Trade pacts: Economic Survey argued FTAs beneficial but Niti Aayog wants a review

Trade pacts: Economic Survey argued FTAs beneficial but Niti Aayog wants a review

The calls for a less liberal foreign trade policy are getting louder and reaching a crescendo, with more sections within the government extending allegiance to the new-found cause. The Niti Aayog has suggested to the Prime Minister’s Office (PMO) that a panel be set up to review India’s free trade agreements (FTAs), including with Asean, to “contain round-tripping of imports” into the country. In a recent presentation to the PMO, Niti Aayog chief executive Amitabh Kant is learnt to have said the panel could be set up under Niti vice-chairman Rajiv Kumar for the “evaluation of the performance of FTAs”.

With this, Niti joins industry bodies and various ministries — from steel to dairy — in seeking a re-examination of various FTAs on grounds that these pacts have only worsened India’s trade imbalance over the years.

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But this view is patently at odds with that of the Economic Survey for 2019-20, which insists FTAs have actually benefitted India.

Taking into account certain confounding factors, the Survey pointed out that between 1993 and 2018, India’s annual exports of manufactured products to its trading partners, with which it had signed the FTAs, jumped by 13.4% and total merchandise despatches rose 10.9%.

Similarly, while imports of manufactured products increased by 12.7% a year during this period, overall goods imports from these partners gained 8.6%. “Thus, India has clearly gained 0.7% increase in trade surplus per year for manufactured products and 2.3% per year for total merchandise,” the Survey under chief economic advisor Krishnamurthy V Subramanian concludes.

In his presentation to the PMO, Kant suggested apart from Kumar and him, the panel can comprise the secretaries of finance, commerce, economic affairs and the department for the promotion of industry and internal trade (DPIIT), and a report can be submitted in 45 days.

Giving an illustration of the “roundtripping” of supplies into India through an abuse of the rules of origin under the India-Asean FTA, Niti says after India’s customs duty hikes on certain electronic products in FY19, imports from China dropped, while those from some Asean members surged. According to the DGCIS data, imports from China dropped by 7.9%, year on year, to $70.3 billion. However, purchases from Singapore shot up by as much as 118%, Hong Kong by 68.5% and Vietnam by 43.3% in FY19. This suggests some Chinese supplies were diverted to India illegally through the Asean members in which Beijing has made huge investments.

As such, India’s merchandise trade deficit with China stood at $53.6 billion in FY19, or nearly a third of its total deficit, and $48.7 billion in FY20, even without factoring in the deficit with Beijing-proxy Hong Kong.

Some analysts point out that, given the surge in protectionism around the world, it’s imperative to ensure more and more Indian products get market access in FTA partners, without being subject to tariff or non-tariff barriers. To that extent, a review of existing FTAs is desirable. However, if the government decides to shelve such agreements, erect tariff barriers just to promote domestic industry, that would reverse the progress already made since the liberalisation in 1990s and would be detrimental to the country’s long-term interests.

For its part, the government has maintained that its Atmanirbhar initiave is neither “protectionist nor isolationist”.

After its pull-out from the China-dominated RCEP agreement in November last year, New Delhi had decided to step up talks for a slew of “balanced and fair” trade pacts, in contrast with earlier FTAs that “worsened India’s trade deficit”. It had aimed at a “limited” deal with the US, which had been in the works for several months, and a broader FTA after the presidential elections there in November. Similarly, India wanted to clinch a trade deal with Australia this year and revive stalled talks with the EU. The Covid-19 outbreak, however, has pushed the matters back, although the talks may resume once the pandemic is behind us.

However, it also wants to rework its existing FTAs with Asean, Japan, Malaysia and South Korea to trim its trade deficit with these nations. Earlier this month, commerce and industry minister Piyush Goyal called upon Tokyo to reduce its huge trade surplus of about $8 billion with New Delhi.

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