There is a difference here. Imagine a heart surgeon who also happens to be a better driver than his chauffeur. His level of superiority over his chauffeur, though, is larger in surgery than in driving. Even though he could do both tasks better, it should be clear that our doctor would be much better off cutting up people and pay a chauffeur to drive his car. He adds more value in surgical gloves than inchauffeurs' gloves. The chauffeur might entertain ideas of becoming another Christian Bernaard, but also realises that his comparative inferiority is less in driving than in surgery. He should stick to driving.

The point here is that India might very well make machines cheaper than some of our competitors. But in doing so, we might consume more resources than is really necessary if we let someone else do it. We are cheaper because our labour is less productive in these fields of endeavor than some of our foreign competitors. Consequently, we might need to employ more labour to produce the same quantity of goods. If this labour were to be applied in another field where we are relatively more productive than manufacturing, the economy gains by adding more value per unit of factor of production. One such area that deserves a very serious look is the production of services.

In areas like software services, exports have been booming. More than 100 of America's top 500 companies outsource their softwarerequirements to developers in Bangalore. In other words, from preliminary reports, we seem to have a fast-evolving comparative advantage in software and other service exports.

There are a lot of reasons to expect that exports of services are likely to prove much more attractive in the future than they have been in the past. For one thing, as the richer countries get richer, the proportion of their income spent on services is bound to increase. As the demand for these activities rises, the returns to the sector should increase. Reflecting this trend, incrasingly, larger sections of advanced country labour forces are being devoted to the task of producing services. In America for example, more than 70 per cent of the labour force is employed in this sector. It is expected this sector will prove to be the primary engine of growth in the American economy.

America's Bureau of Labour Statistics estimated that the numbers employed in the software industry had more than trebled over the last decade. It isexpected to employ more than double this number over the next decade or so. As the health care industry reflects in part an ageing population, a greater demand for health services is expected to grow faster. But it is also expected that there will be a shortfall in the supply of labour to satisfy the demand for the production of these services. This pattern is being repeated in almost all the other OECD economies. They will have to start importing these services to satisfy this demand. Commercial service exports alone are estimated to be around $1,500 billion. This figure is expected to shoot up over the next decade.

The potential is not the only reason to take another hard look at trade in services. Promoting services is also a very good way of increasing the rate at which new technology is adapted in the economy. According to research carried out by the OECD, productivity growth and technical change are less dependent on the level of invention in the economy than on the rate at which technology isdiffused in it. To a large extent, this is dependent on the levels of technology embodied in the new capital equipment purchased. Going by the experience of the richer nations, it has been seen that a very important source of such technology transfers has been the service sectors. This is because to stay ahead, firms in the sector have to make use of the latest advances in information technology (IT). Information technology, which makes physical contact with customers unnecessary, also expands the market for a company's services. As a result, the intensity of the research and development (R&D) embodied in the service sectors tends to be higher. For example, it has been estimated that service-sector firms in the OECD economies invest around 6 per cent of their turnover in IT, compared to only around 2.6 per cent in manufacturing.

But it is important to go beyond acknowledging the importance of the service sector to the economy. It is necessary to remove impediments to the growth of service exports bydomestic firms. This is very important for at least one reason. Given the average level of purchasing power in the Indian economy, the demand for such services is likely to be unsophisticated, to put it mildly. If Indian firms stick to servicing domestic demands, it will only be a matter of time before they lose the competitive advantage. Export markets are necessary incentives to force these firms to move on to higher value-added activities.