The emergence of India as one of the fastest growing economies in the world can be attributed to the rapid growth of its service sector. However, India’s share was a meager 1.5% of the total world trade in services, which amounted to US $ 2.10 trn in 2004. Services sector plays an important role in attracting foreign direct investment (FDI) inflows into the Indian economy.
The General Agreement on Trade in Services (GATS) is the first ever set of multilateral legally enforceable rules covering international trade in services. GATS negotiations permit India to lock in autonomous domestic policy reforms. Advantage should be taken for obtaining reciprocal concessions from developed countries in sectors and modes of interest to India.
Current negotiations are taking place at a time when this sector is undergoing a profound transformation, which has considerably expanded the tradability of services. They have introduced competition into sectors formerly considered to be natural monopolies (e.g. telecommunications, energy) created additional possibilities for cross border trade (e.g. business and computer services); and increased private sector participation in services where in many countries the public sector had traditionally played a major role (e.g. health, education, environmental services). Service liberalization would strengthen supply activities for goods.
India’s core objective in the negotiations in trade in services is to induce our trading partners to undertake more liberal commitments in cross-border supply of services (mode 1) and movement of natural persons (mode 4). Cross border supply of services, especially trough electronic mode of delivery, is an area of key interest to India as outsourcing activities are undertaken through this mode of services. With regard to movement of natural persons developing countries including India have taken up a number of issues such as recognition of qualifications, economic needs tests (ENT) administrative procedures acting to visas, mutual recognition agreement (MRAs) and social security contributions.
India has undertaken extensive commitments in a number of new sectors/sub-sectors such as architecture, integrated engineering and urban planning and landscape; veterinary, environmental, distribution, construction and related engineering, tourism, education life insurance, services auxiliary to insurance, recreational, cultural and sporting services and air transport services.
New commitments have been offered in cross border supply i.e. in mode 1 in large range of other business; professional; research and development rental and leasing real estate services etc. Under mode 1 the important issues are locking in an autonomous liberalization pre-empting protectionism and capturing newer activities under mode 1.
India has made substantial mode 4 initial offer by including all the categories of natural persons like intra-corporate transferees, business visitors, contractual services, suppliers and independent professionals.
Benefits from the liberalization of mode 4 include efficiency gains, enhanced growth and stimulate investments in education development of skills and human capital. It would also lead to increased remittance particularly or developing countries. Demographic changes in the global economy will also generate demand of mode 4.
Majority of requests on India are in mode 3 either to bind the presently applicable FDI policy or to offer a more liberal policy. Hence these is a need to be traded with the opening of modes 1 and 4 given that autonomously many service sectors in mode 3 are already open, it is absolutely essential that effective regulatory framework be in place especially for the health education and social sectors.
The learning from telecom could be usefully applied to health and education. These sectors are already on a track of liberalizations but domestic regulatory capacity has been largely inadequate. The promotion of Universal Service Obligation (USO) may also be a binding constraint and mechanisms ensure USO need to be worked out. Multimodal liberalization will also be beneficial to India. The linkages between various modes illustrates that India’s dynamic comparative advantage could relates to all modes.