Exercise caution on the proposed trade pact with US: Experts to govt

India has pushed to ink a limited trade pact with the US, along with the possibility of an FTA later.
Experts have urged the government to take a consistent stand on Free Trade Agreements (FTAs), saying it needs to exercise caution on the proposed pact with the US. This is with respect to existing FTAs having been termed “hasty and inherently unequal” by the government.

India has pushed to ink a limited trade pact with the US, along with the possibility of an FTA later. However, officials say talks will pick up only after the US presidential elections. Talks had progressed after India pulled out of the Regional Comprehensive Economic Partnership (RCEP) in November 2019. 

Referring to the RCEP, External Affairs Minister S Jaishankar on Monday justified India’s move, arguing that the economy was not being served well by the FTAs signed so far. However, he emphasised that the present global situation warranted the leveraging of specific partnerships — a statement indicating that exceptions could be made for the US, the EU, and the UK. 

Existing trade deals, especially the 2009 pact with the Association of the Southeast Asian Nations (Asean) bloc, have been panned by the Centre for not boosting exports but flooding the domestic market with cheap imports. 

Subsequently, New Delhi has called for reviewing FTAs with Japan and South Korea. Going by that, a trade deal with the US is unlikely to be beneficial, say experts. Average import tariffs for India are significantly higher than those of developed nations, and domestic businesses need to become competitive faster, said senior trade policy expert and JNU professor Biswajit Dhar. 

History could repeat following the RCEP drama if the domestic scenario doesn’t improve, given the same issues will continue to crop up, Dhar had warned. Even if the domestic industry is brought on board, the government has to deal with the unenviable task of deciding the exports that could be leveraged upon to boost outbound trade, according to him. 

“Besides tariffs, New Delhi needs to be watchful of the US’ strict insistence on maintaining high standards on labour, environment, and intellectual property rights, which may make exports tougher and increase compliance for businesses to an extent for which they are not ready,” said Jayant Dasgupta, former ambassador to the WTO. 

FTA blues 

In 2019, the revenue department had started assessing flaws in trade deals, which led to a spiralling trade deficit. According to the FY21 receipts budget, the revenue India has had to forego due to all trade pacts amounted to Rs 65,734 crore in FY20, up from Rs 48,793 crore last year. Further, a NITI Aayog study last year used Asean as a model, given the range of goods covered and volume of trade — saying the utilisation rate of current deals by Indian exporters was very low (5-25 per cent).

Sectors in which the trade deficit has worsened account for 75 per cent of exports to Asean, while trade-surplus sectors showed only marginal improvement, it added. 

Among the present FTAs showing significant trade deficit, five are with members of Asean. Exports to these nations constituted 10 per cent of the total outbound trade, and stood at $31.49 billion in FY20, down 5.1 per cent year-on-year. Conversely, imports were almost double at $55.36 billion as of FY20, down 6.6 per cent from $59 billion in FY19.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel