Clinching the Canvas

India is negotiating some crucial FTAs with its largest trading partners, including the EU, UK, and now possibly the BTA with the US. All these trading partners are overwhelmingly services-oriented economies, and therefore, it is imperative to have a reasonably ambitious services agenda—both on its own merits and to partially offset the disadvantages India suffers in tariff negotiations with such partners, all of whom have substantially lower tariffs compared to India. A multi-pronged agenda should suit both sides while providing due flexibility to preserve sensitive issues.

A) Issue of Recognition of Qualifications for Our Professionals

It is felt that negotiating Mutual Recognition Agreements (MRAs) may not be the best solution, given the complexities of negotiating such MRAs and our own domestic compulsions. So far, India has managed to sign only one MRA on nursing—with Singapore. A better option could be to explore the possibility of including disciplines on defined professional services—drawing on WTO Accountancy Sector disciplines, the WPDR frozen text under Article VI:4 of GATS, and the approach used in the EFTA agreement—as the basis for developing such disciplines, which would offer much better chances of effective market access.

The disciplines could be a mix of legal obligations, softer best-endeavour clauses, or at the lowest denominator, guiding principles for professional bodies. This would involve consultations with professional bodies in India, including consideration of modifications to relevant Acts and Rules—which is perhaps long overdue and necessary for improving our competitiveness.

B) Commitments for Cross-Border and Digitally Delivered Services

India has broadly been able to obtain liberal and widespread commitments in Mode 1 in its FTAs. However, significant gaps and challenges remain in ensuring full commitments, both for the present and for securing future access—especially considering the potential backlash, for example, against the location of GCCs in India by all top Fortune 500 companies.

This is a dynamic area of growth, with new services and activities becoming tradeable. India should draw inspiration from Annex C of the Hong Kong Ministerial Declaration (MD), as referred to earlier, and consider developing an Annex for Mode 1/cross-border commitments. This should clearly list all the sub-sectors and activities that are or will become commercially meaningful and encourage both our trade partners and India to take full Market Access and National Treatment commitments in these sectors—which, in most cases, reflect prevailing actual policy.

Further, with the notable exception of financial and telecommunication services and one or two other sub-sectors, prior requirements of commercial presence could either be fully removed or substantially reduced. Suitable classification systems like UN CPC Versions 1.1, 2, and 2.1 need to be used to better reflect market realities in areas like telephone answering services, emerging medical services including telemedicine, other human health services, and a host of post-production audiovisual services.

This will help maintain India’s comparative advantage in cross-border delivery, which is—and will continue to remain—the mainstay of our exports. Such a move will also serve as a counterbalance to the growing pressure on India to sign a Digital Trade chapter that binds its domestic regulatory space, whereas India seeks to retain its policy space.

C) Development of a Mode 4 Database for Trading Partners with Whom India Has FTAs

Matching the categories of natural persons included in the schedules of commitments of our trading partners with their domestic visa/work permit regimes is a major gap for existing and potential services suppliers. No such direct concordance exists in the FTAs, and it would be very useful if such a database could be built and included in future Mode 4 Annexes to facilitate much more effective use of these commitments.

D) Listing Out Existing Policy Regimes in Mode 3/FDI

India does have a Consolidated FDI Policy brought out periodically by the DPIIT, the latest such consolidation having been done in 2020. However, this is limited only to the FDI policy and does not include sectoral regulations of the concerned regulators or executive directives spread over several agencies and departments of the government that have a bearing on FDI flows. A foreign services supplier—existing or potential—would greatly benefit from having such information available in one place.

India could create a single portal where all services sectors’ FDI policies and sectoral regulations are hosted, including updates.

The development of a similar database for the services FDI regimes of our major trading partners would boost the possibility of outward FDI (OFDI) from India in these sectors.

Domestic Agenda: Diversification of Services Exports

There is a very heavy sectoral concentration, with 84 per cent of our total services exports generated from three sectors: Telecom, Computer & Information Services; Other Business Services; and Travel Services. Additionally, 57 per cent of exports are generated by the top 10 trading partners, indicating a locational concentration—though this has been reducing over the past decade.

India’s services exports have historically been concentrated in North America and Europe, but there is significant potential for growth in emerging markets such as Asia, Africa, and Latin America.

The top services export sector is Telecommunication, Computer and Information Services, which in 2023 represented 48 per cent of India’s total services exports. Other Business Services contributed about 26 per cent, and Travel Services 9.5 per cent. Transport services contributed another 8.5 per cent. The overall CAGR of services exports from 2013 to 2023 is 8.5 per cent, while the CAGR of Other Business Services is 12 per cent.

Finance, personal, cultural and recreational services, construction services, hospitality, and medical tourism are other leading export sectors. These currently constitute a very small share of India’s total services exports; however, the CAGR of some of these sectors is significant, pointing to untapped potential.

Another factor to consider is the revolutionary impact of AI on digitally delivered services and cross-border trade. AI is redefining the traditional business models of IT/ITES services, changing workflow patterns, and promoting huge efficiencies—while also presenting challenges regarding data flow, privacy, cybersecurity, and major upheavals in skilling.

India’s openness in services trade is lower than the global average in most segments, as estimated by the OECD’s Services Trade Restrictiveness Index (STRI)—with the exception of Telecom, Computer & Information Services. Thus, both domestic regulatory reforms and greater openness in selected sectors would need to be undertaken, along with an analysis of global demand patterns and our major competitors.

It is understood that a detailed study of this aspect has been commissioned by the Department of Commerce, and one can await its findings and recommendations. Previous attempts, like the Champions Sectors Scheme piloted by the Department of Commerce, have only partially succeeded, and the composition of India’s services exports has not undergone the desired transformation.

To conclude, this seems to be an opportune time to remind the world that a disproportionate emphasis on tariffs and goods trade—to the neglect of the more dynamic, more inclusive, and more transformative services trade—would be a mistake the world can ill afford. It might be an excellent idea for India to leapfrog this shift and take the lead.

Views expressed are personal