Competition Policy and Professional Services

(Note- However this movements is started in India, but it need to take Confidence from all Technical & Others Professional, and “PVAI” is not agree exactly with this)


The professional service sector in India has traditionally been a highly regulated sector. Entry into the sector is, by and large regulated, by various institutes or associations. We have institutions such the Institute of Chartered Accountants of India,

The Institute of Company Secretaries of India, the Bar Council, etc which control the entry into the respective professions. Each institute prescribes code of conduct and ethics that its members have to adhere to.

India is a signatory to the ( GATS or General Agreement on Trade in Services) under the World Trade Organization. Under GATS, member states have undertaken to open their service sectors to international competition.

There is unanimity amongst several professional associations and institutes that an appropriate strategy for enhancing the competitiveness of the professional services in the global context has to be devised.

GATS is the first ever set of multilateral, legally enforceable rules covering International Trade in Services. The ultimate aim of GATS is to remove all barriers to trade in services. It incorporates the principles of "Most Favoured Nation" status and "National Treatment".

Services can be rendered in any of the following modes :-

1. Cross border supply of services This implies that the service provider can provide services in any part of the world without undue restrictions. The service provider operates on an international level. Cross border supply of services implies that the service provider need not be restricted to one or few countries only. The service provider can become a truly global organization. The market for the service provider is vastly enhanced. However, such supply can wipe out the local service providers unless they can offer some distinctive value addition.

2. Consumption abroad - This implies supply of service from one country to a consumer in another member country. The most common example of such service is the tourism industry or educational institutions. In order to (e.g. tourism or a student joining an educational institute abroad). The service provider has to have knowledge, skills and infrastructure of a very high order for this model to be successful.

3. Commercial presence This implies that the services is rendered through the commercial presence of a foreign supplier in the territory of another country (e.g. establishing branch offices to deliver services such as banking, legal advice or communications). Affiliations with local service providers is a common method through which international service providers may render their services in various markets.

4. Movement of natural persons This implies free movement of skilled labour and manpower resources from one part of the world to another without any restrictions. This mode has great scope for a developing country like India which has excellent resources in the form of skilled and competent people especially in the new economy sector like InfoTech.

Under GATS, services have been classified into 11 basic service sectors and a 12 th category for miscellaneous services. By and large, the demand for services is a derived demand. Higher level of economic activity leads to a higher demand for services. There is greater demand only if the underlying real sector is doing well. E.g. Liberalization of the Indian Economy has lead to Foreign Direct Investment in India which in turn has lead to an increase in the demand for services of professionals such as lawyers, chartered accountants, etc for matters such as financial structuring, mergers and acquisitions, privatization of State-owned enterprises, valuation of public assets, securities market developments, etc.

For an emerging economy such as India, the importance of free movement of natural persons from one country to another cannot be under-emphasized. India has the second largest technically competent English speaking population. With such a huge resource pool, Indian professionals have been able to make a name for themselves in many parts of the world for their skills and technical competence.

The Competition Policy of India, in fact recognizes the importance of free movement of professionals. There is a school of though which is of the opinion that further opening of the Indian economy to foreign competition must be done only against securing commitments from the developed world that their services sectors will be opened up for international competition. The Competition Policy advises that "India's Competition Policy and Competition Law need to be in the perspective that sub serves the above mentioned advantage, the country is enjoying, in terms of its professionals and skilled persons."

The Competition Policy in India has dealt with the issue of opening up of the professional services sector in India. Though it has dealt with the issue with respect to the law and accountancy professions only, it states that the conclusions and suggestions ( for the law and accountancy professions ) can apply to almost every profession.
The accountancy sector is regulated in India through a combination of both law and professional self-regulation. The Chartered Accountants Act, 1949 governs the profession of chartered accountancy in the country. Likewise, the Cost and Works Accounts Act, 1959 governs the profession of cost accountancy. The Advocates Act, 1961 governs the profession of lawyers.

Broadly, the following are the restrictions which a person carrying on the profession of chartered accountancy has to adhere to :-

a. The profession can be carried only by qualified persons i.e. persons who have passed the appropriate examinations.

b. It can be carried only by qualified individuals or by a partnership firm of qualified individuals.

c. The trade name must have a nexus with an individual or group of individuals (abstract names are not allowed).

d. There are restrictions on the maximum number of partners (restricted to twenty) and on the number of statutory audits of companies (not more than twenty per partner).

e. For reason of reciprocity, the Institute of Chartered Accountants does not recognize any foreign qualification unless a chartered accountant qualified in India is freely allowed to carry on the profession in the respective foreign country.

f. A chartered accountant cannot advertise his services or solicit custom, paying commission, brokerage or share of profits to anybody other than another accountant.

These restrictions have been introduced mainly to uphold the dignity of the professional and to make it clear that a chartered accountant is not in business but in the activity of rendering service.

However, there have been some adverse consequences of these restrictions also. The profession is made up of several small to medium size firms with inadequate infrastructure for growth or increase in the level of competence. Except a few firms, there are almost no firms which operate on an all India basis. This structure handicaps the Indian accountant professionals from taking full advantage of the potential global market in accountancy services.

Arguably, these restrictions might have contributed to lowering of the quality standards in the profession. The restrictions on the number of partners and the number of audits have led to a situation where competent firms with adequate infrastructure are unable to accept more assignments and grow, with the result that the assignment gets handed over to firms which may not be as adequately equipped. The consumers of such services are also prevented from using the services of a firm of their choice.

Restrictions on advertising the services of the firm have led to novel means of by-passing the regulations. Limited companies are have been formed which freely advertise their services and by and large, render the same services which a firm of chartered accountants render, except that the company does not carry any certification assignments.

These regulations have also become a tool in the hands of established players to restrict competition and entry of new firms into the market.

The profession of lawyers is governed by the Advocates Act, 1961 and operates under similar restrictions.

The need for reviewing the various restrictions has been felt, especially after the increased globalization of the world economy. If Indian professionals have to take advantage of free movement of professionals in accordance with the provisions of GATS, it is essential that the professional sector attains adequate competence and set of skills. Several of the above restrictions are incompatible with growth of the professional services sector as a whole. The need for an appropriate regulatory system has been felt so that the Indian professional services sector can take its due under GATS. This would involve the following changes :-

a. Development of skills and competence commensurate with international requirements and norms

b. General reciprocity between professionals in different countries. This can become possible only when the Indian professional sector develops adequate set of skills commensurate with International requirements.

c. No limits on growth of firms

d. Encouragement to firms consisting of members from different professions, e.g. a partnership between lawyers and chartered accountants. This will enable India professional firms to render "single window services".

However, it is also important that the interests of the Indian professional services sector are not unduly harmed by removal of restrictions. Need for setting high standards for entry into the profession is paramount. There must be regulations which regulate entry into the profession and ensure that the entrants possess a good set of skills. The professional bodies need to regulate the qualifications and need to discipline the conduct of the members who are rendering professional services.

Removal of restrictions on advertisement of services should not lead to a situation where money power is supreme. There must be restrictions on the nature and extent of advertisement allowed so that competent firms are not gobbled over by sheer power of money alone.

In order to maintain professional standards, there must be a code of conduct which regulates professionals. Regulations which enhance standards and set performance practices must be encouraged. Regulations that limit the size of a professional firm should have no place, if the Indian professional firms have to compete globally in the market.

However, some other steps also are needed to be taken in order to enable Indian professionals to take advantage of free movement. Often, developed countries are not keen on opening their professional services sector to other professionals. This could be on account of several reasons such as lack of faith in professional competence and standards of other countries, protection to their domestic professional services sector from foreign competition, etc. Barriers to free movement of service providers are created through one or more of the following methods: -

1. Additional tariff / tax on the nationals of foreign countries that do not apply to one's own nationals ( discriminatory taxation ).

2. Other regulatory restrictions on the nationals of foreign countries. ( e.g.. entry only for limited period )

3. Quantitative limits of temporary movement of natural persons (e.g.. H 1B visas).

4. Fees / charges applicable for providing social security net to temporary movement of natural persons.

5. Non-tariff barriers on the movement of natural persons.

The Competition Law in India needs to recognize these problems and take steps to address them at the highest level. As said earlier, opening of the Indian economy may be linked to the opening of the professional sector in other developed countries. It is essential that the developing world presents a united front which negotiating with the developed countries.

There is a bright future awaiting professionals in India. The importance of quality and high standards cannot be under-emphasized. It is the duty of all professionals to uphold the dignity of their profession.