India wants to beat China in its own game by becoming an export-oriented economy. India laid down a $400bn target for goods and service export this year and $2trn for 2030.
The government recalibrated its strategy on trade policy, especially when it comes down to FTAs. 20 deals are under negotiations, while 6 pacts with the UAE, UK, GCC, Australia, Canada, and the European Union are immediate consideration.
In the case of the UAE, India is planning for a Comprehensive Economic Partnership Agreement, which is expected to be signed in March 2022.
India is right now so enthusiastic about a deal with Australia and UK. They are going in for an early harvest agreement (EHA).
These pacts are called mini-FTA for a reason. Because before the conclusion of an FTA two participants liberalized tariffs on certain goods. It prepares the ground for the mutually amicable environment between the two and warms up their relationship.
Until recently, India was not much interested in FTAs, especially the ones with a Chinese presence. That is the reason why India refrained from joining RCEP. India instead is focusing on FTAs with individual members of RCEP.
India Inc. and farmers, being major stakeholders of such deals, are far from enthusiastic when it comes to RCEP and FTA.
For they have an experience of intense trade deficit, with the domestic market being inundated with foreign cheaper goods and little exports.
But their concerns may cause the government to reinforce their innate caution. This happened before in the haphazard deal of an EHA with Thailand in 2004 on 83 commodities, including automobiles and electronics.
They had an inverted duty structure, with tariffs on final products lower than that of the duties on the inputs. That created an opposition within India which didn’t allow the deal to become an FTA.
Even though precaution is needed, ambition should be the driving point for the EHA to graduate into FTA. This is seen in the case of the present India-UK trade negotiations.
While India is reluctant to indulge deep into it, the UK is highly enthusiastic about it.
Indian presence in the British business environment is affected by the Indian preference for mini-FTA. The trade surplus is in India’s favour.
But when it comes to simple average tariffs, exported goods have three times more tariffs than goods imported from the UK.
Trade will only happen if either side loosens up and embrace a give-and-take policy. To access each other market more, the UK must be allowed to sell more of its goods and services.
Trade should be mutually beneficial for both of the parties and for that FTAs are better than EHA. This is especially true when it comes to India’s need for the achievement of the target.
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