Advantage India in the Services Sector

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By Sameer Pushp
PIB Features

New Delhi, May 23, 2011 (Washington Bangla Radio) As the world stands on the cusp of financial recovery it is an opportunity to build upon and maximise our potential as an important economic power. The recent changes in the global economic landscape shows the epicentre of growth has finally moved to our time zone. We have sustained the growth of 8-9% even in the hard time and embarking on the reform process keeping focus on the more open and equitable market. The story of India’s success is driven by growth in ‘services sector’ and powered by controlled monetary and fiscal policies of the Government. Today, India stands out for the size and dynamism of its services sector. The contribution of the services sector to the India economy has been very impressive; today services sector accounts for  around 60% of our GDP, growing by 10% annually, contributing to about a 35% of the total employment, accounting for the high share of the Foreign Direct Investment ( FDI ) inflows and in value terms over one-fourth  of India’s total exports.

India is perceived as service economy. The high growth rate achieved by the Indian economy over the last decade has much to owe to the growth of services sector in the country. The services sector contributes around 25% of India’s total trade, around 40% to exports, and 20% of our imports. It accounts for more than 50% of FDI into the country. Internationally, India has registered the highest growth rate of service exports in recent years, averaging 26% during 2000-07 as against the world average of 14% and much larger than most other countries (23% for China, 14% for EU and 8% for US). The Boston Consulting Group (BCG) study says that 40 million new services jobs, $200 billion will be generated by 2020 in India.

We as a country have leveraged on foreign investment and expertise, to advance in international services markets – from tourism and construction to software development and health care. Services liberalization has thus become a key element of our development strategies. There is strong evidence in many services which says developed services sector leads to lower prices, better quality and wider choice for consumers. Such benefits, in turn, work their way through the economic system and help to improve supply conditions for many other products. The strength of India at the global competitiveness at services has guided developed countries to keep services out of ambit of WTO negotiations.

In light of the above mentioned strengths we have positioned ourselves as a ‘demandeur’ in Services negotiations at the WTO as well as in the bilateral FTA negotiations. The objective behind these negotiations is to secure maximum and effective market access for our services exports. Based on our comparative advantage our critical requests in the services areas have focussed on getting meaningful commitments in Cross Border Supply (Mode 1) and Movement of Natural Persons (Mode 4). One of the areas of crucial interest to India is development of disciplines in Domestic Regulations involving qualifications and licensing requirements and procedures, without which Mode 4 access gets severely impeded.  The lack of a legal framework for international services trade is anomalous and dangerous—anomalous because the potential benefits of services liberalization are at least as great as in the goods sector, and dangerous because there was no legal basis on which to resolve conflicting national interests.

There is a concept that why services are not the part of GATS? As we are aware that services are intangible therefore, tariff can’t be imposed on them, and so they are not part of any trade negations. Countries regulate services by domestic regulations by non trade-specific legislation.  Services are the way in which a country takes a commitment keeping in mind their unique advantage and skill potential, so internal legislations governs the trade in services. In sovereign sense these legislations touches the health and safety regulations, investment regulations and immigrations restrictions– because trade in services has a human dimensions and a capital dimensions attached to it.

Today, compelled by pressures of a rapidly ageing population and the compulsions to remain competitive in a highly globalised world, developed countries are increasingly relying on the services of skilled professionals from developing countries like India. India’s rising share in the global export of commercial services and workers’ remittance is a testimony to this fact. According to one estimate, at any point of time, around five million Indians work abroad. Thus, with a demographic advantage and the large pool of skilled and low cost English speaking workforce, India can well provide the solution to the world's skills shortage problem.

This dominant position in services has also helped us to generate a huge services trade surplus. This surplus from services trade has over the last decade or so helped to offset a major part of the deficit accruing from the merchandise side, and thereby helped in checking the current account deficit.

However, to get a complete picture we also need to analyse India’s position in global exports of services. In the year 2008 India’s share in global exports of services was 2.7 percentage points and we ranked 9th in the list of leading services exporters in the world. Thus, there is not only a need to consolidate and maintain our position but there is also a need to try and  capitalize on our inherent strengths in Services and move up in the share of world exports of commercial services.

India resource and size and its demographic profile, sets a strong stage for advantage in service sector which indeed is crucially linked to development. Times are changing fast and the world is looking forward to us to play an active role of a financial life boat in this globally turning economic paradigm.  A strong skilled work force and people to people partnership can take India to the position which has been due since long time.

Disclaimer: The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of PIB or WBRi.

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