per cent in 2016–17: Q1, implying recession of–4 per cent on a year-on-year (y-o-y) basis in this sector. Infrastructure/construction goods registered a significant slowdown in May and June 2017 after recording 5.2 per cent y-o-y growth in May 2017.

The first quarter lead indicators from the services sector warrant cautious optimism. While on one hand, the aviation sector, and both the domestic and international tourism sectors displayed a remarkable performance, the production of commercial vehicles showed a continuous slowdown. In terms of cargo handled at major ports, both goods moved by the railways and air cargo showed positive signs.   While FDI in the services sector improved, that in the telecommunication sector declined.

Merchandise exports, in dollar terms, which had grown at 19.8 per cent on a y-o-y basis in April 2017, fell to 8.3 per cent and 4.4 per cent in May and June, 2017, respectively. Although the y-o-y growth rate of merchandise imports also fell, it remained in double digits, at49.1 per cent, 33.1 per cent, and 19.0 per cent in April, May, and June, 2017, respectively. The growth in service exports and imports continued to be sluggish, at barely 0.1 per cent and -4.8 per cent, respectively, on a y-o-y basis in 2017–18: Q1. While prospects for international trade, is optimistic globally, the appreciation in the exchange rate may prove to be a dampener for Indian exports. The rupee appreciated by 3.6 per cent in 2017–18: Q1 against the dollar, with the exchange rate falling from Rs/USD 67.5 in 2016–17: Q4 to 64 in 2017–18: Q1.

There was significant moderation in inflation in 2017–18: Q1, especially in June 2017. The CPI rural–urban combined inflation was 1.5 per cent in 2017–18: Q1. There has been a decline in the inflation pertaining to fruits and vegetables since 2016–17: Q3, and it stood at -9.3 per cent in 2017–18: Q1. Fuel inflation also decelerated, with both WPI and CPI inflation hovering at around 5 per cent in June 2017.

The Sensex continued to show double-digit y-o-y growth in 2017–18: Q1. The Reserve Bank reduced the policy repo rate by 25 basis points in its bi-monthly meeting in August 2017, bringing the repo rate down to 6 per cent. In a surprising move, banks also cut their savings bank deposit rate, following a 50 basis point cut in the savings bank deposit rate by the State Bank of India at the end of July, 2017. A corresponding cut in bank lending rates following the policy repo rate cut is yet to be effected, raising concerns about the efficiency of monetary policy transmission.

While it is too early to assess the fiscal aspect of the economy, especially the impact of the GST, the revenue collection in 2017–18: Q1 has fallen short of the total expenditure in the same quarter, leading to high deficits. The first quarter of 2017–18 has recorded the highest deficit indicators such as fiscal deficit, revenue deficit, and primary deficit, while also showing the highest y-o-y growth as compared to the previous eight quarters. This puts greater pressure on the government to meet the deficit target over the coming months. As regards the expenditure budget, the capital expenditure has shown a significantly higher annual growth than the revenue expenditure.