This shows that in the last two decades the services sector has expanded rapidly all over the world though in comparison in India the growth has not been so much. In fact, India has lagged behind even compared to some countries in South Asia. Interestingly some of the developing countries like the Latin American countries have services as high percentage of GDP, which is even higher than the world average and even higher than Japan. Generally speaking, the developed countries have dominated this expansion of services accounting for three quarters of world services output. In 1997, service sector output was valued at US$ 6.1 trillion or 61% of global output of goods and services. The sector constitutes more than 60% of economic activity in all OECD countries (source WTO annual report 1999). Correspondingly the services today constitutes over 50% of the economic activity in developing countries which is significantly more than traditional sectors such as agriculture (source: GOI 2001).

The globalization of services takes place with substantial expansion in trade and foreign direct investment in services (FDI). Now the service sector accounts for nearly 40% of the world stock of FDI, which is estimated at US$ 30 billion, and fifty percent of world FDI flows, the bulk being among developed countries. World exports of services are substantial, which is estimated at US$ 1.5 trillion in 2000, which is roughly 23% of global merchandise exports, with the developed countries again accounting for the bulk of the transaction. In the last decade world exports of commercial services kept pace to the growth in merchandise exports at an average rate of 6% per year (source: Warren and Findlay, 2000, p.5).

India’s role in the globalization of services can be seen from the fact that in 1999-2000 India’s total services trade was estimated at about US$ 30 billion (source: GOI 2001). The comparative growth in India in agriculture, industry and in services can be seen from the following table:

Index of Gross Fixed Capital Formation (at 1993-94 prices), by Industry of Use
Base: 1993/94 = 100

The above table indicates the growth of industry at a much higher percentage than services, which again has increased more than agriculture.

One important method for developing the services sector is to allow more and more FDI into the Indian economy. This raises the question of desirability of bringing in FDI in an unrestricted manner. The justification is that in India the requirement for capital for upgrading, expanding and modernizing most services is so large that we just do not have the resources to invest in them. For example in the telecommunication sector the government and domestic private players taken together would not be able to garner the necessary capital for investment. In some cases foreign investment is required for concomitant, technological and managerial expertise, which may not be present in India. FDI will also be beneficial in the area of infrastructure and health sector. In the health sector this would upgrade our standards in hospitals and bring in technology and better management practices. There is a possibility that good doctors will leave the government hospitals and other Indian hospitals and join the foreign one for higher pay. This will create an internal brain drain. However, on this count it would be wrong to depart the health sector of FDI since there will be positively an overall improvement of standard in the healthcare. Even in respect of financial services and insurance more FDI will be welcomed. Apprehension regarding FDI in financial sector is not justified since we do not have the convertibility on the capital account. We have a mental block about making a binding commitment under the General Agreement of Trade in Services (GATS) framework of the WTO. For instance we have allowed only 55% foreign equity participation in software services in our WTO commitments, but in practice we allow upto 100%. The software services industry is one of the fastest growing service sub-sectors in the world and also in India. The industry comprises of software implementation services, system design, analysis, maintenance services, consultancy and support services etc. India’s growing trend towards foreign collaboration in the software sector is one of the reasons for India’s strong performance in software exports. The other one is the large pool of low cost skills, high quality and English speaking manpower. From the GATS’ perspective, the software services sector is of great significance to India. The NASSCOM-MCKINSEY study on Indian IT Strategy, project export revenues of nearly US$ 57 billion in India’s software industry by 2008, implying a share of 6% in the global market. The software sector in India is truly globalized. We export software hugely and also import FDI enormously, which are complimentary to each other. If all other services are globalized like the software sector, there is bound to be more exports and higher share of Indian export in the global market. We may now concentrate on the development of other professional services such as legal services, accounting, architecture, design services, construction and engineering services, tourism services, educational services, apart from the traditional ones.

The GATS provides a framework for liberalizing trade and services, but it has failed to significantly liberalize services trade and investment. The reason for this is the commitment structure and also some fundamental shortcomings in the GATS’ conceptual framework. One of the main structural weaknesses is its non-generality of its rules and disciplines. The second weakness stems from the overlap between market access and national treatment commitments. The third is its modalities for negotiations. Given the positive list approach to commitments, negotiations are driven by concerns and interest of the main players and of certain sectors. India’s broad strategy for negotiations in GATS has to be coherent within and across the sectors in the country in making domestic reforms and policy changes and also in relation to multilateral transactions with the other countries. The prospects for development in many services hinge on that of other related service sectors. So services have to be viewed as a package.

The collection of service tax in India has increased phenomenally from 1994-95 when it was introduced to now, because of the addition of more and more services every year, the rate of tax remaining at 5%. The collection figures of service tax and those of Customs and Excise are given in the following chart:

Growth of Customs, Excise & Service Tax

The above table shows that the share of service tax as a percentage of service sectors` GDP has grown from 0.12% to 0.41%, which is nearly 350% from 1994-95 to 2001-02. The number of taxpayers has also increased enormously.

In conclusion we may say that in view of the growing importance of services in the Indian economy and the significance of multilateral framework for enhancing India’s trade prospect in the sector, what is important is to liberalize trade and investment in the services sector. Since the sectors are inter-linked it is also important to have proper economic reforms to have industrial development, which only can sustain the growth of services correspondingly.