Updated: May 14, 2012 22:13 IST

Trade in services: the story in all its glory

R. Devarajan
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INTERNATIONAL TRADE IN SERVICES IN INDIA — Implications for Growth and Inequality in a Globalizing World: Ajitava Raychaudhuri, Prabir De; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001. Rs. 695.
INTERNATIONAL TRADE IN SERVICES IN INDIA — Implications for Growth and Inequality in a Globalizing World: Ajitava Raychaudhuri, Prabir De; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001. Rs. 695.

Towards the end of the last century, the world went through a quiet and unheralded development of a pivotal event in the history of international economics — the massive growth of external trade among countries. This event was one of the key consequences of the major advances in science and technology.

The recent progress made in the areas of transportation and financial services, besides the even more subsequent ascent in information technology and communications have opened the floodgates for trade and commerce to expand their overseas business.

Thanks to the phenomenal growth of globalisation, the international arena has become a local market place; and external trade in goods and services has been the major beneficiary of this process. While a lot of attention has been paid to globalization per se, yet its impact on the media and the society has been hitherto rather marginal. It is only of late that this cataclysmic change has been receiving the attention that it deserves from the public as well as the powers that be.

Services industry in India has been moving at a much faster rate than the manufacturing industry. During the early and embryonic stage of economic development of a country, manufacturing industry always takes precedence over services industry. As the country marches ahead, however, manufacturing industry takes the back seat, in terms of both output and employment.

Indeed, a stage does come when manufacturing industry itself turns service-centric in order to stay competitive. This is especially true of the Indian economy, which has made deep inroads far more in services than in goods, not only within the country but also in the international market.

Perhaps, at this juncture, it is useful to understand the basic difference between “goods” and “services”. Services, as against goods, are characterised by intangibility, invisibility, transience, and non-storability. Further, service is a process, whereas goods constitute an object.

The advent of economic liberalisation in the last decade of the last century in India has ushered in a rapid transformation in services industry. In consequence, over the years, India has been witnessing a transition from an agriculture-based economy to a knowledge-based economy.

The services industry offers innumerable business opportunities to investors. It has demonstrated an outstanding ability to accelerate the growth and development of the economy, besides enabling it to attain and retain a strong and permanent place in the international commercial forum.

The book under notice has captured this success story in all its glory. “The present volume deals with a subject that has become the cynosure of all eyes that follow international trade issues” state the authors. It is a classic example for authentic and painstaking research, which is evidenced by the fact that as many as 84 Tables and 27 Graphical Figures are displayed in support of the postulates propounded in the book.

LPG syndrome

The opening chapter is an overview of what the rest of the book has in store. Trade in services in India has been expanding vigorously since 1991, thanks to the “LPG” syndrome [Liberalisation/Privatisation/Globalisation] in the domestic economy, alongside the full and unfettered access to an increasing overseas market. The book seeks to educate the reader about some of the theoretical and empirical aspects of this transformation in trade.

The second chapter is a configuration of several economic models that emphasise the need and necessity for free trade in international services sector. The book then proceeds to examine the empirical equations of the theoretical doctrines expounded earlier. It is further explained here how travel and transport services contribute to sizable export earnings to the developing economies.

The profile of the services trade in India and how it is the dominant driver of national income today is then discussed at length. Three sectors are identified as the most significant growth factors in this context viz., Information Technology, Communications Technology, and Banking/Insurance, in that order of importance.

Services trade usually encounters both regulatory restrictions and infrastructural constraints. How they are circumvented in the Indian context such that there is no spigot affecting the free flow of international trade is analysed in detail, which includes a quantitative study.

Barriers to international trade in education, health, and transportation are then dealt with in three separate chapters, wherein the application of econometric methodology “to understand the barriers” adds to the uniqueness of the volume.

This discussion is followed by “an in-depth analysis of a contentious issue in the context of services trade” — whether the unprecedented growth in services has helped at all to alleviate poverty; and whether it has achieved any reduction in the inequality of individual incomes.

On the whole, the authors have accomplished their clearly articulated objective to “acquaint the readers with some of the theoretical and empirical basis of flourishing world trade in services.” The book is bound to be of interest to a wide constituency comprising students, research scholars, and policymakers.

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