Give and take: India going global

NEW DELHI: In a bold move to prise open world services markets, especially for export of professional services and for business process outsourcing, government on Monday armed its WTO negotiators with a mandate that would enable them to make aggressive counter offers.
In the process, India would be ready to take international commitments, including for allowing 74% FDI in telecom and 26% FDI in insurance, which are well within the bounds of policies it already follows.
The cabinet committee on WTO matters mandated Indian negotiators to fully leverage the substantial market reforms in key sectors, including telecom and financial services that India has already undertaken autonomously without any international obligation. The negotiators can now place on the WTO table the liberal foreign investment policies that India already practices so that they can nudge key trade partners - the US and the EU - to open their markets in areas where India has a global edge.
The implications would be that once India takes international commitments, the policies cannot be reversed and the liberalisation cannot be rolled back without inviting trade sanctions.
India will thus substantially improve its June 2003 "initial offers" in business services, construction and related engineering services, health related and social services, tourism and travel related services, maritime services and transport services. But these offers will be subject to better market access that major trade partners are willing provide India in return.
India would, however, make no offers for opening up the key areas of legal and audit and accountancy services. This is because a consensus still eludes government despite its best efforts at convincing the influential bodies of lawyers and chartered accountants of the big advantage that India could have in these services. Legal and accountancy services are of keen interest to some important trading partners of India. Despite a growing school of thought among these professionals in the country that liberalisation could in fact work to India''s favour, the opposition still remains strong.
The Cabinet mandate implies that in many services such as in the financial and telecom sectors, Indian negotiators can offer to undertake international "binding" of the liberal policies India already follows with regard to foreign suppliers of services. The offer can be jacked up to allow FDI of up to 74% in the whole range of telecom services from only 26% that India is committed to permit under the WTO services agreement.
Similarly in the insurance sector, the offer could go up to 26% of foreign investment. The liberal policies being pursued in India in letting foreign banks set up branches and subsidiaries and in investing in domestic private banks can also be put on the table.
There are four modes in which services are traded. Under Mode 1, services are supplied cross-border using modern ICT networks as in the case of BPO. Under Mode 2, services are consumed by foreigners in the home country as in the case of tourism. Under Mode 3, foreign businesses are allowed the right to set up establishments and supply services and under Mode 4, natural persons from one country are allowed to move to another to render services there.
India''s stakes are high in both Mode 1 and Mode 4, where it has come to acquire a global leadership position. The cabinet mandate means that India wants to maximise its gain in services supplied through these two modes by taking up international obligation to open the services under Mode 3.
"India is a demandeur in the WTO negotiations for liberalisation of trade in services", commerce and industry minister Kamal Nath said. "India''s earnings through services exports are estimated at $ 30 billion. According to the Boston Consulting Group, this has the potential to increase to $ 200 billion by 2020", he said.
Under the framework agreement of August 1, 2004, WTO member-states were required to make their revised offers by May 2005 in the negotiations on trade in services, scheduled to be concluded by the end of 2005. India would now improve its initial offers substantially in keeping with the WTO time-line.
"What we ultimately offer will depend on what is offered to us", Nath said, making it clear that India would be bargaining hard to advance its interests in services.
In India''s external balance of payments, earnings from services are categorised as "invisible receipts". But these "invisibles" have provided the country''s external sector the biggest strength. Latest RBI data reveals that invisible receipts during April-December 2004 had a robust growth of 37.5%. The key drivers were travel earnings, software exports and workers'' remittances. Travel earnings were buoyant as tourist arrivals jumped 24%. India is fast emerging among the top 10 tourism exporting countries. Indian software and services exports grew 35% last fiscal to reach revenues of $ 17.3 billion. Remittances from workers abroad touched $ 15.8 billion in April-December 2004. India was the world''s leading recipient of remittances, accounting for 20% of global flows in 2003-04.