Abstract
The service sector has emerged as one of the largest and fastest-growing sector of the global economy, accounting for more than 60 per cent of global output and one-third of global employment. India and the European Union (EU) are among the key players in the global services market. At present, the EU is India’s largest trading partner in services and accounts for around 13 per cent of India’s services trade. Given the importance of services for both India and the EU, which has contributed significantly to the strengthening of the India–EU bilateral relationship, this book presents a detailed discussion and analysis of services trade, investment and collaboration between India and the EU, in the context of recent developments and policy changes.
India and the EU have been actively engaged in bilateral relations due to the slow progress in the Doha round of the World Trade Organization (WTO). Presently, the two are currently negotiating the India–EU Broad-based Trade and Investment Agreement (India–EU BTIA). The BTIA is a comprehensive WTO plus agreement that will cover trade in goods, services, investment, trade facilitation measures, government procurement, labour standards and sustainable development, among others. This will be the EU’s first trade agreement with a large and growing emerging market and will also be India’s first trade agreement with a large bloc of developed nations.
The present Indian government since May 2014 has proposed reforms such as goods and services tax (GST) and foreign direct investment (FDI) in sectors like railways and insurance and the ‘Make in India’ campaign promises to create demand for allied services such as logistic services. The EU, on its part, is slowly recovering from the economic crisis, though countries like Greece are still facing problems. Once India initiates key reforms and the EU is able to recover from the crisis, a successful trade negotiation will benefit both the partners. Against this backdrop, this book is a first of its kind to highlight how domestic policy, objectives of the EU, its member states and India can benefit through mutual cooperation and collaboration.
Based on extensive primary survey, meetings with stakeholders and validity from secondary information, the detailed analysis makes a huge contribution to the literature in understanding trade complementarities between a developing country and a developed region. Since it is very difficult to estimate the contributions of such trade agreements through secondary information, a major contribution of this book is the analysis through primary in-depth survey, which adds value to the existing literature. The book also addresses the gap in the research by examining the India–EU trade and investment relationship in services before and after the global slowdown. The authors have done a splendid job of carefully selecting seven service sectors of interest to either the EU or India or both. Considering the wide difference in interest and sensitivities across various sectors between India and the EU, this book does a marvellous job of doing a sector-by-sector approach to the India–EU BTIA. The selected services cover broad clusters, namely, infrastructure (logistics and energy), business (IT-ITeS and retail), professional (accountancy) and social (health and environment).
The book is divided into three parts. Part I provides an overview of the services sector in India and the EU, and examines trends and developments in trade and investment in services. Part II is laid in seven chapters, each discussing a particular sector and has been written by leading experts in each of these sectors. The authors have been meticulous in maintaining a common strand between these chapters. They focus on trend and recent developments in the specific sector in the Indian and the EU markets and examine their global and bilateral trade patterns. The chapters identify trade complementarities within each sector, potential areas for bilateral trade, investment and collaboration and sector-specific regulatory and other barriers to developing bilateral relations. There are also suggestions on reforms and measures to strengthen relations in the particular sector and identify sector-specific negotiation strategies. Part III consolidates the key findings and presents an analysis that looks beyond sector-specific issues and does a thorough examination of the commitments made by India and the EU in their existing bilateral agreements and its implications for the ongoing negotiations for the BTIA.
The chapter on logistics sector makes an important point that India and the EU can bind their fairly liberal domestic regimes under the BTIA agreement and provide operational certainty to companies in each other’s market. It recommends to conclude the Maritime Agreement and provide non–discriminatory access to their port facilities. As correctly pointed out in this chapter, India can collaborate with the EU on trade facilitation issues such as the Customs Cooperation Agreement and development of better risk management facilities. The author of this chapter suggests collaboration between India and the EU in developing environment-friendly fuel technologies and lighter, safer and cost-effective engines and battery operated cars. As rightly mentioned, India can also seek help and support from the EU in developing its dedicated freight corridors and minor ports and better sea connectivity from which the EU will also benefit because of its trade engagements with India.
Although India and the EU have similar resource endowments in terms of energy services, the negotiating strategy has been very different for India and the EU. The chapter on energy services makes a crucial point that India needs to address pending reforms such as the Government Procurement Bill in order to attract foreign investment. India seems to have a defensive position while the EU has been aggressively pushing for liberalization in this sector. The chapter correctly points out that there is a scope for greater cooperation through a mutual recognition agreement in scientific research and research and development (R&D) in the fields of clean technology and renewable energy. However, as noted in the book, India’s defensive stance on this sector is slowly changing with the government’s renewed focus on attracting foreign investments.
The next chapter deals with the information technology (IT) and information technology enabled services (ITeS) which is one of India’s major exports and India and the EU have strong complementarities in this sector. Although, there are certain concerns on data security and the movement of IT/ITeS professionals, both India and the EU can reap huge benefits if some of these regulatory issues can be removed through cooperation and inter-governmental negotiations. India has a strong offensive interest in this sector but as correctly noted in the book, it needs to modify the Information Technology Rules, 2011 to include an enforcement clause that ensures that its data protection clause matches international standards.
The next chapter covers accountancy services, which is a key professional service for which the EU companies are seeking market access in India. The author addresses some of the issues related to the movement of professionals such as harmonization of qualifications that needs to be addressed through several bilateral agreements. This sector is highly regulated in India and the EU. However, as very meticulously argued in the book that if India wants to develop as a knowledge-based economy, it has to upgrade its professional services sectors to international standards and hence needs to allow market access. The chapter highlights the importance of liberal work permits and visa regimes along with the removal of other barriers to movement of people which can create synergies and will finally lead to greater bilateral trade in business services. The author argues that India may consider opening up Mode 3 in exchange for reciprocal access to the EU market through Modes 1 and 4. India’s defensive stance is affecting the Mode 4 negotiations with the EU.
The next chapter deals with health services which both India and the EU are sensitive about opening. Although health services are outside the EU Services Directive, limiting the scope for liberalization under trade agreement, still there is an immense opportunity for cooperation in this sector. Though India has been liberal in this sector by offering full commitments in Modes 1, 2 and 3, the EU has shown a restrictive approach and it is unlikely that the EU will open the sector substantially given the resistance that it faces from its own stakeholders. One of the primary issues in this sector is related to intellectual property rights in the case of generic drugs. The book makes a very pragmatic suggestion regarding this sector by recommending that priority should be given to negotiating a chapter on cooperation that has a bearing on health services and to promoting greater links between India and the EU healthcare establishments and providers.
Another sector which is very important but needs some more cooperation from both sides is the environmental services. While Indian exporters do meet the EU’s environmental standards, it may be difficult for India to have uniform standards through a trade agreement. This is primarily due to the fact that majority of Indian businesses are in the non-corporate sector and are small and medium-sized enterprises (SMEs). Such obligations will most likely increase the operating costs for Indian firms. Another important issue that India needs to address is building the supply capacity in environmental services. The EU can play an important role through investments and technology transfer but these can come only when domestic reforms are undertaken. As the chapter points out, there is a clear need to have a more robust institutional mechanism in India to support the growth of this sector and take advantage of cooperation mechanism that may arise under the BTIA.
The last but one of the most dynamic sectors in the Indian policy circle is the retail sector. Retail is important for the EU companies interested in establishing a supply chain in India. This makes it crucial for the EU companies for liberalization of this sector. However, the new government seems to be passive about retail liberalization. The book makes recommendation about revising the e-commerce policy with respect to foreign retailers as it is of huge interest to the EU companies. The authors make a very important suggestion that this sector can be used as a tool for cross bargaining.
One major takeaway from this book is that since services sectors are interlinked, an efficient value chain cannot be developed without a general service sector reforms in both India and the EU. There is an immediate need to integrate the services sector in both these markets. Both India and the EU need to change their approach and strategies towards negotiations to lead to a fruitful conclusion which will benefit both the parties.
Domestic reforms are very essential to reap full benefits from such agreements, and the authors appropriately recommend that India can use the India–EU BTIA negotiations to carry out domestic reforms in a speedy process in sensitive service sectors. The delay in this negotiation has been primarily from the Indian side due to slow implementation of reforms, lack of push from the higher authorities for clear timelines and negotiating strategies, inability to get the state governments on-board in the reform process, among others. The book makes a very important recommendation to the policy makers where there is a clear need to have survey-based analysis of impact of trade agreements for services and investment sector.
Overall, the book is first of its kind to provide such a detailed analysis of the service sector in the backdrop of the India–EU BTIA. The release time of the book is worth mentioning especially when there is a majority government in the lower house of the parliament in India after decades which will help in pushing through the domestic reforms and along with the active engagement that Indian government now has with the EU member countries. The book provides a very detailed roadmap for enhancing bilateral trade, investment and economic cooperation between India and the EU in light of the recent developments in both the trading partners. The book is a must read for policy makers from both India and the EU and also researchers working towards enhancing global competitiveness and efficiency of services, including development of services value chains. The book will definitely lay down the path for future India–EU engagement and trade agreements in services.