PRESS RELEASE
Indian small companies that use imported digital services enjoy significant economic benefits, including a bigger work force, productivity gains, and enhanced production output. So concludes a study by Badri Narayanan Gopalakrishnan, an Indian economist and former Head of Trade and Commerce at NITI Aayog, which is India’s apex policy institution chaired by the Prime Minister. The study, titled The Impact of Cross-Border Digital Transmissions on the MSME Sector in India and the Benefits of the WTO E-Commerce Moratorium is based on the most recent available MSME data from Indian government sources.
India’s own exports of digital services have already grown to reach over $90 billion, showcasing the value of outbound digital trade. With the number of internet subscribers in India now projected to total 800 million by 2023, small businesses have also begun incorporating digital services into their operations. Examples of common B2B services imports include e-commerce platforms, social media for marketing and communication, and digital payment applications, among others.
Now, new research highlights the value to small Indian firms of that inbound digital services trade. Specific study findings include:
· Digital services imports have a positive and significant impact on employment by MSMEs. Every 1% rise in imported digital services production inputs by MSMEs is associated with a 0.4-0.8% rise in MSME employment.
· Digital services imports have a positive and significant impact on gross value-added output of MSMEs in India. Every 1% rise in imported digital services inputs by MSMEs is associated with a 0.1-0.2% rise in MSME output.
· Digital services imports have a positive and significant impact on productivity (measured as value-added output per employee). Every 1% rise in imported digital services inputs per employee of an MSME is associated with a 0.04-0.08% rise in value-added output per employee.
“Given the clear benefits linked to the use of digital tools, any action that makes it more difficult for MSMEs to access imports of such services would appear counterproductive,” said study author Narayanan. “Creating new barriers to digital services stands to increase costs, hinder efficiency and undermine the growth of small business.”
India has expressed an intention to oppose the continuation of the long-standing WTO policy that prevents governments from levying customs duties on such services, which was established in 1998. If the moratorium ceased to exist, however, the resulting disruptions would impact a wide range of routine cross-border data transmissions, which range from transfers of semiconductor design information to R&D, software-as-a-service, and digitized music, movies, books and entertainment.
“Far from strengthening the Indian economy, ending the moratorium on the imposition of duties on electronic transmissions would undermine it, by raising the price of key digital services inputs,” Narayanan said.
In addition, allowing a range of new tariffs to be levied on digital services would distort supply chains and stunt MSME growth. And if New Delhi takes such action, other governments are likely to respond with reciprocal tariffs on Indian exports of digital services in a variety of sectors. IT and Computer related services represent the vast majority of India’s services exports, and might be directly impacted, jeopardizing the currently rapid development of that sector in India.
The new study adds to the overwhelming weight of evidence that such a policy shift would be detrimental to Indian economic interests, since small Indian companies that use digital services imports enjoy measurable gains in production output, employment and productivity. The findings build on previous studies by the Organisation for Economic Co-operation and Development, European Centre for International Political Economy and others that have concluded the welfare costs of ending the moratorium would far outweigh any gains to the Indian economy as a whole. To help Indian small business expand and reach new customers, policymakers should implement policies that make it easier – not harder and more costly – to access economically beneficial digital services inputs, including those from abroad.