India’s move to allow FDI from Pak gives fresh momentum

Talks to liberalise trade in services and investment in South Asia are likely to be concluded by September-end.

With India recently notifying its decision to permit foreign direct investment (FDI) from Pakistan, the talks have gained a new lease of life, official sources told Business Line.

Earlier, though India was keen on early conclusion of the negotiations, Islamabad had questioned New Delhi on how it could pitch for liberalisation of services and investment in the region when it was yet to accord non-discriminatory treatment to Pakistan on FDI.

The South Asian Association for Regional Cooperation (SAARC) members – India, Pakistan, Sri Lanka, Nepal, Bangladesh, Bhutan, Maldives and Afghanistan – already have a Free Trade Agreement (the Agreement on South Asian Free Trade Area or SAFTA) on trade in goods.

The talks now are on SAARC Agreement on Trade in Services (SATIS), as the members have realised that they can reap more benefits only if SAFTA is expanded by including trade in services as well as investment, the sources said.

The scheduling commitments (the extent of opening up various service sectors for investment; and keeping out some sensitive sectors, like space and atomic energy) will be finalised next month, the sources said.

The minimum that one can expect is the basic commitments given by SAARC member countries at the World Trade Organisation-level, they said, adding that in some sectors, SATIS can also go beyond what has been committed at the WTO.

Significantly, around 55 per cent of the value added to South Asia’s GDP was on account of services. However, India’s strength in the sector, including a high number of skilled professionals, is seen as a threat by other South Asian countries.

The other SAARC countries fear that opening up their services market would result in a huge influx of Indian service professionals in IT/ITeS, banking, accountancy, engineering, consulting and telecom.

(This article was published on August 9, 2012)
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