India's potential in Digital Trade Services with Asia-pacific

“The global digital revolution is having a greater impact on productivity and growth than goods trade. In the Digital Trade services with Asia-Pacific, India is already a leader among emerging markets, and as the country approaches its 76th independence day, capitalising on this comparative advantage must become a crucial goalpost for the next decade.”

Worldwide flow of digital trade services have increased and are now having a greater impact on productivity and growth than global trade in goods.This viewpoint is clearly supported by evidence.The digital boom has immediate consequences for India, which is already a leader among emerging markets in developing a Digitally advanced services sector based on information and communication technology. India's comparative advantage in Digital Trade services area must become a important goal for the next decade as the country approaches its 76th Independence Day. And, in order to maintain its position as a global growth leader, the implementation of the Goods and Services Tax reforms will be a vital factor.

Why does it matter?

Countries with a higher level of internet penetration are more open to trade and sell to a wider range of markets. Indeed, a 10% increase in 'bilateral digital connectivity' boosts goods trade by nearly 2% and services trade by more than 3%.Digitalization is important for all sectors, including agriculture, natural resources, and textiles, but it is especially important for exports of sophisticated manufactured goods and digitally deliverable services. Digitalization is also linked to countries reaping greater benefits from regional trade treaties.When combined with an RTA, a 10% increase in digital connectivity leads to a 2.3 percent increase in goods exports. The benefits of digital trade were already apparent before the COVID-19 pandemic, but the current crisis has further accelerated the shift towards a digital economy and underscored the need for governments to enable digital trade as a means to mitigate the economic slowdown and speed up recovery.

Digital trade in services has not only become a lifeline during this outbreak, but also has the ability to transform our country more profitable in the long run.It has the potential to strengthen the global economy and create countless opportunities for people of our country in fields as diverse as healthcare and professional services. The telemedicine market alone is expected to be worth more than $175 billion by 2026. As a result of the COVID-19 outbreak, some telemedicine providers have seen three-digit percentage increases in consultations. However, a number of impediments remain in the way of realising the full potential of digital trade.

India’s Strength in Digital trade Services

First, a look at the evidence for India's strength in digital services, followed by recommendations for some of the reforms required to bring India closer to the global productivity frontier: India's share of global digital services exports has risen much faster than its share of global goods exports, and is now more than double its share of global goods exports. India's services exports now account for 35% of total Indian exports.This is significantly higher than in other emerging markets and closer to the average in advanced economies.

Modern service exports have dominated India's rise in service exports, particularly high-value technology-oriented business exporting services and research and development services. Modern service exports now account for roughly 70% of India's total service exports. This is much above that of other emerging markets. India’s services exports, however, have diversified less than the country’s exports of goods, despite their high level of sophistication; and they have focused predominantly on high value computer-related exports.

Nurturing Growth in Digital Trade

India has created the world's first digital ID infrastructure, which is already transforming online services, particularly those provided by the government. However, India, like other emerging markets, must continue to invest in domestic digital infrastructure, particularly through technology and digital skills education.Externally, it must ensure access to global data flows. Among domestic reforms, the passing of the GST Bill is a vital step forward in many ways. Most importantly, its implementation should eliminate the inconsistency between the taxation of goods and services, which has been a challenge to the classification of digital downloads and flows in India.

It will also remove the differences in state levies and restrictions on interstate movements. So far, India’s modern services have grown despite the complex interstate regulatory structure, indirect tax laws that don’t recognise the evolving business models of the modern services sector, and the ambiguity of interstate tax laws. Removing these barriers is vital to the future potential of the sector, and a consultative approach with the modern services sector and the states will be required to implement the GST and the linkages with supply and registration rules.

India Digital Trade Relation with other Asian countries

India Digital trade services represents the next frontier in economic development in the Indo-Pacific and is a potential engine for significant growth for Southeast Asian countries. The significance of this growth in connectivity and the resultant adoption of digital services is reflected in its economic impact. The report found that Southeast Asia’s internet economy expanded 5 percent between 2021 and 2022, reaching approximately $120 billion. This represents a key area of opportunity amid slowdowns in education, travel, tourism, and other sectors impacted by the pandemic. Furthermore, the Covid-19 pandemic has only increased demand for digital banking services, as governments have sought alternatives to cash to deliver financial assistance. Consequently, a digital trade pact with the United States could unleash the potential of what is already a fast-growing sector. It could bring manifold benefits to Southeast Asian countries that seek to diversify their economies and climb up the value chain.

Final notes

Globally, the flow of digital goods and services has increased, putting more upward pressure on productivity and growth.According to the Digital Trade Report, India is experiencing remarkable economic growth while addressing various socioeconomic challenges. As India's prominent position in the global and regional economies, there is an opportunity for India to play a leading role, not only at home but also abroad, in driving the development of digital trade rules that will enable the country to capture the digital dividend when negotiating bilateral and multilateral trade agreements.