FDI in Service Sector - Policy for India?s Services Sector

Abstract: Services sector has been particularly important for India. This paper focuses on the major policy issues for India?s services sector. In the beginning, the paper dwells briefly on the importance of services for India in terms of GDP growth, services export growth and openness of the economy; the country-wise exports of services of India; and the important services for India. The paper then directly examines the major policy issues under three major headings: domestic policy issues, domestic regulations and market access issues. Domestic policy issues cover many areas like FDI, disinvestment, tariff & trade, credit & finance and other general & sector-specific policy issues. FDI related policy measures include putting the FDI policy on the website in a user friendly way and opening at least some segments of insurance sector like health insurance. Policies for disinvestment include a listing of PSUs in services sector for disinvestment. Tariff and tax related policy measures include many suggestions like rationalisation of taxes in shipping and telecom sectors, allowing advance tax instead of TDS in some services and a single return for service tax and excise tax which is being administered by the same department. Credit & finance related issues include exempting External Commercial Borrowings (ECBs) from with holding tax for financing export-related activities and overseas acquisition including acquisition of ships. Other general and sector specific issues include among others increasing visibility of India in services, facilitating services exports by setting up joint offices with common facilities, setting up a portal for services, resolving the issue of preconditions in overseas tenders, facilitating international accreditation for Indian health services and skill certifying unskilled labour. Domestic regulations perform the role of tariffs in regulating services. So the paper underlines the need to list domestic regulations in India which need to be disciplined to help the growth of the services sector and exports, while retaining those domestic regulations which need to be retained at this stage. Some of the policy suggestions related to domestic regulations include addressing restrictions on inter-state movement of goods, resolving the issue of ban on use of logos of accounting firms, removing the unnecessary regulations under Banking Regulations Act and competition policy for services.