The Hindu : Access for services

Online edition of India's National Newspaper
Saturday, Jun 28, 2003

Opinion

Opinion - Leader Page Articles

Access for services

By Sushma Ramachandran

Services must be allowed to operate in a free market. It is this case that has to be argued vigorously by India's representatives at the WTO.

THE OLD order has given way to the new as globalisation transforms itself from a spectre to be feared to a readily embraceable `mantra' in India. The enormous volume of business being shifted here from developed countries in the form of process outsourcing is making globalisation popular even with the votaries of `swadeshi'. Simultaneously, the North has been hoist with its own petard, as it were, with the war cry of market access — earlier used to pry open the developing economy markets for manufactured products — now being used by India to seek access for its services.

The irony cannot be lost on the United States Trade Representative's office, which keeps an eye on countries ostensibly denying market access through various priority watch lists. India itself has been on one such list for the last three years largely for not having adequate intellectual property rights protection. In an interesting twist of developments, it was the Commerce Minister, Arun Jaitley, complaining this time round to the USTR about the lack of market access in the U.S. and the hostile public opinion in India over the issue. The subject was outsourcing of services and the complaint was about efforts by some American States to clamp down on the use of India-based services to curb loss of employment. Many representatives of the USTR have visited this country in the past to similarly grumble about the failure to open up Indian markets to American products. It is now a reversal of roles as our huge skilled and relatively cheaper workforce is making inroads into jobs in both the U.S. and Europe.

The growth in global services activities has been so rapid that there is little general awareness about the scale of this movement. In fact, literally, thousands of jobs are being created here as corporates from developed countries find it vastly cheaper to operate from here in a wide range of areas. To cite an example, the extent of cost reduction is evident from the fact that a European financial services company has shifted a large chunk of its office operations here with employees being paid around Rs. 2 lakhs to Rs. 8 lakhs per annum. In contrast, the few employees recruited to work here from the parent company have to be paid around Rs. 40 lakhs to Rs. 50 lakhs per annum.

U.S. based companies are moving here in even larger numbers with Gurgaon, Bangalore and Mumbai having become the more popular locations. Though American States may try to pass legislation on outsourcing, it will not be possible to halt companies shifting entire divisions to India. These are not merely call centres but cover a wide range of what are known as back office operations for which we have sufficiently skilled personnel. The great advantage that India has over other Asian countries is the English language with even school children in urban areas having the required level of proficiency to meet the needs of the BPOs. Countries such as China and Korea are rapidly trying to introduce English language education but it will take decades to match the English speaking skills available in India.

Globalisation is thus going one step further than the earlier scenario of software professionals going abroad and taking up key positions in the information technology sector. It now means that people who are not necessarily highly educated can also have access to employment created by the developed countries.

The fear now is that the developed countries will try to control the flood of job shifts in the services sector even though officially the USTR office has assured Mr. Jaitley that proposals for banning outsourcing through legislation are considered "bad policy" by the Federal Government. In effect though, the proposal has snowballed from just one State — New Jersey — to as many as five States with the Federal Government having done little to lobby against the new laws. Mr. Jaitley's confidence, however, that the American industry will become a pressure group to stall these legislations is probably not misplaced. Just as the U.S. industry urged the USTR to use a crowbar to open up huge emerging markets such as India and China to their goods, it will now use the same tactics to shift services to the most attractive locations.

Significantly, the American industry has already ensured that one clause in the proposed laws is dropped. The clause would have virtually doubled the costs for call centres. This was the provision that stipulated that all calls would have to be routed through domestic centres. This crucial component has been withdrawn probably through industry-lobbying as it would have negated the entire purpose of shifting call centres to this country.

The argument in favour of the shift to India is precisely the same as the one used in the past by the North to justify the flow of investment and manufactured goods — that free market forces must be allowed to play and consumers given the best deal. Services similarly must be allowed to operate in a free market. It is this case that has to be argued vigorously by India's representatives in the services negotiations at the World Trade Organisation (WTO). Though, in the run-up to the Cancun ministerial conference in September, the developed world has its eyes glued to the agriculture sector, India's interests will be best served by ensuring that its services are allowed to move freely in global markets. The outcome should be that Indian software professionals are allowed to move to those countries where their services are needed while international companies relocate or outsource freely in India without any curbs on market access.

The current round of negotiations for services does not end at Cancun but goes on to 2005. Even so, negotiators will have to take a firm stand to ensure that developed countries do not allow India's comparative advantage to be whittled down in any manner. The specific areas of interest are what are known as "modes" 1, 2 and 4. Mode 4 is the most well-known, as it covers "movement of natural persons" or, in other words, allows skilled persons from one country to work in another. In this area, India has a definite edge with its large pool of professionals, not just in software and computers but also in services such as education, audiovisual sector, construction and engineering, health and consultancy. Mode 1 is equally important since it covers services flowing from one country to another like in the case of call centres, while mode 2 covers services offered to visitors, such as tourism or medical services.

In the past, when developing countries such as India sought to raise protectionist barriers to protect domestic industry and employment, the argument used was that lowering the barriers would benefit consumers in the long run.If high-cost industries closed down here and jobs were lost, it was pointed out that more efficiently produced goods could be imported from other countries. With India becoming more efficient in services, the response of developed countries has not been as sanguine with the European Union raising the bogey of immigration to prevent the free movement of Indian professionals and the U.S. allowing its States to consider the controversial legislation banning outsourcing of services.There is no doubt that finally the benefits of globalisation are percolating down to the Indian economy. Though the `swadeshi' lobby in the BJP may be perturbed, the Government is seeking globalisation with a vengeance. For a change, it is the Indian negotiators who will have to be aggressive at the WTO talks and look for as open a market as possible.

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