Prospects for a services agreement in South Asia: Trade, investment and development issues

Abstract

Services have been a key driver of overall economic growth in South Asia since the 1990s. The rate of growth of this sector has consistently outperformed that of gross domestic product (GDP). Its share in the region’s GDP increased from 36 percent to nearly 50 percent over the 1980- 2006 period. The regional picture also holds at the individual country level. However, the data reveal that the level of employment in services has not been commensurate with the sector’s contribution to output and overall growth. This could undermine national efforts to realize some of the Millennium Development Goals relating to poverty alleviation and human development. Subsectoral trends reflect the importance of a variety of factors in shaping the performance of services in South Asia. These include deregulation and policy reforms in areas such as telecommunications and financial services, the role of rising incomes and domestic demand in driving growth in segments such as trade and distribution services, and a lack of diversification in the smaller economies. Non-commercial services, such as public adminis-tration, government services, and community, social and personal services, contribute significantly to services growth in some countries of the region. Trade data indicate not only an increase in intraregional trade in services, but also the growing participation of South Asia in world trade in services. This reflects the region’s growing competitiveness and thus the sector’s considerable trade potential. However, there are considerable asymmetries within the region in terms of magnitude, pattern, growth and potential, and the regional trends are in large part driven by India’s performance. All four modes of service delivery under the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) could help further regional integration of the sector. The study shows that the potential for complementarities and congruence of interests and policy approaches with regard to services is likely to be much greater than for goods. The analysis suggests that the dynamics of rising incomes and consumption, and the liberalization and reform measures undertaken in services, as well as the role of the public sector in services delivery, could influence the scope for intraregional trade, investment and collaboration in this sector. It also reveals that any attempts at regional integration of services would involve asymmetries in trade potential and interests, and that the dominant player, India, would need to play an important role in driving the intraregional integration process forward. The report discusses only four services, but there may well be other services of potential interest in the South Asian context. This deliberate narrowing of scope is driven by the broader objective of providing an in-depth and detailed account of the kinds of issues and concerns associated with a representative set of services which cut across different service clusters, namely infrastructural, commercial and social services, rather than trying to provide a wide ranging but cursory account of all possible services that may be of interest in the South Asian context