NITI Aayog Report on India's Regulatory Regime in Professional Services

NITI Aayog Report on India's Regulatory Regime in Professional Services

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Key takeaways

  • India's services sector contributed nearly 55% of national Gross Domestic Product in FY24 and accounts for 30% of total employment.
  • India ranked as the world's 7th largest services exporter in 2024, holding a 4.3% share of overall global services exports.
  • Professional and management consulting services generated 20% of India's total services exports in 2024-25.
  • India's Revealed Comparative Advantage in professional consulting services rose significantly from 0.95 in 2005 to 3.0 in 2024.
  • NITI Aayog recommends regulatory harmonisation, wider Mutual Recognition Agreements, and Continuous Professional Development to strengthen services exports.

Why in News

  • NITI Aayog released a detailed report titled India's Services Sector: Insights on Regulatory Regime in Professional Services.
  • The report analyzes the regulatory framework governing knowledge-intensive professional services in India.
  • It aims to identify structural bottlenecks and enhance India's global competitiveness in the services sector.

Executive Summary

  • Regulatory fragmentation and uneven restrictions exist across major professional services in India.
  • These restrictions affect legal, accounting, architectural, engineering, and healthcare services.
  • Current regulations limit professional mobility and reduce India's overall global competitiveness.
  • The report recommends harmonizing regulations, negotiating wider Mutual Recognition Agreements, and allowing modern business structures.
  • Enforcing Continuous Professional Development and adopting emerging technologies will expand high-skilled jobs and services exports.

Key Findings on India's Professional Services Sector

  • Services contributed nearly 55% of India's Gross Domestic Product and Gross Value Added in FY24.
  • The services sector grew at a compound annual rate of around 7% from 2011-12 to 2023-24.
  • The sector provides approximately 30% of total employment in India.
  • Services remain the top recipient sector for foreign direct investment inflows into India.
  • Professional and management consulting services accounted for about 20% of total services exports in 2024-25.
  • Consulting export revenue expanded at an 18% compound annual growth rate between FY15 and FY25.
  • India's Revealed Comparative Advantage score in professional consulting rose from 0.95 in 2005 to 3.0 in 2024.
  • A Revealed Comparative Advantage score above 1 indicates a strong international competitive edge.
  • India is the 7th largest services exporter globally, accounting for 4.3% of world services exports in 2024.
  • This global market share represents a significant increase from 2% recorded in 2005.
  • General cross-sectoral statutes such as the Companies Act, 2013 and LLP Act, 2008 govern all domestic businesses.

OECD Services Trade Restrictiveness Index Rankings

  • The OECD Services Trade Restrictiveness Index evaluates regulatory trade barriers across 22 sectors in 51 countries.
  • Annual updates to the index allow nations to benchmark regulations, identify bottlenecks, and measure reform progress.
  • India's architectural services rank as the 2nd most restrictive regime globally.
  • Legal services in India rank as the 3rd most restrictive among evaluated countries.
  • Accounting services in India rank as the 4th most restrictive globally.
  • Engineering services rank 38th in restrictiveness, operating under a relatively liberal regulatory framework.

Global Trade Rules and International Commitments

  • The General Agreement on Trade in Services categorizes international services trade into four distinct modes.
  • Mode 1 covers cross-border supply, Mode 2 covers consumption abroad, Mode 3 covers commercial presence, and Mode 4 covers the presence of natural persons.
  • India has made zero commitments under the General Agreement on Trade in Services for legal and architectural services.
  • In engineering services, India limits Mode 3 foreign equity participation to 51%.
  • India is not a signatory to the WTO 2017 Joint Initiative on Services Domestic Regulation.
  • India still benefits from these discipline standards because participating nations apply them on a Most-Favoured-Nation basis.

Legal and Accounting Sector Challenges

  • The Advocates Act, 1961 recognizes advocates but leaves in-house corporate legal teams and outsourcing workers outside a clear framework.
  • India lacks Mutual Recognition Agreements with overseas legal bodies to enable foreign practice.
  • The memorandum between the Bar Council of India and the Bar Council of England and Wales does not permit mutual practitioner mobility.
  • The Advocates Act, 1961 stops advocates from creating corporate structures or Multi-Disciplinary Practices with non-law professionals.
  • Dual oversight by the Institute of Chartered Accountants of India and the National Financial Reporting Authority creates jurisdictional issues.
  • Foreign accountants cannot practise independently without registering with the ICAI or associating with an Indian firm.
  • Bookkeeping services lack a dedicated regulatory framework governing entry qualifications, professional ethics, and record keeping.

Architectural, Engineering, and Healthcare Challenges

  • The Architects Act, 1972 regulates architecture, while civil engineering practice lacks a overarching national statutory framework.
  • The proposed Engineers Bill remains pending in Parliament, leaving AICTE focused mainly on education rather than professional practice.
  • The absence of a clear engineering framework creates functional overlaps with architects and lowers overall professional accountability.
  • Registered architects can only operate as sole proprietors or partnerships, which restricts their business growth.
  • Architects face duplicate registration hurdles at the state level alongside their mandatory Council of Architecture registration.
  • In healthcare, jurisdiction is split across the Ministry of AYUSH, the National Commission for Indian System of Medicine, and state bodies.
  • Medical professionals must obtain No Objection Certificates to transfer registrations across State Medical Councils, restricting interstate mobility.
  • Delayed implementation of the National Exit Test and partial operationalization of the NCAHP Act, 2021 slow competency standardization.

Way Forward and Recommendations

  • Establish an enforceable Continuous Professional Development hour system across all professions to update skills regularly.
  • Improve regulatory transparency by publishing clear licensing rules, setting fixed processing timelines, and offering simple appeal options.
  • Adopt best practices like Malaysia's Unified Public Consultation portal for single-window stakeholder engagement.
  • Replicate Australia's DFAT Professional Services and Mutual Recognition Unit model to help domestic bodies negotiate global recognition agreements.
  • Shift professional services toward high-value, knowledge-intensive fields such as strategic technology advisory and complex engineering design.
  • Leverage India's 1,700 Global Capability Centres employing over 1.9 million workers to drive high-value services exports.
  • Build institutional readiness for artificial intelligence, green finance, and supply chain reorganization as highlighted in the WEF Future of Jobs Report 2025.

Historical Evolution of Professional Services

  • Ancient texts like the Dharmaśāstra and Arthashastra set ethical standards for skilled professions.
  • Early medical practices followed principles detailed in the Caraka Saṃhitā and Suśruta Saṃhitā.
  • Ancient legal conduct was governed by the Manusmriti and Yajnavalkya Smriti, while Shilpa Shastra guided architecture.
  • Merchant guilds known as Śreṇīs served as early regulatory bodies during the Mauryan and Gupta periods.
  • British rule introduced common-law courts and Western licensing through the Mayor's Court in 1726 and the Supreme Court of Judicature in 1773.
  • Post-independence framework was shaped by statutes like the Advocates Act, 1961 and recommendations of the Bhore Committee.

Conclusion

  • NITI Aayog's report serves as an analytical diagnostic highlighting structural issues in professional service regulations.
  • Harmonizing regulations, expanding mutual recognition agreements, and adopting modern corporate structures will expand services trade.
  • Reforming the professional sector will drive high-skilled employment and support the Viksit Bharat @2047 vision.