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India In A Tight Spot On FTAs

Author: Dasari Sreenivasa Rao/Thursday, April 29, 2021/Categories: Exclusive

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India In A Tight Spot On FTAs

The ongoing second wave (economists call it Tsunami) of Covid-19 not only disrupting gross domestic product (GDP) growth and day-to-day life, but also impacting the long-term free trade agreements (FTAs) of India. This is causing trade frictions among countries and more severe for 2021-22 financial year, alert economists. However, Swadeshi Jagran Manch (SJM), an economic wing of RSS, is not in favour of multilateral trade agreements. The RSS wing is instead suggesting Indian government to focus on strengthening the Atmanirbhar India initiative.
Further, gone were the days when a highly influential lobby group 'Bombay Club,' comprising eminent Indian industrialists, supported economic reforms initiated by the then PV Narasimha Rao-led government and also sought protection and level-playing field for it. Now, can India afford to take such suggestions from Bombay Club-like lobby groups? Absolutely no, said a senior industry observer. 
India's trade with 15 RCEP economies stands at around $220 billion. India runs a trade deficit with 11 out of 15 RCEP economies. Before signing FTAs, India must keep two things in mind, mutually reciprocal terms and focusing on products and services with maximum export potential, advises industry experts.
Industry experts noted that major trade pacts including Association of Southeast Asian Nations (Asean) have not been fruitful for India. Hence, India should continue to partner with other countries not only to boost trade, but also to make its presence felt in the global markets. India's senior bureaucrats, ministers, trade representation teams should tour the world as much as possible to promote India's potential in trade and services in the global market. 
India has not signed any trade agreement since 2012 and is in the process of reviving talks on the possible FTA with the European Union (EU) and the US. After intense negotiations for an FTA with the EU, talks have been stalled since 2013 after differences on various issues could not be ironed out.
The Narendra Modi government opted out of the Regional Comprehensive Economic Partnership (RCEP), it is keen on inking trade deals with other economic blocs. India could gain significantly amid a growing anti-China sentiment in many parts of the world.
The EU is India's largest trading bloc accounting for 11.1 per cent of total Indian trade, on par with the US and ahead of China (10.7 per cent).
"We are positive that FTAs with the EU and US will benefit India and talks will be resumed," Gopal Krishna Agarwal, Bharatiya Janata Party's national spokesperson on economic affairs, said, while adding that "India is not opposed to trade agreements with other countries, though now that seems to be the popular notion after we exited the RCEP, we understand the need to remain globally and regionally integrated." 
Other Asian nations such as Vietnam are preferring to trade with the western countries. Vietnam is emerging as a formidable competition to many economies and it already signed at a trade pact with the EU. India should consider all these developments within Asia and take a proactive step towards FTAs, advise economists.
"The European economy needs now every opportunity to restore its strength after the crisis triggered by the coronavirus," Ursula von der Leyen, President of the European Commission, said in a statement.
Federation of Indian Export Organisations (FIEO) president S.K. Saraf said: "India should not waste time now. It must act fast before other countries seal the deals. We must revive talks on the stalled FTAs and other trade pacts to cash in on the changing geopolitical order. The current anti-China sentiment in Europe could help India at this point and we must not waste an opportunity."

Govt extends 2015-20 Foreign Trade Policy
The Prime Minister Narendra Modi-led NDA government has further extended the existing foreign trade policy 2015-20  (FTP) for six more months till September 30, 2021, according to a notification.
FTP provides guidelines for enhancing exports to push economic growth and create jobs.
On March 31, 2020, the government had extended the Foreign Trade Policy 2015-20 for one year till March 31, 2021, amid the coronavirus outbreak and the lockdown.
"The existing FTP 2015-20, which is valid up to March 31, 2021, is extended up to September 30, 2021," Directorate General of Foreign Trade (DGFT) said in a notification.
Exports during April-February this fiscal dipped by 12.23 per cent to $256 billion. Imports during the period too declined by 23.11 per cent to $340.8 billion, leaving a trade deficit of $84.62 billion.

Free Trade Agreements
As per the data from Asian Development Bank Institute, India has 42 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed. Out of this, 13 are in force, one is signed, but not yet implemented, 16 under negotiation and 12 are proposed/under consultation or study. Majority of India’s existing FTAs are with Asian countries, which are quite different from each other in terms of the level of their economic development, observes ADB. The major FTAs of India include South Asia Free Trade Agreement (SAFTA), India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), India-Korea Comprehensive Economic Partnership Agreement (CEPA) and India-Japan CEPA. According to Asian Development Bank, India's utilization rate of FTAs is in the range of 5-25% and it's considered to be one of the lowest in Asia.

FTA will double Indo-US trade by FY26: PHD Chamber
PHD Chamber of Commerce and Industry (PHDCCI) is upbeat on foreign trade growth between India and China. The signing of FTA between India and the US will play a major role in the long-standing bilateral trade and will double it to $300 billion by FY 2025-26 from the present bilateral trade of $143 billion, forecasts Sanjay Aggarwal, president, PHDCCI. 
"The continued spread of Covid-19 and the associated global supply chain disruptions have greatly impacted economic activities and created an unusual degree of uncertainty in almost all the countries. At this crucial juncture, dynamic economies such as India and the US hold immense potential for refuelling global growth to a higher trajectory in the coming times," said Aggarwal.
PHDCCI further said that after Joe Biden becomes US President, it's helping in re-invigorating the bilateral economic agenda between India and the US, thereby facilitating economic growth, job creation, promotion of small businesses and rising trade and investment exchanges.
The talks of concluding a broad-based India-USA FTA would also get a significant boost encompassing a wide variety of sectors and removing market access barriers to unleash a higher trade trajectory. Combining goods and services together, the bilateral trade between India and the US has increased from around $96 billion in FY2014 to around $143 billion in FY2020.
Aggarwal also said that the decision of the government of not signing the RCEP agreement is a 'very bold and a welcome step' as the MSMEs sector would have been badly affected, particularly in electronics, chemicals, metals, textiles, and dairy sector as other member nations of the RCEP did not address various key concerns expressed by India.
The focus should not be just on free trade, but also fair trade that promotes a strengthened stance of India in various FTAs with its partner countries, he said.
"At this juncture, India should expedite trade talks with large markets like the US on signing a broader or full-fledged FTA. India-USA FTA will be gainful as compared with the FTA with RCEP economies," he said.
The growth of merchandise trade has also been recorded high with the US at seven per cent average YoY growth as compared with three per cent with RCEP economies during the last 5 years period of FY 2015-16 to FY 2019-20, Aggarwal said.
Industry experts advise India to focus on boosting manufacturing and create an ecosystem, which will help increase competitiveness. By opting out of the RCEP, India has openly announced to the world that it's not competitive. India should get things right and do the needful so that it can enter the pact at a later stage, opines an anlyst. 
Cheap imports especially from China have become a cause of concern, but not engaging with the world on issues relating to international trade is not the solution. India needs to explore all the options to address any issues including tightening the rule of origin to ensure that other countries do not use our markets as dumping grounds. 
Economists said that India must be open to trade agreements to ensure better integration with the global order. As majority of the RCEP members are keen to have India on board, so India should rework to address its concerns and join the bloc as early as possible. At the same time, India must also look at trade pacts with other economic giants including the US, opine the analyst.
It may be recalled that the US Trade Representative (USTR) in its latest report on Foreign Trade Barriers has highlighted major trade barriers to American exports, FDI and e-commerce. According to the report, the United States' trade deficit with India in 2020 was up 1.7 per cent to $23.8 billion, exports down 20.1 per cent to $27.4 billion, and India's imports down 11.3 per cent to $51.2 billion, from last year. The report highlights that the US exporters continue to encounter significant tariff and non-tariff barriers. Additionally, there exists large disparities between WTO bound rates and India's MFN applied rates -- currently the highest in the world at 17.6 per cent.
Industry chambers are hopeful of revival of industrial activity once the vaccination process is completed as early as possible. The central and state governments need to focus on enhancing household consumption and business investment for increased aggregate demand.
"We need extra push to further fuel the drivers of household consumption and business investment for increased aggregate demand, while moving towards a more inclusive economy and ensuring fiscal sustainability," says Aggarwal.
According to PHDCCI Economy GPS Index, the Indian economy is moving forward in the direction of fast economic momentum to achieve a double-digit growth in FY 2021-22. However, it's subject to the impact of second wave of Covid-19, it observed. 
On the back of robust measures of policy stimulus undertaken by the central government and the announcement of a demand creating, growth-oriented and investment stimulating Union Budget 2021-22, the higher trend of PHDCCI Economy GPS Index in March 2021 reinforces the growing business and demand momentum in the country and further the government's view that the economy is in a V-shaped recovery.
The PHDCCI Economy GPS Index, during the period April-March of FY 2020-21, stands at 95.2 as compared with April-March FY 2019-2020 at 97.8. The growing trend of PHDCCI Economy GPS Index indicates a stronger outlook of Indian economy in the FY2021-22, further supporting the PHDCCI's revised growth projection for Indian economy at (-)7.2 per cent for the current financial year 2020-21, the statement said.

The writer is a business journalist with 27 years of experience 


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