To understand why trade rules may have such an effect on the technology we get, first look at the way most such technology comes to the economy. They mostly rise from the decisions of companies to invest in newer, more productive ways of doing things. And more often than not, it is the bigger joint ventures between Indian and foreign firms which have the incentive, and the means, to make the necessary investment in new technologies. The high tech telecommunications industry in India, for example, is a beneficiary of this trend.

But when you look at it, these partnerships are very often marriages of convenience, and much less than what the foreign partner would have wished for. Most of these firms enter into a joint venture with an Indian firm to evade tariffs that they would otherwise have had to pay on their goods. Take for example joint ventures in the car industry. The overwhelming majority of foreign car manufacturers in India, are here because of what they think they can earn from the domestic Indian car market. But if they could have imported cars to sell in India, without at the same time having to pay a hefty import duty, they would very probably have done so. These cars would probably have been imported from one of their factories in East Asia. So, if a new trade regime forces a substantial cut in our tariff rates, many of these companies might soon find it worthwhile to import cars into India rather than produce them here. Instead of a joint venture with an Indian firm, they might find it worthwhile to have a fully-ownedsubsidiary company in India which would concentrate on sales and distribution. This would allow them to retain more control over the use of their technology.

This also affects the transfer of technology and the inflow of direct investments in a number of ways, depending on the industry in question. Multinationals would obviously consider it less risky to transfer cutting edge technology to a fully-owned subsidiary than to a partner in a joint venture. So, in this sense, we should get much more up to date technology.

But it is equally clear that our relative productivity in different industries will become a much more important factor in attracting foreign direct investments. FDI and consequently, technology flows will tend to increase in areas where we are competent, and decline drastically in others. Industries such as our automotive sector, depending of course on how it measures up to competition from East Asia, might suffer.

This might mean for example that the flow of FDI from this route might decline substantially as automobile firms resort to trade to compete in the Indian market. The rate of technology transfers in this area would then decline too.

On the other hand, areas in which India has a genuine competitive advantage would do that much better. Other countries might find some of their industries migrating to India to take advantage of efficiencies in production in the Indian economy. One area where there would be definite change would be in the area of services trade. The General Agreement on Trade in Services (GATS) should make it much easier for foreign firms to set up fully-owned operations in India. This is particularly important as many services industries are structured in such a way that these services have to be produced in the market where they are consumed. The ability to fully control their Indian operations will make it more likely they will transfer the latest technologies for their operations in India. FDI in such areas should increase substantially. Spillovers and competition in this area might just prove the catalyst of a world class services sector in India.

And given the scope for investments in services, the FDI inflows from this area have the potential to more than compensate for any lack of interest in manufacturing.

The Information Technology Agreement will make it more likely that imports into India might increase in the telecommunication industry. We might see less Indian firms in the business (in joint ventures of course) of providing high tech equipment. They might instead start specialising in providing low-cost solutions for other Indian firms to adapt to new technologies.

The agreements on intellectual property (TRIPS) might affect the choice of drugs that firms sell in the Indian market. Again the particular mix of imports versus direct investments in the pharmaceuticals industry will only emerge once we find out how competitive we are in these areas. This should determine the amount spent on research and development in the field.

But in any case, the agreement on Trade Related Investment Measures (TRIMS) would make it unlikely, after a point of time that the government could, to use a favourite phrase of the finance minister, calibrate the process of liberalisation. Nor is this a bad thing. Because what this process in effect does is to force us to stick to tasks we are good at, and leave the rest to someone else. That, after all, is the real point of trade.