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India Inc wants FTA in services with EU: study

India Online News

India Inc wants FTA in services with EU: study

5 September 2005

On the eve of UK Prime Minister, Tony Blair’s arrival in the country for the India-EU Summit, India Inc. represented by the country’s top CEOs on Monday favoured signing of a special Free Trade Agreement (FTA) with the European Union (EU) in the area of services, given India’s strength in knowledge driven sectors and changing demographic profile in EU, which will soon face a shortage of trained manpower for future economic growth.

The ASSOCHAM Business Barometer (ABB) which interacted with over 100 CEOs and MDs of the companies with special interest in EU found that the Indian industry, especially the ones in the new economy areas of BPO, IT, Biotechnology and Pharmaceutical, is keen on an institutional arrangement like an FTA with the EU in services.

Majority of the CEOs felt that the India-EU Summit, beginning September 7 should deliberate on the possibilities of striking an FTA, encompassing financial services, legal services, accounting, telecom and even retail. They felt that while India will be the major beneficiary in sectors like BPO, IT and other high-end outsourcing business, EU would have a greater interest in India’s growing telecom and financial services.

An overwhelming 80% of the CEOs surveyed believed that the India-EU Summit should work on significantly improving offers made to each other under the ongoing General Agreement on Trade in Services (GATS).

"In services, mutual recognition of qualifications of each other’s professionals is another important area to facilitate movement of professionals in each other’s territory", said ASSOCHAM President, Mahendra K. Sanghi. "This is especially so in legal and accounting services where Indian professionals cannot practice in EU but wants India to open up these services."

On services, both sides are dissatisfied with the offers made by the other. India, which has a substantial interest in services, wants EU to remove barriers for movement of its professionals in various fields. It has already liberalised its financial services with the foreign banks allowed to set up 100% subsidiaries. They can also invest up to 74% in the Indian private sector banks. Besides, the government has removed the 10% cap on the voting rights, allowing voting rights to be at par with their stake.

An earlier ASSOCHAM study on India’s cutting edge in services had said that by 2020 most of the developed countries will have a problem in finding people in the working age group. This is because development is accompanied by a decline in the proportion of working age people to total population, as birth rates fall and life expectancy improves.

"EU is so much concerned about the impact of the demographic decline and ageing on the economy that EC has highlighted the need to review the immigration policies for the longer term. It has initiated a debate in its Green Paper on EU Approach to Managing Economic Migration that the Member states need to relax and harmonise their immigration policies", according to the study.

Between 2020 and 2030, at current immigration flows, the decline in the EU-25’s working age population will entail a fall in the number of employed people of some 20mn. Such developments will have a huge impact on overall economic growth, the functioning of the internal market and the competitiveness of EU enterprises, the ASSOCHAM paper stated.

"It is here that India can chip in with a vast resource of scientific and engineering talent and it is up to the EU to take advantage of trained Indians who have established their brand all over the world", said Sanghi.

However, India continues to face various restrictions on temporary movement of its professionals and visa restriction across Western Europe act as a barrier towards promoting trade in services. The survey showed that the CEOs and MDs, especially in the BPO sector, find the visa restrictions as one of the main factors hampering the growth. It said that the only way to remove these restrictions and facilitate free movement of professionals between India and EU could be signing of a specialised FTA in services.