Opening up of professional services in India - analyze the potential opportunities, barriers & suggest initiatives

Abstract

Services sector contributes about 71% of GDP in high income countries, 55% of GDP in middle-income countries and 47% of GDP in low-income countries1. But, the contribution of exports of commercial services is only about 19% of the total world exports (goods and commercial services) in 2004. The above statistics raises a paradoxical question. Why is it that services account for such high levels of the GDP of a large number of economies but only less than a fifth of world trade? The ability to store and transport goods is a key characteristic that enables the tradability of goods. On the other hand, the absence of ‘inventory’ in the case of services constrained any similar trade for the latter – unless the production and consumption of the services are colocated. Export of the Services are constrained by2 1. Restrictions on immigration 2. Recognition of qualifications, work experience and training 3. Discrimination between domestic and foreign personal 4. Regulations covering other modes of supply, like commercial presence 5. Restrictions on Foreign Direct Investment (FDI) or voting rights Advances in information communication technology (ICT) and their application over the past two decades have reduced the effect of these barriers on the global tradability of services. As demonstrated by the Indian IT and IT-enabled Services (IT-ITES) sector, today a wide range of services can actually be delivered, and hence consumed, independent of the location of the provider and consumer of these services. Benefits of opening up professional services are - 1. Improved quality of services 2. Greater competition and hence increase in efficiency 3. Improved standards of training, knowledge, equipment and practices 4. Technology transfer 5. Opportunities for Indians to work abroad