<b>Jayanta Roy:</b> Diversify services to boost exports

The current trade landscape is defined by integrated production networks that combine intermediate goods and services from several countries to produce final goods and services. Global fragmentation of production is essentially a division of labour based on specialised tasks that need to be combined by the means of an efficient supply chain. Thus, the focus on export expansion now is to connect to regional and global supply chains.

India must focus on trade reform that diversifies services beyond information technology and IT-enabled services. Indian trade policy in services became IT-centric with an over-emphasis in its trade negotiation priorities on Mode 4 (or liberalisation of the movement of people), a critical demand of the Indian IT lobby. In doing so, it did not focus on the barriers preventing the take-off of other services such as behind-the-border regulatory restrictions on accounting, legal, engineering, architecture, or health-related professional services in partner countries.

Global trade in off-shored services is becoming increasingly about trade in tasks, i.e. carrying out specialised functions within the broader accounting or legal service professions. With the emergence of big data as a driving force of innovation and business development, data analytics and management will emerge as a huge area of opportunity in professional services exports for India.

Trade barriers related to regulatory constraints on undertaking certain types of legal or accounting tasks offshore, and barriers related to the emerging issues in data privacy and data restrictions are now the areas of maximum concern for the future growth of off-shore professional and technical services (i.e. BPOs). This requires urgent domestic regulatory reforms of the services sector in India (business facilitation) and negotiation of such trade barriers within trade agreements.

Needless to say, such negotiations are by definition WTO-plus, and India's negotiating paradigm in services would have to shift from the traditional focus on Mode 4 minus the deep dive into regulatory barriers that effective market access for such professional and technical services requires.

Agreements like the TPP are discussing such trade matters. India cannot afford not to engage on these topics with major trade partners. The question remains, as mega-agreements like the TPP and TTIP take off, and almost all of India's major competitors in professional and technical services join these negotiations. India cannot afford to remain a bystander.

In the new architecture of services we need to focus on task-based value chains in professional services in the following areas:

• Accounting, engineering, architecture, design, product development, legal and medical services that are globally delivered, combining tasks being done by professionals in various locations
• Each of the above have discrete tasks within the profession that can be outsourced; for e.g. recording book entries, cleaning of accounts, analytics, tax-related assessment can all be unbundled to provide the final audit services. Trade policy must ensure maximum market access for all tasks within the profession, and recognition of Indian qualifications
• The analytics of big data, a huge emerging opportunity, will have its own skill-based value chain, with tasks ranging from basic quantitative assessment and presentation to the most advanced statistical and mathematical analysis.
• Tasks in social media and animation will move away from pure media and entertainment to multiple uses ranging from training, education, and real-time instruction modules for decentralised manufacturing manuals for various products. This will create a range of professional services tasks.

The new trade policy priorities in services should embrace:

• Data protection and privacy issues that can emerge as barriers: need to engage our main trade partners through twenty-first century trade agreements such as TPP and TTIP
• Certification and qualification recognition with major partner countries (this can be done even outside trade agreements, but a strong mandate and cooperation are needed between the ministries of commerce and industry, human resource development, and corporate affairs).
• India must be prepared for tariff barriers to digital trade to emerge. Technologies to monitor a firm's use of digital inputs, or declare the professional services it sources from abroad will be developed, and such inputs can be differentially taxed.

We also need to reduce transaction costs of services delivery from India associated with the high cost of electricity and 24/7 availability; cost of communication; ensuring physical security and availing certification of security and quality from foreign accredited organisations. This will enable India to provide a new generation of services that are linked to manufacturing in the global value chains. Some examples are:

• Repair and return
• Virtual maintenance: online guide with self-help tools
• Digital monitoring of engines
• Computer-aided design
• Computer-aided manufacturing
• Virtual medicine

For its success we need liability regimes in areas like maintenance, digital monitoring and virtual medicine. We also require trade facilitation that allows expedited movement of materials in and out of India for services components to service manufactured goods, as in repair and return.

For expanding exports of services we need to immediately create a skill pipeline. The changing landscape of IT and ITES requires far greater emphasis on a diverse range of expertise and domain knowledge than mere programming that call-centres ask for. The government will have to come up with a strategic vision that can convert India's large output of natural science, arts, and commerce graduates into employable resources. The private sector or the government working alone cannot do it; success will only come with the two working together. Government would also have to work with the over 1,000 private engineering colleges that over-emphasise programming and coding at the expense of hard-skills in engineering, and help re-orient them to meet the changing demands of industry.

India with its very dynamic professional services sector is well placed on data management and the 'servicification' of global manufacturing with its emphasis on customisation, technical support and after-sales service. India, with the right policies in place, can ride this wave to create an entirely new generation of skilled citizens that drive forward export growth and employment opportunities for the next several decades.

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The writer was economic advisor in the Union commerce ministry