Thursday, December 2, 2021

Upcoming Contours Of India’s Economic Engagments

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India has set its goal to become a US $5 trillion economy in the near future. This roadmap stands on the twin pillars of building a strong climate of domestic trade and investment on one hand, and forging robust links with the global economy on the other. To achieve this target, India has undertaken a slew of reforms such as bringing in the Insolvency and Bankruptcy Code (IBC) and the Goods and Services Tax (GST). To promote her goals, India has been looking to push its market interests and build upon complementarities with its trading partners to be a part of the global value chains. To enable constructive and mutually beneficial economic ties, India had decided to open up regional trade and bilateral economic negotiations-including a couple of stalled ones -with countries around the globe. These engagements dispel notions that India shall pursue strategies which are inward looking, closed door and protectionist in nature, post Regional Comprehensive Economic Partnership (RCEP) pull out.

A few years back India was actively negotiating Free Trading Agreements (FTA) with many regional groupings and countries such as with the European Union, Eurasian Economic Union, Australia, Mauritius, Israel and Iran to name a few. India has evinced interest to start negotiations with the European Union which had been initiated in 2007. These negotiations were stalled for about seven years, over market access for wines and automobiles and inclusion of provisions related to labour standards and government procurement. The Broad Based Trade and Investment Agreement (BTIA) with the EU, which is India’s largest trading partner, can help sectors like gems and jewellery and textiles. The EU would definitely look for duty cuts on products in which it has strong export interest. India is also open to independently engaging the UK, post-Brexit, for a free trade agreement. India has a large diaspora, and, historical connections can be leveraged to mutual benefit. The UK would aim to seek investor protection regimes, were a deal to be negotiated. 

While India and the US were never engaged in negotiating a FTA style agreement, a trade deal is very much on the anvil. It is widely expected that such a s deal could be inked during the expected visit of President Donald Trump to India in end February, 2020. The deal is expected to address issues related to withdrawal of Generalized System of Preferences (GSP) benefits by the US and hike in tariffs on select US based products by India, apart from measures to address trade imbalance and promote energy security. 

India withdrew from the RCEP, as it practically got reduced to a bilateral FTA much to the disadvantage of India’s domestic industries. Agreeing to demands related to opening up of sensitive sectors without robust rules of origin while restricting access in services sectors were definitely not in India’s interests. However, immediately thereafter, India has decided to reopen certain done deals with its East Asian neighbours like the ASEAN, Japan and South Korea and advance stalled negotiations with countries like Australia- all of whom were part of the RCEP community. Our FTA utilization rates with South Korea, Japan and ASEAN are poor and India intends to use the review clauses to lower tariff and non-tariff barriers. Studies have indicated positive benefits of increased economic engagements with countries like Australia, Indonesia and Israel and economic groupings like the EAEU and these negotiations can possibly commence soon.

However, foundations of such negotiations need to be comprehensive covering goods, services and investments. India has set-out a strategy that informed debates and discussions shall precede these deals and FTAs shall not jeopardize its sensitive sectors. The stakeholders shall be given sufficient time to adjust to the tariff and regulatory changes arising out of these FTAs. Thus, India is poised to up the ante of its economic engagements in the near future.

Script:Satyajit Mohanty, IRS, Senior Emic Analyst

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