India’s Health-care Sector under GATS: Inquiry into Backward and Forward Linkages

Publication Date01 Aug 2013
AuthorSarmila Banerjee,Kausik Lahiri
India’s Health-care Sector
under GATS: Inquiry into
Backward and Forward
Kausik Lahiri
Sarmila Banerjee
With the opening up of trade in health services under the General Agreement
on Trade in Services (GATS), India is finding herself in an advantageous position
in terms of reaping the benefit of this enhanced global connectivity. Here, the
presence of a sizeable middle class in urban areas, availability of information tech-
nology (IT)–skilled personnel and favourable domestic policies are encouraging
all modes of service–trade flows to flourish. Consequently, the nature of forward
and backward linkages of the medical and health services sector in the input–
output chain is changing rapidly, indicating a major shift in both (a) composition
of demand and (b) types of treatment provided. These changes are generally
expanding the size of the market for medical care but a gradual transformation
of a merit good (defined out of equity consideration) into a market good (defined
out of efficiency consideration) cannot be denied. This concern calls for more
comprehensive regulatory vigilance.
JEL: F13, C67, I10, I11
GATS, WTO, input–output models, health—general, analysis of health-care
In this article, we focus on the changing profile of the health-care industry in
India, where the GATS negotiations have brought further changes in the composi-
tion of both supply and demand patterns by allowing different forms of trade
Foreign Trade Review
48(3) 285–357
©2013 Indian Institute of
Foreign Trade
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/0015732513496617
Kausik Lahiri, Associate Professor of Economics, Surendra Nath College, Kolkata, West
Bengal, India. E-mail:
Sarmila Banerjee, Rajiv Gandhi Chair Professor, Department of Economics, University
of Calcutta, West Bengal, India.
Foreign Trade Review, 48, 3 (2013): 285–357
286 Kausik Lahiri and Sarmila Banerjee
which are directly and indirectly linked with health services. Under GATS, trade
in services is allowed in different modes, namely, Mode 1: cross-border supply,
Mode 2: consumption abroad, Mode 3: commercial presence and Mode 4: pres-
ence of natural persons. In case of health-care–related services, Mode 1 accounts
for telemedicine including diagnostics and radiology, Mode 2 supports medical
tourism, Mode 3 ensures foreign collaboration in developing hospitals and other
care services and finally, Mode 4 sanctions movement of doctors and medical
personnel for the sake of commercial medical practices.
With more technology-oriented services in health-care, mainly, IT-aided
health-care (applying IT for use of health-care resources) and health-care–related
IT services (IT services arising from health-care) (Mathur, 2004) new dimensions
of health-care provisioning and new opportunities of employment have opened up
in India. With infrastructural constraints for super-speciality services having being
removed by series of government policies and promotional schemes for private
participation, both foreign and domestic, India has witnessed the growth of sev-
eral private corporate health-care facilities that are of international quality and
repute and recognized by international accreditation agencies like the Joint
Commission International. The benefits of growth of service providers such as the
large and corporate services providers, who are more prone to using advanced
technology with better infrastructure and manpower and are engaged in more
revenue-generating areas of surgeries in cardiology, oncology, neurology, etc.,
include infrastructure development, better technology with high-end procedures,
technology transfers and forward and backward linkages. These facilities have
better access to latest technologies and are best poised to use those along with
IT-enabled services in health-care; they require very highly skilled and experi-
enced doctors along with other matching resource personnel (Chanda, 2010).
Such improvements on the domestic front, coupled with market commitment of
trading partners for cross-border trade in health services, will unveil new trading
opportunities for a country like India for whom comparative advantage has already
been established in areas of IT-enabled and health services (Lahiri, 2013).
There is, thus, no denying the fact that India’s health-care sector is attaining
new heights under the influence of globalization and GATS. The need for more
sophisticated advanced care services was already generated by the relatively more
affluent and aware class, and the change in the composition of demand is expected
to have a direct impact on the organization of the sector from the providers’ side
also. The health sector in India has primarily been developed for the deserving
population as a source of merit good. However, the recent gain in efficiency has
come mostly through the channels of market mode meant for the affording popu-
lation. These changes will eventually bring forth a change in the technological char-
acter and the pattern of backward and forward linkages of the sector. A study of
these linkages will reveal the macroeconomic integration of this sector in a more
comprehensive way. This effort to integrate the health sector with the real macr-
oeconomy has so far been neglected, and a critical analysis in this regard is
expected to provide direction towards designing effective regulatory controls.
Foreign Trade Review, 48, 3 (2013): 285–357
India’s Health-care Sector under GATS 287
The following section will assess the influence of GATS in India under the various
modes of trade in health services, the third section will briefly present the health
situation in India, the fourth section will identify the major structural features
leading to rapid changes in the demand composition, the fifth section will concen-
trate on the supply side, the sixth section will compare the input–output coefficients
over time to assess technological responses and the final section will conclude the
article by assessing prospects and indicating regulatory challenges.
GATS and Health Services
With information and communication technology (ICT) making delivery of health
services easier, trade in health services now has the potential to grow further
through various modes under GATS. Cross-border electronic health (e-health)
services (Mode 1), movement of patients across borders (Mode 2), foreign capital
(Mode 3) and movement of professionals (Mode 4) have greater prospects under
the new regime and upgraded technology.
Mode 1
With the revolution in IT, faster transportation and adoption of the technology-
oriented modern health-care service provisions, India is now an attractive destina-
tion for medical process outsourcing and medical tourism. Cross-border trade in
health services includes e-health services transactions or tele-health services to
provide diagnostics (tele-radiology), medical opinions and consultations (tele-
medicine), laboratory testing, surveillance, transmission and processing of spe-
cialized data and records (medical transcription, medical coding, medical billing
and like). India is a leader in exporting medical transcription, tele-pathology and
tele-diagnostic services (Smith et al., 2009). Applying IT to health-care resources
enables direct health-related services between two parties; this encompasses diag-
nostic and testing facilities, advice, health information, health data mining, etc.
(see Figure 1).
IT-related services arising from health-care refer to the back-end services such
as medical transcription, medical coding and billing, health system management
information systems (MIS), back-office services, etc. (see Figure 2).
Country B
Exchange of Health Services
Country A
Figure 1. Trade in Direct Health-related Services
Source: WHO (2007). Mode 1 GATS Report India. Mode 1 Services in Healthcare.

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