Printer Friendly

Role of Services Exports from India on Human Capital Formation in Kenya (Africa).

Human capital refers to the productive qualities that activate the labor force. The productive qualities are education, knowledge, health and skills. Human capital formation is the process of increasing the productive qualities or abilities of labor force by providing more education, increasing skills, health and nutrition level. For proper utilization of manpower resources, a country should impart proper education to its population and train its labor force in technology, engineering, management, medicine and many other fields connected with the development of various sectors of the economy.

A country should have rational manpower planning for the development of its human resources. Manpower planning indicates future planning of human resources for meeting the present as well as future development needs of the economy. It should acquire data regarding the quantity and quality of manpower requirements, to employ them in all the sectors and sub sectors of the economy. T.W. Schultz (1971), stated five ways of developing human resources (i) Health facilities and services, broadly conceived to include all expenditure that affect the life expectancy, strength and stamina, vigor and vitality of the people (ii) In and on-the-job training, including apprenticeships organized by firms (iii) Formally organized education at the elementary, secondary and higher levels (iv) Study programmes for adults that are not organized by firms, including extension programmes notably in agriculture (v) Migration of individuals and families to adjust to changing job opportunities.

Human Capital Formation

Most of the underdeveloped countries are suffering from low rate of economic growth which is again partially resulted from lack of investment in human capital. These nations are facing mainly two basic problems, i.e. lack of critical skills which are very much needed for the industrial sector and a surplus labor force, thus human capital formation seeks to solve these problems by creating necessary skills in man, as a productive resource and also to provide gainful employment.

Effective use of physical capital is, "to staff new and expanding government services, to introduce new system of land use and new methods of agriculture, to develop new means of communication, to carry forward industrialization and, to build the education system., innovations, increase life expectancy, improve quality of life and to control population".

Role of Services for Human Capital Formation

Services play an important role in all modern economies. A resilient service sector, by increasing availability of services, may boost economic growth; enhance industrial performance and human capital formation.Services constitute the largest sector in the global economy, accounting for 70 percent of global GDP, 60 percent of global employment and 46 percent of global exports measured in value-added terms. WTO statistics show that the share of developing economy services exports increased from 24 percent in 2005 to 32 percent in 2015, and the share of LDCs in global services exports increased from 0.4 percent in 2005 to 0.8 percent in 2015. Increased services exports from the LDCs are an important contributor to meeting the sustainable development goals of doubling the exports from LDCs by 2020.

Service sector is the key driver of India's economic growth. This sector contributed around 66.1 percent of its Gross Value Added growth in 2015-16, thereby becoming an important net foreign exchange earner. India's service sector has matured considerably during the last few years and has been globally recognized for its high growth and development. This sector has been growing at an annual growth rate of about 35 percent during the last 5 years. Government of India has enabled India to build up a huge and versatile cadre of professionals with expertise and skills across a vast and wide-ranging spectrum of disciplines like Health Care, Tourism, Education, Engineering, Communications, Transportation, Information Technology, Banking, Finance, Management and a host of others. A sizeable part of this workforce of professionals makes up the country's growing consultancy sector which is offering its accumulated experience and expertise at home and abroad.

Human Development Indicators of India and Kenya

Human development is development of the people through building human capabilities, for the people by improving their lives and by the people through active participation in the processes that shape their lives. The Human Development Index (HDI) is a composite index focusing on three basic dimensions of human development: life expectancy at birth; mean years of schooling, gross national income percapita. Among 188 nations, India ranked 130 (index value 0.609); while Kenya ranked 145 (index value 0.548). India is one among the medium human development nations, while Kenya is one among the low human development nations as per the Human Development Report (2016). Kenya is left behind in Human Development Index which presses the necessity of acceleration of human capital formation.

Table-1 indicates the status of human development indicators of India and Kenya. Kenya is having added advantage in demographic dividend (young Kenya), which can be tapped by increasing the level of education, knowledge and skills of the young population. Rate of unemployment is too high as the government cannot provide jobs to the exploding unemployed, but can assist in creation of self employment avenues by imparting vocational technical education and training.

Trade in Services

Services represent the most dynamic segment of international trade. The service sector provides key inputs into the production and trade of all products, playing an important role in global value chains and economic development. The WTO's General Agreement on Trade in Services (GATS) provides the legal ground rules for international trade in services, allowing WTO members the flexibility to open their markets to foreign competition to the extent of their choosing.

Trade in services (percentage of GDP) in India was 14.71 percentages in 2014; (World Bank). Trade in services is the sum of service exports and imports divided by the value of GDP. India's export of commercial services grew at 5 percent in 2013 and reached at US $153 billion, during 2013 India ranked 6th in export of services

A primary reason why international trade in services has been limited is that the performance of many services necessitates physical contact between producers and consumers, a condition that renders service provision to distant locations infeasible. New technology, particularly use of Internet that overcomes such historical trading hurdles for many services, effectively reduces transport costs from infinity to virtually nothing.

Policies relating to movement of factors of production and to the movement of receivers of services may distort trade in some services more than in the case of trade in goods. Such policies may be of more importance to trade in services than restrictions on trade in services themselves, Gary P Sampson and Richard H.Snape (2007).

International trade in goods require inputs from several service industries (trade services such as transportation, banking, insurance and finance) in order to complete and facilitate international transactions. Restriction on the ability of national service providers to provide these services across borders and within foreign countries creates additional costs and barriers to international trade, Alan V. Deardorff (2001).

The Main Service Sectors

Business and professional services include: Accountancy, Advertising, Architectural and Engineering services, Computer and related services, Legal, Communication, Audio-visual, Postal and courier services,Telecommunications, Construction and related services, Distribution,Education, Energy, Environmental, Financial, Health and social services, Tourism and Transport services.

The Modes of Trading Services

There are four modes of supply of services through foreign trade viz.

Mode 1: Cross-border supply refers to a situation where the service flows from the territory of one member country into the territory of another member country. For example, an architect can send his architectural plan through electronic means; a teacher can send teaching material to students in any other country; a doctor sitting in Germany can advise his patient in India through electronic means. In all these cases, trade in services takes place and this is equivalent to cross-border movement of goods.

Mode 2: Consumption abroad refers to a situation where consumer of a service moves into the territory of another member country to obtain the service, for example, a tourist using hotel or TPD (Services), restaurant services abroad; a ship or aircraft undergoing repair or maintenance services abroad.

Mode 3: Commercial presence implies that, service suppliers of a member country establish a territorial presence (a legal presence) in another member country with a view to providing their services. In this case, the service supplier establishes a legal presence in the form of a joint venture/ subsidiary/representative/branch office in the host country and starts supplying services.

Mode 4: Presence or movement of natural persons (in simple language it is export of manpower) covers situations in which a service is delivered through persons of a member country temporarily entering the territory of another member country. Examples include independent service suppliers (e.g. doctors, engineers, individual consultants, accountants, etc.) However, GATS covers only temporary movement and not citizenship, residence or employment on a permanent basis in the foreign country.

Physical transfer of service providers or consumers is a matter of concern. Whether to allow service providers to be mobile physically or not depends on cost and benefit analysis. It depends on type of service, duration of service required and number of people required for such service. Online services are more cost effective- It can be applied where the physical presence of service provider is not required. It nullifies the procedure and difficulties involved in migration of people. An online service usage depends on availability of technology and manpower in service rendering and the receiving nations.

India and Kenya Bilateral Trade

A bilateral trade is the exchange of goods and services between two countries that facilitates trade and investment by reducing or eliminating tariffs, importquotas, export restraints and other trade barriers. Bilateral trade agreementsare between two nations at a time, giving them favored trading status with each other. The goal is to give them expanded access to each other's markets, and increase each country's economic growth. Bilateraltrade agreements are easier to negotiate than multilateral trade agreements, since they only involve two countries, which means, that they can go into effect faster for reaping trade benefits.

The similarities in both the nations are more congenial for accelerating bilateral trade in services. Kenya and India have the following similarities which are conducive for trade in services. (1) Both the nations use English as the medium of communication (2) Since both the nations had been ruled by British, administrative setup is more or less same (3) Weather conditions are similar, except it is relatively more cold during winter in North India and relatively morehot during summer in South India. (4) No communal clashes between the dominant religious groups (Hindus and Christians) in both the nations.

Ways of Developing Human Resources in Kenya

Education and Training

The first composition of human capital formation is to provide education and training facility to the people in general. Investments made in education can accelerate economic growth. Proper utility of manpower depends on system of education, training and industrial experience of the people. Education is thought to play a major role for capital formation and economic development, leading to higher living standards. Not only does education provide better job market opportunities, leading to higher wages and an improved standard of living, but evidence also suggests that improved schooling inputs can lead to a greater sense of political awareness reduced acceptance of traditional authority and increased gender equality. Education is a powerful instrument for social transformation and economic development through human capital formation.

Training and nurturing human resource of Kenya is the backbone for India-Kenya bilateral relations. India is having highly skilled manpower and also having skill imparting higher educational and training institutions like IITs, NITs, IIMs, IIITs, AIIMS, and other institutions and universities of national importance. Skilled manpower shortage can be averted by imparting education, training and research in these institutions. It may be difficult for India to give unlimited number of scholarships; hence the beneficiary institutions in Kenya can sponsor their candidates to get education and training from India. Educational services in India are much cheaper in both public and private sectors. Kenyans who want to settle as business executives or want to start their own enterprises as entrepreneurs can get training in these management institutes. The work culture in Kenya is much better than in India, hence companies can yield good profits in the long run out of the services rendered by the trained workers, which will enhance not only individual earnings but also economic development. By reducing visa restrictions and providing secure environment, Kenya can also invite experts to work and impart training to their staff. Expenses for training can be borne on sharing basis by the employers, employees and the government.

Health and Nutrition

The second composition of human capital formation is Health and Nutrition. Poor health and undernourishment adversely affects the quality of manpower. The best way to improve the quality of manpower in underdeveloped countries is to provide adequate food and proper nourishment to people along with adequate health and sanitation facilities.

The healthy human resource is really a valuable asset for the progressive development of a nation. Provision of health care is an absolute responsibility of a welfare state; it is a basic infrastructure to be provided by the government to its citizens. India is equipped with medical educational institutions, hospitals and sophisticated medical technology and skilled doctors and Para medical staff, hence medical services are much cheaper in India when compared to Kenya in both private and public sectors. Improving health not only increases productivity but also reduces wastage of man days; thereby it reduces cost of getting services and improves economic development. Hospital staff also can get on the job training which will improve better service delivery. Kenya Government by recognizing medical degrees and diplomas obtained from India, will reduce the shortage of medical professionals in Kenya.

Policy Suggestions and Conclusion

Kenya's short run dependency on import of services from India may lead to deficit in current account balance of payment in the short run, but in the long run deficit can be reduced by many ways (1) Trained man power can give further training to the future generations in Kenya, thereby it can save precious foreign exchange (2) Self-reliance can be increased in the long run (3) By deploying trained manpower in different sectors, the severity of unemployment problem can be reduced, there by poverty rate can be curtailed and GDP growth rate will be accelerated. (4) The predominant existence of young population will yield demographic dividend to Kenya.

India, by further reducing import and export duties, will give greater relief to Kenya for reduction of deficit in balance of payments. It can be appreciated that India extended most favored nation treatment to Kenya from 1981, still further reduction of export duties will reduce inflationary pressures, thereby poor and middle class people also can buy imported goods and services and consequently the standard of living can be enhanced.

The Kenya government should have proper human resource planning; the data on existing quality of manpower and the requirement for near future will be useful to formulate a road map to import education, training, research and health services from India. Increasing operational efficiency of Kenyan airlines will reduce transport costs between both the nations. Visa restrictions may be further relaxed by both the nations by extending the validity of visa expiry period .Reduced crime rate will enhance human security, there by number of tourists will increase and service professionals will come and give training in skills and talents. Creating transparency and corruption free environment will be useful as number of people can get right opportunities which will be useful for accelerating human capital formation for speedy economic development.


Alan V. Deardorff (2001): International Provision of Trade Services, Trade, and Fragmentation, Vol. 9, Issue 2, pp. 233-248.

Gary P. Sampson and Richard, H. Snape, (2007): The World Economy, Vol. 8, Issue 2, pp. 172-182.

Theodore W. Shultz (1991): Investment in Human Capital, Free pr, New Yourk, USA.

UND P (2016): Work for Human Development, Human Development Report 2016, Oxford University Press, New York, USA.
Table 1: Human Development Indicators of India and Kenya

Indicator                                     India   Kenya

Human Development Rank                        131     146
Gross National Income percapita (2011 ppp)    $5663   $2881
Population growth rate                        1.3     2.7
Population below poverty line 2005-2014       21.2    33.6
 ($ 1.90 ppp perday)
Life expectance at birth (years)              68.3    62.2
Median age of Population                      26.6    18.9
Literacy rate                                 72.1    78
Mean years of schooling                       6.3     6.3
Primary School dropout rate                   0       22.4 (2015 HDR)
Unemployment rate percentage of labor force   9.7     17.6

Source: Human Development Report (UNDP, 2016).
COPYRIGHT 2018 Centre for Indian Development Studies
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2018 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Prakasam, Seepana; Rao, Vinita
Publication:Political Economy Journal of India
Geographic Code:6KENY
Date:Jul 1, 2018
Previous Article:Corporate Social Responsibility in Indian Banking Industry: A Case Study of State Bank of India and ICICI Bank.
Next Article:Higher Education through Open and Distance Education --An Analysis of Democratization and Social Inclusiveness.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters