Services Liberalisation In India- Issues And Prospects

Concluding Remarks 5.1 Benefits of Liberalization of Services During the last three decades countries gained significantly through the liberalisation of trade in goods. However, there was no parallel movement of multilateral liberalization of services trade until the negotiation of the GAATS and its entry into force in 1995. Since the services sector is the largest and fastest-growing sector of the world economy, providing more than 60% of global output and, in many countries, an even larger share of employment, the lack of legal framework for international services trade was anomalous and dangerous- anomalous because the potential benefits of services liberalization were at least as high as in the goods sector, and dangerous because there was no legal basis on which to resolve conflicting national interests. Benefits of services trade liberalisation can be summarised as follows:1.

Economic performance: An effiicient services infrastructure is a precondition for economic growth. Services such as telecom, banking, insurance and transport provide basic inputs for all sectors. Without liberalisation and open door policy leading to competition, they are unlikely to excel in this role.

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Development: Access to world-class services helps exporters and producers in developing countries to capitalize their comparative advantage.

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Consumer savings: There is a strong evidence in many services such as air transport and telecoms that liberalization leads to lower prices, better quality and wider choice for consumers.

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Faster innovation: Countries with liberalized services markets have seen greater product and process innovation. The explosive growth of the Internet in the US is in marked contrast to its slower take-off in many European countries, which have been more hesitant to embrace telecom reform. Similar contrast can also be drawn in financial services and information technology.

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Greater transparency and predictability: A country's commitments in its WTO services schedule amount to a legally binding guarantee that foreign firms will be allowed to supply their services under stable conditions.

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Technology transfer: Services commitments at the WTO help to encourage foreign direct investment (FDI). Such FDI typically brings with it new skill management techniques and technologies that spill over into the wider economy in various ways. 5.2 Statistics on Trade in services

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Given the growing importance of trade in services, the need for reliable information on services trade is crucial. The only source of information on trade in services is the IMF balance of payments (BOP) statistics. However, there are difficulties in using these statistics to study the impact of WTO agreements on trade in services, as the framework of WTO negotiated commitments donot match the IMF structure of statistics. First, the General Agreement on Trade and Services (GATS) goes far beyond the trade flow statistics and requires information on production, sales, employment, foreign direct investment and activities of foreign affiliates for meaningful impact analysis. Second, GATS definition of trade in services deals with the traditional notion of international trade, which involves transactions between residents and non-residents. For example, under WTO definition, trade in services includes local sales by resident foreign entities while such transactions are not classified as trade in services according to the IMF Balance of Payments Manual. Third, the scheduled commitments are based largely on the UN central product Classification (CPC). However, the available services statistics for different countries follow the IMF BOP classifications, which are not based on the UN-CPC. Fourth, GATS distinguishes between four distinct modes of supply viz. (i) cross border supply, (ii) consumption abroad, (iii) commercial presence and (iv) presence of natural persons. Commitments under each service category are classified according to these modes of supply, but such disaggregated information are not available. Efforts should be made to improve the database for trade in services and to provide data on more disaggregated levels according to WTO classification of trade in services. 5.3 Recommendations India's main interest and focus area in WTO negotiations on GATS should be to provide effective market access to its professionals and skilled labour force and bring about a symmetry in the movement of capital and labour. In order to provide effective market access to professionals, it would be necessary to take the following steps:(a) Economic Needs Test should be totally eliminated for at least in certain specified categories. At a minimum, it should be based on transparent and objective criteria. (b) Social security contributions required to be made, even for temporary movement even though they are not eligible for receiving benefits of such contributions also affect their comparative advantage and needs to be corrected. (c) Administration of visa regimes may be made more transparent. Notion of a separate GATS visa for personnel covered by horizontal and sectoral commitments scheduled by a Member, different and less onerous from the normal immigration visa may be considered.

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(d) Specific sectoral commitments in line with requirements of developing countries need to be taken. For this purpose, more detailed sub classification of categories of personnel and their inclusion in sectoral/horizontal commitments may be required. India has comparative advantages in the following sectors, and it would be advisable to negotiate greater market access for its professionals in these sectors: (a) (b) (c) (d) (e)

Health Software Construction and Engineering Legal and Accountancy

India's negotiating strategy for each of these sectors may cover the following areas: (a) The commitments under each of the four modes of supply that India is working to undertake in a particular sector. (b) The commitments in each of these four modes of supply that India would want to demand from its major trading partners. (c) The domestic policies and regulations that have a bearing on market access available in the sector and the proposed changes therein.

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(d) REFERENCES Coe, David T. and Alexander W. Hoffmaister (1997) North-South R & D Spillovers, The Economic Journal, Vol.107, pp.134-139, January 1997. Das, Tarun (2002) Implications of Globalisation on Industrial Diversification Process and Improved Competitiveness of Manufacturing in ESCAP Countries pp.ix+1-86, ESCAP, Bangkok, ST/ESCAP/2197, UN Publications Sales No.E.02.II.F.52, ISBN: 92-120116-0, March 2002. Das, Tarun (2003a) Promoting Resource-Based Export Oriented Industries in Asia and Pacific, ESCAP, United Nations, Bangkok, pp.1-120, January 2003. Das, Tarun (2003b) Economic Reforms in India- Rationale, Scope, Progress and Unfinished Agenda, Planning department, Bank of Maharashtra, Pune, February 2003. Das, Tarun, Ashis Saha, Rajaram Dasgupta and Rohit Parmer (2003) Papers and Proceedings of the Seminar on Construction of an Index of Services Production, National Institute for Bank Management, Pune. Deardorff, Alan V. (2001) International provision of trade services, trade and fragmentation, Review of International Economics, Vol.9 (2), pp.233-248, 2001, Edwards, Sebastian (1993) Openness, trade liberalisation and growth in developing countries, Journal of Economic Literature, Vol.XXXI (3), September 1993. Francois, J.K. and Ludger Schuknecht (1999) Trade in financial services: procompetitive effects and growth performance, CEPR Discussion Paper 2144, May 1999. International Monetary Fund (2001) India- Recent Economic Developments and Selected Issues, IMF, Washington, June 2001. Levine, Ross (1997) Financial development and economic growth: views and addenda, Journal of Economic Literature, June 1997. Matto, Aaditya and Ludger Schuknecht (1999) explaining liberalisation commitments in financial services trade. Ministry of Finance (2003a), Economic Survey 2002-2003, Govt of India, New Delhi. Ministry of Finance (2003b), Union Budget 2003-2004, Govt of India, New Delhi. Pattnaik, R.K., Ashok Sahoo and S.C. Dhall (2003) Methodological issues and growth linkages of trade in services: Indian perspectives, in Papers and Proceedings of the

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Seminar on the Index of Services Production, edited by Tarun Das et.al, National Institute for Bank Management, Pune, 2003. Reserve Bank of India (2002a), Monetary and Credit Policy for the year 2000-2001, RBI, Mumbai, April 2002. Reserve Bank of India (2002b), Annual Report 2001/2002, Reserve Bank of India, Mumbai, August 2002. Reserve Bank of India (2002c), Mid-Term Review of Monetary and Credit Policy for the year 2002/03, RBI, Mumbai, October 2002. Reserve Bank of India (2002d) The Process of Globalisation in India: Its Impact, Lessons and Policy Changes, RBI, Mumbai, October 2002. Reserve Bank of India (2002e), Report on Trends and Progress of Banking in India 200102, Reserve Bank of India, Mumbai, December 2002. Rodriguez, Fransisco and Dani Rodrik (1999) Trade policy and economic growth: a sceptic’s guide to the cross-national evidence, Discussion paper 2143, Centre for Economic Policy Research, May 1999. Sachs, Jeffrey D. and Andrew Warner (1997) Fundamental sources of long-run growth, American Economic Review, Papers and Proceedings, Vol.87, pp.184-188, 1997. WTO (2001a) Assessment of Services Liberalisation: Potentially relevant consideration and criteria, S/CSS/W/117, 15 November 2001. WTO (2001b) Assessment of Trade in Services, Communication from Cuba, Dominican Republic, Haiti, India, Kenya, Pakistan, Peru, Uganda, Venezuela and Zimbabwe, S/CCS/W/114, 9 October 2001. WTO (2002), Trade Policy Review – India, Geneva, June 2002. World Bank (2000) India: Reducing Poverty, Accelerating Development, Oxford University Press, 2000.

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