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192 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA<br />
Mode 2 (Consumption Abroad)<br />
There also exists the potential to export education<br />
services through consumption abroad. Indian public<br />
and private medical institutions export medical<br />
education services through the provision of seats to<br />
foreign students from other countries in South Asia.<br />
Sri Lankan students come to Indian hospitals to study<br />
medicine. Pakistan, Sri Lanka and Bangladesh could<br />
invest in their education sector both directly and<br />
through collaboration with India to attract service<br />
seekers from within the region as well as globally.<br />
Pakistan could upgrade existing institutions of<br />
educational excellence such as the Lahore university<br />
of management sciences to attract overseas clients to<br />
serve the regional and even global markets.<br />
Thus apart from Modes 1 and 4, Mode 2 is also an<br />
important mode for supply of services in South Asia.<br />
In this regard, there are three services sectors viz.<br />
tourism, education, and health that largely depend on<br />
this mode. Health is an interesting sector as this involves<br />
tourism and education apart from being important in<br />
its own right. In the South Asian region, patients come<br />
from Bangladesh, Sri Lanka, and Nepal to India for<br />
medical treatment. Thousands of patients come from<br />
Bangladesh alone each year seeking treatment in various<br />
Indian cities. From Nepal and Sri Lanka similarly patients<br />
visit India in large numbers for medical treatment.<br />
They also help generate health tourism in India.<br />
Mode 3 (Commercial Presence)<br />
There is also scope to export education by establishing<br />
commercial presence overseas. Indian firms are increasingly<br />
emerging as exporters of capital. In segments like<br />
health services, some Indian companies are setting up<br />
with regional or international networks. There is<br />
growing interest among some Indian higher education<br />
services through establishment of offshore campuses<br />
as well as twinning and partnership arrangements. In<br />
both health and education services, there is potential<br />
for such commercial presence based exports of education<br />
services within the South Asian region. As Sri<br />
Lanka has a shortage of nurses, Apollo Hospital has<br />
also set up a nursing school.<br />
South Asian countries also have strong import<br />
interests in the services sector, mainly in the form of<br />
FDI participation in their economies (Chanda 2005).<br />
As noted, all these countries have significantly<br />
liberalised their FDI policies in the past decade. Foreign<br />
participation through joint ventures, technology and<br />
management tie-ups, and subsidiaries is increasingly<br />
being sought in services to alleviate infrastructural,<br />
financial, technological, and other constraints.<br />
However, in most of the South Asian countries services<br />
sectors other than tourism, education and construction<br />
have been the main drivers of FDI in the region.<br />
Pakistan, for instance, has moved from a restrictive<br />
policy on FDI to encouraging FDI in areas like software<br />
development, tourism, and construction services. It has<br />
given permission for 100% foreign equity participation<br />
and waiver of a joint venture requirement in the case<br />
of social and infrastructure services and permits full<br />
repatriation of profits. Bangladesh has similarly liberalised<br />
its investment and industrial policies since the<br />
1990s to encourage investments in energy, telecommunications,<br />
ports, highways and other civil works, software<br />
development and tourism services. In all but five<br />
sectors, it allows 100% foreign private investment with<br />
no prior approval requirements, or limits on equity<br />
participation, or restrictions on repatriation of profits<br />
and income, although there are requirements of local<br />
incorporation and registration with the board of<br />
investment. In response to such liberalisation, FDI in<br />
Bangladesh has increased. The services sector attracted<br />
around half of the total FDI in 2002. Apart from natural<br />
gas which accounted for around 30% of the total FDI<br />
inflows into the country, other sectors which remained<br />
priority area for investment included road and water<br />
transport, airports, power generation, transmission,<br />
and distribution, telecommunications, health, and<br />
education services.<br />
It has been argued that the GATS negotiations<br />
provide the South Asian countries with an opportunity<br />
to bind in the autonomous liberalisation they have<br />
undertaken in the services sector. In particular, it enables<br />
them to signal their commitment to liberalisation of<br />
FDI policy in services and provide more transparent<br />
regimes for foreign participation. In this regard, the<br />
South Asian countries have significantly improved upon<br />
their earlier commitments, across all modes, and most<br />
noticeably in Mode 3. While India and Pakistan have<br />
made substantial improvements over their original<br />
commitments during the ongoing services negotiations,<br />
Sri Lanka has offered only marginal improvement.<br />
Nepal has already undertaken relatively liberal commitments<br />
during its accession negotiations. Bhutan an<br />
acceding WTO member country is also believed to have<br />
offered liberal commitments given the size of its<br />
economy and the country being an LDC. Bangladesh<br />
and the Maldives are the only two South Asian countries<br />
that have not so far offered to improve their<br />
original commitments. From a few studies done on