“There is no appetite in the world for Mode 4 commitments”

In his exclusive interaction with TPCI, Dr Pralok Gupta talks about the various facets associated with the services trade, the different approaches to GATS commitments of developed & developing countries and more.

 

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Q. What commitments & obligations does India have to comply with in terms of GATS? Are there any challenges that India is facing in fulfilling these requirements?

Dr. Pralok Gupta: As far as GATS are concerned, India’s commitments are very modest as compared to developed countries, which are at a relatively higher level. India’s commitments are only in selected services, and that too, mainly in Mode 3.Mode 1 (cross-border trade or online trade) is generally unbound, which implies that there’s no commitment by India as far as this category is concerned. Even in terms of challenges to fulfillment, there are no major obstacles. In fact, we have more autonomous liberalization than that committed in the GATS. For example, we have more liberalisation in retail services, insurance services, and so forth. We have a number of services where we have not made any commitments under the GATS, but these sectors are now open.

Q. How & when will India be in a position to realize benefits under Mode 4 of services exports? Is there a possibility for India to leverage benefits from Mode 4 in the future or will it be a barrier due to the restrictions applied by other nations like labour mobility tests or economic need test?

Dr. Pralok Gupta: It is very difficult to say how & when India will be able to realize mode 4 gains fully, because globally very few countries like Turkey are interested in these discussions, apart from India. Since there is no appetite in the world for Mode 4 commitments, it is very difficult to get commitments in this category. There is also a tendency to negate those commitments through other provisions. For example, the US has increased the fees on H1B visa to such an extent that it is a heavy cost burden on the company’s business model. So this is a really difficult time in terms of supplying services through Mode 4, since more & more countries are resorting to protectionist measures such as stricter visa conditions & higher visa fees. For instance, Australia has an occupational list for issuing short term working visas. The occupation list is being shortened over the years as many services are deleted from this list.

Q. India enjoys the advantage of a positive demographic dividend and has made a name for itself in the global IT industry. What can India do to gain advantage of this favourable situation and give a boost to its services sector?

Dr. Pralok Gupta: Focus can be given to selected sectors in order to boost the services exports. One such sector is the IT & ITES sector. Significant scope also exists in business services & professional services like accountancy & legal services. Potential can also be tapped in the health, education & tourism sectors. For example, we have nature tourism, eco-tourism, cruise tourism in our country. We have more number of World Heritage tourism sites than Turkey, Thailand and many other countries. But we receive lesser foreign tourists than say Singapore & Thailand. This can be attributed to macro- & micro-economic reasons like the rating of the country, its media perception as a travel destination, and the kind of marketing & facilities available for tourists.

Q. Of late, India & US are witnessing some tensions in their economic relations, which are also impacting services exports. What repercussions do issues like totalisation& stringent visa norms of the US have for the services sector in India?

Dr. Pralok Gupta: On H1B, US has made a commitment of 65,000 visas in the WTO. So, it’ll comply by its commitment. The only issue is that US is trying to impose other conditions, which will make H1B visa a little less attractive for the prospective applicants. For example, earlier, they could convert this visa into a green card. Now, there are media reports that this facility could be withdrawn. If this happens, many Indians will have to come back & that will create a lot of issues for the Indian economy. A few years ago, the application fees for the H1B and L1 visas were made so hefty that it may become difficult for many companies to bear that amount. Thus, the conditions associated with the H1B visa have become more stringent. The way these visa restrictions were drafted, they seem to be origin & company neutral. But the actual impact is going to be more on Indian companies. On paper, these provisions don’t seem to violate the commitments & obligations of US under the GATS. But in effect, US may not be fulfilling its commitments. India has filed a case in the WTO in this context.

Q. Why is the Government of India focussed on bolstering India’s manufacturing sector over the services sector to become a leading economy in the world?

Dr. Pralok Gupta: The focus on manufacturing is more from an employment perspective, since most of the economists describe India’s growth as ‘jobless growth’. If we go back to economic fundamentals, there are three stages of economic growth (agriculture to manufacturing to services). In India’s case, however, there has been a transition directly from agriculture to the services sector, skipping the second phase. Presently, while the share of agriculture has come down in the economy, the share of the services sector is increasing while the industrial sector is more or less stagnant. However, the number of people employed in agriculture is still more or less the same as before or reduced non-proportionately as compared to its share in the GDP. If we compare globally, for all those economies where the services sector contributes significantly to the GDP, it also contributes significantly to employment. That was the main challenge & therefore, the government was focusing on programmes like Make in India.

Q. What is your take on the low focus on exports in the Union government’s maiden budget?

Dr. Pralok Gupta: A very important factor in the budget, which doesn’t directly come across as export-oriented, is the Study in India Programme. It is a services-export oriented policy to increase exports in education services through mode 2. There are also scattered efforts to promote tourism. This sector too has a huge export & employment potential.


Dr. Pralok Gupta is working as Associate Professor (Services and Investment) at the Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi since May 2012. Dr. Gupta has a Ph.D. in Economics and Social Sciences from IIM Bangalore and has been actively engaged in policy making by Ministry of Commerce and Ministry of Finance on various trade and macroeconomic issues. He has been a member of the India’s negotiating team for services for Regional Comprehensive Economic Partnership (RCEP) agreement and the India-EFTA agreement. He has also been an Expert Member of the core team for drafting ‘Trade Facilitation in Services’ proposal, submitted by India at the WTO.

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