Published: The Financial Express, May 10, 2005

By Pradeep S Mehta

Over the past decade and a half, the services sector has been growing faster than others. Of this, exports are the most remarkable feature, showing one of the fastest growth rates in the world—over 17% per annum—in the 1990s. While the most visible growth has been in information technology and business process outsourcing (BPO) services, sectors like telecommunications, finance and tourism have also grown considerably.

The IT-driven revolution has not come about due to Gats, the General Agreement on Trade in Services. However, Gats can help in the movement of persons, where India has a comparative advantage, but faces barriers in developed countries’ markets.

The IT-revolution en-abled India to achieve a dramatic growth in software exports, particularly BPO services. In 1997-98, BPO services accounted for only 4% of total software exports. By 2002-03, this had grown to 24%, having registered an average annual growth rate of more than 100% in five years. Another factor that has played a significant role in advancing the IT-led revolution are the policy changes at the domestic level. Liberalisation of FDI rules in telecom has allowed faster growth, created jobs and galvanised other sectors.

As for external challenges, we will have to bargain for better market access, in both Mode-1 (cross-border supply) and Mode-4 (movement of natural persons), where India has a comparative advantage. While independent service providers face a range of barriers, including tough visa formalities, discrimination through fiscal and regulatory means, non-recognition of professional qualifications, etc, cross-border trade in services faces few explicit restrictions. Though labour lobbies in importing countries, such as USA, are demanding legislation to check the outsourcing of domestic jobs.

• The proposed Services Export Promot-ion Council will face many challenges
• Institutional and regulatory reforms needed to help services exporters

India has to gear itself for some hard negotiations at the WTO, as progress on services trade liberalisation has been unsatisfactory so far. In international trade negotiations, it’s very difficult to push any agenda, unless endorsed by a formidable alliance. In Cancun, the G-20 put the big trading powers like EU, USA and Japan in the dock over agriculture subsidies. India needs to construct a similar alliance, or maybe a Cairns group type of alliance, comprising both developing and developed countries.

In the case of Mode-4, a major problem is that the temporary movement of service providers comes under the purview of immigration legislation and labour market policy and not international trade policy. Greater security concerns in the wake of 9/11 have further complicated the liberalisation of services trade through Mode-4. In such a scenario, things really go out of the remit of trade negotiators. An easier way forward is to negotiate through bilateral routes with countries such as the US.

The proposed Services Export Promotion Council (SEPC) has been brought in rather late. It will have many challenging tasks ahead in terms of giving proper direction and encouragement. These will increase in the light of the inter-ministerial task force’s report, which recommends bringing those service sectors that require hand-holding or policy support from the government under SEPC’s purview.

It means services such as health, accountancy and education would get priority. But there are many other services, like nursing, hotel trade, construction, etc., which can be exploited. For this, we will need to think seriously about promotion of skills. Here, the role of the other ministries, particularly labour and employment, and the state governments is very crucial.

Steps are also needed to ensure that the benefits of the liberalisation of the services sector accrue to the poor and weaker sections of society. For this, it it necessary to undertake strategic programmes for their skills upgradation.

Finally, institutional and regulatory reforms, which help service exporters deal effectively with regulatory impediments in foreign markets, are required. A strong and effective regulatory regime will help Indian services exporters make a credible case for recognition of their qualifications and licenses by foreign governments and regulators, so vital for securing effective access to foreign markets.