India will need to jump beyond its existing strength in information technology if it wants to take full advantage of free trade agreements with Asian countries such as Thailand, according to a recent study.
With India looking to grow at seven to eight percent a year, it will be important to build strength in services sector such as infrastructure which will complement manufacturing services, according to the study titled “Integrating South and East Asia: The Case of Liberalising Services between India and Thailand.”
To make the trade negiotiations more meaningful, India also needs to strengthen areas such as tourism and medical services where it can look at building a services value chain across Asia, said the study conducted by the Indian Council for Research on International Economic Relations (ICRIER) and the Asian Development Bank (ADB).
The findings are crucial as services negotiations form a significant pillar in India’s strategy at the World Trade Organization (WTO) and with important trade partners while negotiating comprehensive free trade pacts.
In India’s economy, services account for about 60% of GDP, 40% of exports, 35% of employment, 20% of imports and 25% of total trade. However, the main demand for India in trade negotiations has remained in so-called Mode 4 — movement of professionals to provide services — especially in IT service.
The country’s main area of interest within the services sector remains with the IT sector. Beyond this, New Delhi’s interests in the services area remain limited. The study shows that 40% of the Indian companies were present in Thailand on a project basis. Of these, 83% provided computer and related services.
Interestingly, 48% of companies obtain projects through agents, 14% through competitive bidding, 10% through joint-venture partners and the remainder through their networks.
The study seeks to build a services value chain that will work on the complementary areas between India and its important trade partners in Southeast Asia such as Thailand. The findings highlight the fact that South Asia has an advantage in knowledge-based services while East Asia is strong in infrastructure and travel services.
Efficient trade and production networks require services market integration which includes physical, people-to-people and institutional connectivity.
Interestingly, growth in South Asia’s share in world services trade increased from one percent in 1990 to 4% in 2010. For East Asia, the share increased from 8% in 1990 to 12.8% in 2010, and its share in world services imports increased from 7.7% in 1990 to 11.7% in 2010.
With India’s decision to not join multilateral negotiations at the WTO on services, many analysts have questioned the importance of services in India’s trade strategy. A total of 21 members of the WTO called “the real friends of services” are negotiating to deepen the services commitment for each other through negative and positive lists.
A negative list includes areas that would not be open for liberalisation while a positive list will include only sectors that can be opened up. These 21 countries hope to carry on negotiations over the next few months to finalise an agreement.
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Writer: Tony Arora