India finds OECD’s STR Index faulty

India has found problems with the current methodology adopted by the Organisation for Economic Cooperation and Development (OECD) under its Services Trade Restrictiveness Index (STRI) to rank countries.

Key Highlights

• About: A study commissioned by Indian Ministry of Commerce found that OECD index, the STRI has a several problems associated with it, which also includes some significant design issues that render the index impractical for use.
• Issues: As per India the outcomes of STRI are biased and counter-intuitive.
• The initial work suggests that there are both empirical and theoretical inconsistencies in STRI’s methodology.
• The data generated by OECD’s methodology seems to have been through arbitrary procedures and reflects being bias towards developed country.
• It shows Indian services sector as highly restrictive in areas such as FDI.
• Impractical: For instance, STRI seems to show the services sector in India as one of the most restrictive in world, particularly in policy areas like foreign entry, FDI etc. This is astonishing as since 1991, following the LPG reforms the one area that has seen maximum liberalisation in India is Foreign Direct Investment (FDI).
• India’s Approach: India is trying to build a consensus around adopting a new method of measuring trade restrictiveness in services sector. For this India approached several developing countries during recently-concluded WTO Ministerial talks held in New Delhi. It has also approached South Africa, Indonesia, China, Turkey and Brazil.
• India’s Argument: Unlike manufacturing trade which has a well-documented system of classification of commodities, the problem in services, is that for a long time there was not any way to find that whether a country’s service trade policies were restrictive.
• Also, even if it was ascertain as restrictive it was not known that what to do about it since services trade is usually regulated by domestic regulations and not border tariffs.

About STRI

• It was launched in 2014, by The Organisation for Economic Cooperation and Development (OECD).
• It purpose is to rank countries based on their services trade policies.
• STRI (computed by OECD) is now available for year 2018. It includes a total of 45 economies (with 36 OECD and the rest non-OECD) and 22 sectors. These countries and sectors undertaken represent more than 80% of global trade in services.

Month: Current Affairs - May, 2019