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Services Trade Restrictiveness Index

Topic covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Services Trade Restrictiveness Index

 

What to study?

For Prelims: key features of STRI.

For Mains: Concerns and issues raised by India.

 

Context: Union Commerce ministry has found problems with the current method of Services Trade Restrictiveness Index (STRI) which ranks countries based on their services trade policies, indicating the outcomes are biased and counter-intuitive.

The 2018 edition covers a total of 45 economies (36 OECD and the rest non-OECD) and 22 sectors.

 

About STRI:

Launched in 2014 and computed by the Organisation for Economic Cooperation and Development (OECD). The database is based on regulations currently in force.

Uses and significance: It helps to identify which policy measures restrict trade. It provides policy makers and negotiators with information and measurement tools to improve domestic policy environment, negotiate international agreements and open up international trade in services. It can also help governments identify best practice and then focus their domestic reform efforts on priority sectors and measures.

Scores: STRI indices take the value from 0 to 1, where 0 is completely open and 1 is completely closed.

 

Issues and concerns raised by India:

Design issues that render STRI impractical for use. For example, the index seems to show the Indian services sector as one of the most restrictive, particularly in policy areas like foreign entry. This seems surprising as since 1991, the one area that has seen maximum liberalisation in India is FDI.

Theoretical and empirical inconsistencies in the OECD methodology. For example, change in regulatory measures in one policy area can lead to dramatic changes in the STRI in another policy area which is not very useful for policy purposes.

Developed country bias: The data seems to have been generated by rather arbitrary procedures and reflects a developed country bias.

 

Sources: Indian Express.