Unravelling the Services Trade Restrictiveness Index

The STRI by OECD is a comprehensive tool offering an overview of the regulations in place for services, assisting policymakers in evaluating potential reforms.

• Since its inception in 2014, and with annual updates, the STRI has emerged as an evidence-based instrument offering insights into regulations impacting trade in services across 22 sectors in all OECD member nations, along with India, Brazil, China, Kazakhstan, Indonesia, Malaysia, Singapore, Peru, South Africa, Vietnam, and Thailand. These sectors and countries collectively account for more than 80% of the global trade in services.
• The index considers various sectors such as air transport, road freight, and governmental regulations, among others.

Key Highlights from the Services Trade Restrictiveness Index Report

• Liberalisation : From 2018 to 2021, India has been gradually implementing reforms, leading to improved liberalisation in some service trade sectors.
• Least restricted sectors: In India, sectors such as computer services, engineering services, sound recording, and road freight transport have the lowest restrictions on trade and work.
• Most restrictive sectors: In India, sectors like architecture service, rail freight transport, accounting services, and legal services pose higher trade restrictions.
• Government dominance: The Indian railway sector is highly restrictive due to the predominant control of the Indian government.
• Market access for foreigners: Certain key service sectors prohibit foreign market access or impose stringent conditions.

OECD's Recommendations:

• Enhance openness and regulation in Indian services markets: It is crucial to expedite economic recovery, bolster resilience against future shocks, and foster a more sustainable trade system in India.
• Lower foreign ownership restrictions: Sectors such as distribution, commercial banking, and insurance need to ease limitations on foreign ownership.

Methodology for STRI Ranking

• The STRI indices consider government policies across various sectors to gauge the ease of trade in these sectors and industries.
• The STRI indices assign a value between zero and one to countries based on these factors, where 0 represents complete openness and 1 denotes complete closure.
• The Most Favoured Nation ( MFN ) status is also taken into account in the ranking.

Controversies Surrounding OECD’s STRI Rankings

• The Indian government raised objections to the OECD’s STRI rankings in 2019, citing structural bias and certain loopholes.
• The Ministry of Commerce contended that the index misrepresented India as one of the most restrictive countries for trading, which contradicts the numerous reforms implemented post-1991 .
• The ministry also pointed out the theoretical and empirical inconsistencies in the methodology used by OECD.
• The use of arbitrary measures in the methodology unfairly benefits developed countries in the rankings.