In News:

NITI Aayog released the report “India’s Services Sector: Insights on Regulatory Regime in Professional Services”, examining regulatory bottlenecks in knowledge-intensive professional services and their impact on India’s global competitiveness.

Key Findings

• Services sector: Contributed around 55% of India’s GDP/GVA in FY24, accounts for nearly 30% of employment, and remains the largest FDI-recipient sector.
• Professional & management consulting: Accounted for about 20% of India’s services exports in 2024–25; exports grew at a CAGR of 18% during FY15–FY25.
• Revealed Comparative Advantage (RCA): Increased from 0.95 in 2005 to 3.0 in 2024. An RCA above 1 indicates comparative advantage.
• India is the 7th-largest services exporter, with 4.3% of global services exports in 2024, up from 2% in 2005.

Regulatory Bottlenecks

1. Legal Services

• No Mutual Recognition Agreements (MRAs) with foreign bar bodies.
• Restrictions on corporate structures and Multi-Disciplinary Practices (MDPs) limit global expansion of Indian law firms.

2. Accounting & Auditing

• Dual oversight involving ICAI and NFRA creates jurisdictional concerns.
• Limited international professional mobility and absence of a dedicated regulatory framework for bookkeeping.

3. Architecture & Engineering

• Architecture is regulated under the Architects Act, 1972, while engineering practice lacks a comprehensive statutory framework.
• Multiple State-level registrations and absence of MRAs restrict professional mobility.

4. Healthcare & Allied Healthcare

• Regulatory overlap, particularly in AYUSH.
• Inter-State mobility is constrained by requirements such as NOCs for transfer between State Medical Councils.
• Delayed implementation of NExT and partial operationalisation of the NCAHP Act, 2021 are additional concerns.

OECD Services Trade Restrictiveness Index (STRI)

The STRI measures regulatory barriers to services trade across 22 sectors and 51 countries.

• Architecture: 2nd most restrictive
• Legal: 3rd most restrictive
• Accounting: 4th most restrictive
• Engineering: 38th most restrictive / comparatively liberal

GATS & India

Under the General Agreement on Trade in Services (GATS), services trade occurs through four modes:

1. Mode 1: Cross-border supply
2. Mode 2: Consumption abroad
3. Mode 3: Commercial presence
4. Mode 4: Presence of natural persons

India has no GATS commitments in legal and architectural services, while engineering has limited commitments, including a 51% foreign-equity cap under Mode 3.

NITI Aayog’s Four-Pronged Strategy

• Continuous Professional Development (CPD): Uniform and enforceable CPD requirements.
• Global best practices: Transparent licensing, qualification criteria, appeal mechanisms and defined timelines.
• Move up Global Value Chains: Shift from cost-based services to high-value, knowledge-intensive activities such as R&D, strategic technology and complex advisory services.
• Prepare for emerging trends: Build capacity for AI/automation, green transition and geopolitical fragmentation.
• Global Capability Centres (GCCs): India has around 1,700 GCCs employing over 1.9 million professionals, providing a platform for moving towards higher-value services.