Mode 1 offers exponential growth prospects for Indian services exports
Dr Pritam Banerjee, Logistics Specialist Consultant at Asian Development Bank and Member, Committee for Advanced Trade Research, TPCI, discusses exciting prospects for India in Mode 1 services exports, potential trade barriers and a five-point roadmap to enhance exports in this area.
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India Business & Trade: How do you see the changing composition of India’s services exports post-pandemic, and increasing role of Mode 1?
Dr. Pritam Banerjee: Prior to the pandemic, we were already witnessing rapid digitalization trends, including digitalization of work flow and business processes. Technology was enabling remote performance of several occupational functions. Some of the well-known unicorns in the start-up eco-system underlined these trends. Examples include BYJU’s for tuitions and DocOn or Practo for medical consultations. Augmented Reality applications are helping support remote maintenance of industrial machines or inventory management in warehouses. The severe movement restrictions during the pandemic have only expedited this transition to adoption of digital solutions for many different occupational functions.
This points to reduced dependence on on-site support and greater use of remote working. This means Mode 1 will increasingly come to dominate service delivery not just in IT, but also a wider field of occupation specializations in medicine, education, engineering, legal and financial services. This also points to a decreasing dependence on Mode 4. Of course some on-site support for IT and ITES services would always be needed, it is that the numbers are likely to come down in the medium to longer run.
This is actually good news for India since Mode 1 has far lesser transaction costs, and the ‘value’ component of the export is retained more in India.
India Business & Trade: What potential does Mode 1 have for India in its keys sectors of interest?
Dr. Pritam Banerjee: I think that India has huge potential in Mode 1. Imagine a world where occupational functions ranging from remote monitoring of patients, managing large engineering systems in factories, diagnosing patients, or managing an arbitration process can all be done online. This extends to providing tuition lessons or yoga instruction, editing a film, or being an executive assistant. All this can all be remotely done. Much of this is already happening and getting mainstreamed.
Since you are not limited to having the worker on site, and can engage a professional anywhere in the world, the range of jobs or occupational specializations where Indians will have a competitive advantage due their skills, demographics and English language abilities will increase exponentially. India can truly become anchor of global professional and allied services.
Add to this the increasing use of apps and big data analytics in day-to-day lives. Entire industries such as travel, leisure, urban transport, food, retail, and entertainment are dependent on such digital solutions. All of this requires human resources in the IT and advanced specializations like AI and data analytics. A lot of this work would be ‘remote’ and therefore ‘Mode 1’ friendly.
India Business & Trade: What are the likely impediments and barriers to this trade?
Dr. Pritam Banerjee: The interesting thing to note that currently there are no real barriers to Mode 1. Yes, there are serious concerns on data privacy requirements and restrictions on the cross-border transmission of data. But largely speaking, these concerns have not translated into actual barriers on the ground yet.
But I think it is extremely important for India and Indian businesses to be proactively ‘free trade’ on Mode 1, given the sheer opportunity an open market for such services represents for India.
My biggest concern is that a range of protectionist measures can used to restrict Mode 1 markets, and countries, especially more advanced economies with large shares of their workforce in the services industry, would be tempted to do so as technological transformation exposes them to direct competition from younger, cheaper and in many cases more competent human resources from countries like India.
Some barriers could related qualification requirements where certain only those obtaining local qualifications on degrees would legally allowed to provide such services. Such qualifications can apply to medical, engineering, legal, accounting or even educational functions.
More direct ‘tariff’ like measures could also be put in place whereby firms that engage or use professionals or service providers from other countries are ‘taxed’ more. In other words, an additional tax is put offshoring expenditure of firms used to pay for foreign workers and professionals.
Of course, much more stringent data localization or restrictions on cross-border data transmission can also be put in place.
Last but not the least, entire business processes could be declared ‘sensitive’ from a quality control or prudential reasons, for example medical or financial services, and local presence for any professional providing a service is made mandatory thereby eliminating the opportunity for Mode 1 service exports all together.
There is need for pre-emptive trade policy on India’s part on all of these areas. Too much focus on and energy and focus on Mode 4 would therefore not be to our advantage. As a country, we need to make open markets and free trade in Mode 1 services a national mission across trade negotiations, whether on FTAs or multilateral agreements
India Business & Trade: What measures can the government take to boost India’s services exports via Mode 1?
Dr. Pritam Banerjee: I would like to recommend a five fold strategy to achieve this objective:
First, set up a dedicated team within Ministry of Commerce that will come up with a long-term trade policy strategy across negotiating formats to ensure that Mode 1 markets remain open to trade globally. This would require specific proposals to address the different types of protectionist measures I had mentioned earlier. Basically, try and preempt any moves towards protectionism of what is currently a very open market.
Second, on the issue of data localization and restrictions on cross-border movement of data, try and find a middle ground that balances the need for genuine protection of Indian stakeholders, but also not give a self-goal by becoming a champion protectionist in an area where we have a lot of export interests. India can hardly argue for open Mode 1 markets for its firms and workers if it is itself creating protectionist walls around its own market for Mode 1 imports.
Third the Ministry of HRD and Ministry of Skills should recognize the global opportunity for Indian skilled workers who can remotely deliver a host of different services based right here in India. There is need to identify specific certification courses and training programs for these types of occupational specialization customized for remote delivery of such services. Much of this do not exist, but the New Education Policy (NEP) includes flexibilities that would allow development of such courses. Having such a system would allow Indians to demonstrate quality and competence, and thus making the more competitive.
Fourth, wherever possible India should pursue Mutual Recognition Agreements (MRAs) of Qualifications and Degrees in FTAs or through other means of bilateral cooperation. The scope of such MRAs should extend beyond the typical list such as accountants, nurses, doctors and architects wherever this is feasible.
Fifth, proactively take up the development a first-rate system of certification of quality and accountability for services firms at the WTO. This can be on the lines of Authorized Economic Operator or AEO concept in use globally with respect to customs and facilitation of cross-border movement of goods. This is the real ‘low hanging’ fruit as per as facilitating services trade is concerned. Having a global benchmark that is accessible to Indian firms would level the playing field for them when competing globally, while also addressing the types of potential barriers to Mode 1 services discussed earlier.
Dr Pritam Banerjee brings several years of experience in the areas of logistics operations, trade facilitation, and trade policy. He is currently a Consultant with the Asian Development Bank (ADB) as a Logistics Sector Specialist. Prior to his work with the ADB, Banerjee was Senior Director for Public Policy with the Deutsche Post DHL Group, responsible for South Asia. In this capacity, he was responsible for engaging with governments and governmental agencies on regulatory affairs and policy. He also served as a consultant for major clients of Deutsche Post DHL Group, finding solutions to regulatory and policy problems related to their supply chains.
Dr Banerjee previously served with the World Bank in Washington, D.C., where his work focused on trade facilitation and trade in services and has taken key positions in task forces and committees of major industry bodies. He is a member of the National Trade Facilitation Steering Committee and was most recently a special invitee to the Committee on Ease of Doing Business Reforms constituted under the Ministry of Commerce as a part of PM Modi’s initiative on reforms. He also serves as guest faculty at the Indian Institute of Foreign Trade (IIFT), Foreign Services Institute (FSI), and NACIN (National Academy of Customs, Indirect Taxes, and Narcotics).
Dr Banerjee has a PhD in public policy, and master’s and undergraduate degrees in economics. He has been extensively published on issues related to international trade, regional integration, regulatory reforms, logistics and connectivity, and trade facilitation.
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