Published: Financial Express, March 15, 2005

By Pradeep S Mehta

It’s in the services sector that India will emerge as a major global player

India has made services a pivot of its stand on negotiations under the Doha round of the WTO. At Geneva, before it went into the winter break, India’s new ambassador, Ujal Singh Bhatia, said India might have a problem in accepting the whole Doha package if the deal on services was not at par with agriculture and non-agricultural market access. This caused a furore among the trade negotiators community in Geneva. It was not received well by Brazil, one of India’s closest pals in the WTO and leader of the G-20 alliance.

The dramatic turnaround by India has resulted in developing countries showing signs of fragmentation for the first time since the Cancun Ministerial of the WTO. The sudden aggressive posture of India may have surprised many, but it was definitely not unexpected. India has been a known protagonist of services trade liberalisation, largely because of its strong competitive advantage in services trade. India expects greater commitments, especially in mode-1 (cross-border supply of services, such as offshoring) and mode-4 (temporary movement of natural persons, such as skilled professionals) from developed countries.

Many experts were puzzled by India’s over-emphasis on agriculture in the recent past, more particularly since the Cancun Ministerial. Undoubt-edly, the sector is the most important source of livelihood for millions of poor in India. However, if we look at India’s trade interest, it is not agriculture, but services, where it will emerge as one of the bigger players in the global market. During the 1990s, the Indian service sector grew at an average annual rate of 9%, contributing to nearly 60% of the economy’s overall growth rate. At the same time, India’s exports of services displayed one of the fastest growth rates in the world—over 17% per annum in the 1990s.

So far, agriculture has hogged the limelight in the current Doha round. This despite the fact that, of the three major components of world production— agriculture, industry and services—agriculture has the smallest share. Yet, it generates the greatest political heat and is the toughest to deal with at the WTO. However, services are no less important. In recent years, growth in world exports of services has outpaced merchandise. According to the 2004 international trade statistics, between 2000 and 2003, the annual growth rate of services trade has been 7% in comparison to 5% of merchandise trade.

At the WTO, the nature of the services negotiations is different from the other two market access negotiations, viz., agriculture and non-agricultural market access. The services negotiations proceed through a rather laborious process of requests and offers. The alternative is the use of negotiating formulae or model schedules that would lead to all WTO members making comprehensive commitments.

• The services sector is a huge source of employment for poor Indians
• A big challenge before India is to push forward its agenda on services

However, in the past, many members, including India supported the request-and-offer approach over the formula approach, as it allows considerable freedom to decide on how much to liberalise. India, which has a comparative advantage in two key modes of service supply, viz., mode-1 and mode-4 can, and is, easily taking a far more aggressive position.

In the case of cross-border trade, India must seek to pre-empt potential protectionism, by locking in the current open international trade regime. As for movement of natural persons, the task is to seek carve outs in the highly restrictive immigration regimes, thus generating greater scope for service delivery per se.

Given the emerging situation in Geneva, the biggest challenge for India is how to push forward its agenda on services in the Doha round of trade negotiations. The chances of using the G-20 alliance to further its interest look remote, as India is facing opposition from Brazil, the leader of the G-20 alliance. Other members are also not very keen to go along with India on this issue.

This leaves India with little option but to try and work out new alliances on services—maybe this time with some of the other rich and not-so-rich countries, such as Canada, Switzerland, South Korea, Singapore, etc.