15/02/2021 - Indian Economy

KEY POINTS

·        The signing of the Regional Comprehensive Economic Partnership (RCEP) agreement by 15 countries of the Asia-Pacific, have revived the free trade agreements (FTA).

·        The parallel development is Brexit highlighted the backlash against globalisation and free trade.

What is an FTA?

·        FTAs between two or more countries increase trade by reducing customs duties and non-tariff barriers on substantially all trade. They also cover services and non-trade issues like investment.

·        India reduced duties on a range of products, getting little in return. Perhaps it was the price we paid for entry into the ASEAN+6 club.

·        Investment in car production in India increased, riding on robust promotion and protection measures incorporated in the FTAs.

Relevance of FTA

·        FTAs can help India gain substantial access to large markets at concessional duty for products where we are competitive.

·        Sectors like automotive, textiles, handicrafts, leather, pharmaceuticals, light electricals, some chemicals, many agricultural items, could benefit.

·        It can trigger huge job creation riding on exports. In textiles and clothing, our competitors Vietnam and Bangladesh enjoy tariff-free access to the large and lucrative EU and US markets.

Path for the future

·        Reduction in tariffs on intermediates enhances competitiveness of finished goods. Doing so under FTAs allows trading off liberalisation.

·        India need to restart our FTA journey urgently and scale it up rapidly with the past experience serving both as a lesson and a warning. Conclusion of the India-EU agreement should be a priority.

·        An FTA with the UK can be relatively easy in view of the complementary interests in services and the desire of the UK to rapidly diversify trade to cushion the impact of Brexit.

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