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Indo-US panel on trade in services mooted

Our Bureau

NEW DELHI, Nov. 29

THE final report of the Indo-US Knowledge Trade Initiative (KTI) has recommended that the US and India establish a bilateral working group on trade in services to strengthen cooperation and evolve joint positions in the WTO negotiations on services.

The report was jointly released by Mr Sunil Mittal, Chairman of Indo-US Joint Business Council and Co-Chairman of the Indo-US KTI, and Mr Dean R. O Hare, Chairman and CEO of the Chubb Corporation and Co-Chairman of Indo-US KTI, here on Thursday.

The report advocated that both Governments should be committed to working together in the WTO to ensure that the trade in services agenda addressed the full range of services in accordance with the General Agreement on Trade in Services (GATS) framework.

Launched during President Clintons visit to India, the Indo-US KTI was formed to evaluate the potential of India and the US in knowledge-based industries and to identify the impediments to the full realisation of the potential.

On market access, the report advocated continuation of reduction in restrictions on foreign equity in services that impede technology transfer, slow down investment and constrain competition.

The report also suggested the stepping up of the pace of privatisation of services in India. It recommended a successful privatisation of a major Government holding in the near term such as Air India, VSNL.

On the sector-specific issues, the report advocated a gradual increase in the 26-per cent foreign equity cap on multinational participants in Indias insurance market. While the political realities behind this situation are understandable, the next logica l step is to allow 49 per cent foreign equity, which in terms of control doesnt change anything, the report said.

On personnel mobility issues, the report recommended the evaluation of proposal on the introduction of a new class of e-visas targeted at IT services. It also suggested that a permanent annual H1-B cap of 1,95,000 be considered.

On financial sector reforms, the report held that the venture capital reforms process should be completed by allowing for appropriate legal structures such as limited partnerships, limited liability partnerships and limited liability corporations that pe rmitted different forms of partnerships with varying liability and rights.

Indian laws do not allow for the formation of limited partnerships, which is the common method of organising venture capital firm.

It was also highlighted that allowing pension funds to invest in venture capital funds would lead to larger proliferation of domestic venture capital activity and also help in realising exponentially larger returns on asset bases.

The report also advocated a liberal exit framework on par with that in the US. It highlighted that reforms initiated in 2000 allowed tax pass through for registered venture capital firms but did not tackle the issues of exit in global markets.

Thus, Indian venture capital firms cannot hold stock in firms registered overseas or listed on stock exchanges abroad.

This prevents Indian financiers from selling stakes in local start-ups for shares in foreign companies.

On banking sector reforms, the report suggested that Indian firms must be permitted more flexibility for undertaking capital account transactions, especially for acquisitions for business abroad in knowledge-based industries.

The report also advocated the privatisation of under-performing State-owned banks, thereby eliminating losses from money losing ventures and giving the Government the ability to pay down deficits with proceeds.

Pic.: Mr Sunil Bharti Mittal, Chairman , Indo-US Business Council, with Mr Frank G. Wisner, Chairman, USIBC and former Ambassador of US in India, at a meet in the Capital on Thursday.

Picture by Kamal Narang