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Setting the Agenda

Joe C Mathew     July 8, 2016

Soon after India ratified the World Trade Organization's (WTO) Trade Facilitation Agreement (TFA) in April to facilitate international trade in goods, the Narendra Modi-led government expressed its desire to have a similar agreement for the services sector. Commerce Minister Nirmala Sitharaman and senior ministry officials have, since then, said on several occasions that India is working on a draft TFA for services, which will be submitted before WTO's 162 member countries and trade blocks for consideration.

For a country that had, so far, only responded to proposals made by other WTO members, the move to initiate a new agenda is a positive development. Reducing barriers in services trade is also in India's interest as it has emerged as the most dynamic sector globally. Besides, with over 50 per cent share in the country's GDP and having contributed about 69 per cent of its growth between 2011/12 and 2015/16, the services sector has been the key driver of India's economic development, too. It has also emerged as the key component of India's export revenues, with a trade surplus that cushions the trade deficit in goods.

According to the Economic Survey, India's services exports increased from $16.8 billion in 2001 to $155.6 billion in 2014, making it the eighth largest services exporter in the world. The share of India's services exports in the world stands at 3.2 per cent in 2014 - almost twice that of its merchandise exports, which is at 1.7 per cent of global merchandise exports. TFA in services can thus improve India's ability to reach out to export markets and add more ammunition to its bilateral and multilateral trade negotiations on improving India's competitiveness in services exports to partner countries.

What India lacks, though, is clearly segmented data on the nature of foreign exchange earnings from services. While the Reserve Bank of India provides for the big picture in a fairly accurate manner, one often finds it difficult to attribute that revenue to a particular segment of services. For instance, if a patient comes from a foreign country on a tourist visa, and undergoes a wellness or medical treatment, which sector can that revenue be attributed to? Similarly, if a software company outsources a job for an engineering firm, or healthcare enterprise, will it just be software services or a service that can be categorised separately?

The distinction must be made, because it is important to facilitate India's trade negotiators to identify sectors that require policy push for growth. Therefore, the Centre has asked a Delhi-based economic think-tank to develop an institutional framework for collection of data on services trade in a segmented manner. While the draft TFA in services should not be held back until we have a foolproof system to analyse our strengths in services trade, a credible data source is needed for negotiating the best deal. Its importance, however, should not be undermined.

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