Within services trade, interesting patterns emerge. Imports and exports of goods-related services such as international transport have shrunk in the last quarter (year-on-year by about one-fifth) as has expenditure on tourism abroad (by about one-tenth), while imports of other private services have actually grown slightly. Within ‘other private services’, trade in financial services has also contracted in the last quarter (year-on-year imports by 12.5 percent and exports by an even higher 17 percent).

But trade in a range of other services is growing, with US exports growing even faster than US imports. This pattern is evident in insurance (imports by 3 percent, exports by 9 percent), telecommunications (imports by 2.5 percent, exports by 25 percent) and, in particular, a range of business, professional and technical services (imports by 7 percent and exports by 10 percent).

Overall exports to the US of developing countries which are relatively specialized in services, like India (38 percent share of services in total exports) have declined less than exports of countries and regions for which services are less important, such as Brazil (12 percent share), China (9 pecent share) and Africa (15 percent share). The contractions in their total exports (goods and services) to the United States in the fourth-quarter were: India (2.5 percent), Brazil (13 percent), China (9 percent), and Africa (36 percent). This relatively positive outlook is corroborated by Indian industry sources, which suggest that employment in the export-oriented IT and business process outsourcing services is expected to grow by about 5 percent (around 100,000 jobs) in 2009.

Based on new evidence from Indian services exporters, we find that services trade is buoyant for two reasons. First, on the supply side, services trade has been less affected by the crisisinduced scarcity of finance. Services trade, especially in electronically-delivered business services, needs trade finance less than goods trade. When external funds are needed, e.g. for working capital, small and large firms tend to rely on advance payments from clients and their ability to raise finance against orders placed. Moreover, receivables in business process outsourcing are fungible and easily factorized because they typically involve a short-term transaction, a buyer who is creditworthy, and disputes over the service rendered are rare. Generally, services-producing firms have even in normal times tended to be less dependent on external finance than goods production because they have limited tangible collateral. For example, two of India’s largest exporters of software and business-process services, Infosys and Tata Consultancy Services, have no external debt at all and rely completely on retained earnings for their operations.

Second, demand for a range of services seems to have contracted less than demand for goods. One reason is that services are not storable and so are less subject to the big declines in demand in downturns that affect durable goods like shoes and televisions. This is because many services suffer neither from the “vintage effect” – i.e. the willingness to wear an older pair of shoes or drive an older car – nor from the “inventory effect” – i.e. the fact that cuts in final demand translate into bigger immediate cuts in demand for factory output because of inventory adjustment. Another reason is that a larger part of international demand for services – e.g. outsourced back-office services - is less discretionary than demand for goods such as computers. This is both because many outsourced services (e.g. book-keeping) are 3