Regulatory mismatch in services sector challenge for India-UK FTA: Official

However, India is on the “same page” with free trade agreement (FTA) partners on movement of business professionals as there is a strong demand for Indian professionals in the UK and European businesses too, the official said, adding that India needs business mobility for smooth movement of goods and services and “nobody is disputing it”. Trade deals in the service sector assumes significance as India’s service sector contributes over 50 per cent to the gross domestic product but the growth has not been inclusive as the sector absorbs less than a third of the Indian workforce largely due to outdated regulations and barriers on foreign direct investment (FDI).

“A lot of integration happens when you sign a deal in services. It has a multiplier effect. It has the potential to boost overall economic activity. But there is a lot of resistance in opening up. India’s approach was calibrated ten years back but we have also been reticent. Integration will yield limited gains if we are too reticent,” the official said on condition of anonymity.

Citing the example of legal services that continue to resist opening the sector, the official said that if a British law firm starts a firm in India, it will offer employment to graduates coming out of India law colleges that find limited opportunities.

“When our workforce gets an exposure to an international law firm, they will get jobs anywhere in the world. Indian multinationals seeking legal services also find it difficult to get it. There are only six to seven law firms who control the business. They charge hefty money. Any service if they are opened in both ways, huge young talent will get better opportunities,” the official added.

Arpita Mukherjee, a professor at ICRIER said: “During our study for Invest India, we found restrictions and requirements put in place for FDI inflows has been a concern for a number of our trade partners as it adversely impacts their global business model. This may adversely impact market access negotiating in an FTA as our policy looks more restrictive than in practice. For each of the sectors, there is a need to revamp the FDI regulation”.

An expert, on condition of anonymity, said that India’s restriction over brand based retail is not easily understood by foreign players. “Such a structure is not in line with globally followed norms. While there is no cap on FDI in single brand retail trading in India, there is 51per cent cap on multi-brand retail in India along with multiple riders,” the expert added. “Another restriction that has been a concern for foreign players is in e-commerce. While India allows a marketplace based model of e-commerce where the e-commerce entity acts as a facilitator between buyer and seller, we restrict, inventory based model of e-commerce where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly,” the expert said.

As per official data, the share of gross FDI equity inflows into the services sector is skewed in favour of one sector. While the computer software and hardware sector receives 42.59 per cent of the total FDI in services, the share of retail trading stands at 1.38 per cent. The share is as low as 0.25 per cent for agriculture services, 1.97 per cent in hospitals and diagnostic centers category and 0.91 per cent in consultancy services category.

On the issue of movement of professionals, the official said that immigration debate and the ongoing FTA discussions in services are completely different things. “India’s position has always been clear. Even the businesses in the UK are looking for talent and skills. We are talking about business mobility that is different from immigration. We are also looking to retain talent. But to have smooth movement of goods and services, we need business mobility and nobody is disputing it,” the official said.

Last year, UK’s former home secretary, Suella Braverman had stirred a controversy by saying that Indians form the largest group of people who overstay in the UK, deepening the immigration problem in the country. Braverman was fired from her post in November this year following her comments on pro-Palestinian protests in London.

Touching upon the issues pertaining to the delay in signing the deal, the official said that it took several years to sign a deal earlier and India-UK FTA will be a “landmark deal” and a comprehensive deal which is why it is taking time. “While India has a static government, the political situation in the UK has undergone significant changes in the last few years,” the official added.