A new round of talks on liberalisation of trade in financial services will soon get underway at Geneva. There have been four previous rounds and, on the last occasion, just when it seemed that an agreement would be reached, the US pulled out. It did so because of domestic political reasons "" the presidential election was due in a few months. But now that President Clinton is safely back in office, the US is expected to be more cooperative. As such an accord is more likely now than ever before.
India, as is well known, has been opposed to the liberalisation of trade in financial services without a corresponding liberalisation in trade in labour. But howsoever logical this demand may be, the fact is that the world is not ready for mass movements of labour. On the other hand, the ground for trade in financial services has already been prepared. Indeed, the huge increase in private capital flows over the last decade bears witness to this. In that sense, India may be fighting a battle which the others may not even bother to join.
So what should India do? Should it persist with the old stand or should it prepare itself for the inevitable, namely, an accord which lays down the ground rules for trade in financial services? Many in India will argue that it should resist stoutly but it would be useful if they were to reminded of the fiasco over the Dunkel Draft and the TRIPs agreement. In the end, India was isolated and by adopting an intransigent attitude, not only was it unable to shape the final outcome, it also lost a great deal of credibility.
This does not mean, of course, that India should go to the other extreme and y liberalise trade in financial services fully and very soon. Obviously, it would need a phased out programme, especially in view of the fact that its financial sector is not only very underdeveloped but also that the biggest players in it are owned by the government, which is vulnerable to pressure from labour employed in banks and insurance companies. So what India needs to do is to get into a postion to bargian for more time. To reach that position it must do three things. First, start dismantling the huge public sector monopolies. Only when that happens will the financial sector acquire some agility to face up to foreign competition. Second, government needs to begin educating public opinion straightaway rather than when the debate has been hijacked by the no-sayers. That is exactly happened over the TRIPs issue and the effects are still being felt. Third, India needs to develop a fully worked out negotiating strategy with proper fall-back positions. Maximalist positions in the past have not helped and India has been left out on a limb.