A higher level of ambition on FTAs good, but for this, India must open up its domestic markets to partners
The passage to a full-fledged FTA with Australia, however, is far from easy.
India is on track to meet an ambitious export target of $400 billion this fiscal. No doubt, what is aiding this effort is the focused drive of the Union commerce ministry to fix targets for each of the top 30 markets instead of only setting a full-year-goal. As this newspaper has reported, the ministry has followed it up with regular meetings with stakeholders and overseas missions for interventions to enable exporters to benefit from the recovery in global trade. In the first seven months of this fiscal, outbound shipments ideally should be 55-58% of the full-year-target. By this reckoning, exports to UAE, Singapore, UK, Netherlands, Germany, Nepal, Malaysia and Turkey fell short, achieving 32-44% of the full-year target. This was offset by robust growth in shipments to US, China, Bangladesh, Belgium, Saudi Arabia and Indonesia, by 62-71%. India’s overall exports thus hit $234 billion during April-October 2021 or 59% of the full-year target.
What will definitely bolster India’s export drive to its top 30 markets are free trade agreements (FTAs) with the US, European Union, UAE, the UK and Australia, for instance. The higher level of ambition in this regard was flagged by BVR Subrahmanyam, commerce secretary, when he cautioned India Inc to brace for competition as the country was going to sign “very deep” FTAs. “To make FTAs realistic and compliant with World Trade Organization norms, we need to have at least 90% of trade covered under substantial liberalisation. We can’t be cherry picking. It will be a deep integration of economies. There will be some sensitive lines, of course. In the Indian context, dairy, for example, is a sensitive area. By and large, these are going to be very deep FTAs,” he stated while addressing Confederation of Indian Industry’s Partnership Summit.
This higher level of ambition should be welcomed as India has not signed any major FTA in the last 10 years. Despite the intent to ink deep agreements, India remains ambivalent about full-fledged FTAs due to higher domestic tariffs in some of the most trade-dynamic sectors and manufacturing as a whole. For such reasons, India in the past has hesitated to offer “substantially all trade” interpreted as “80-85% or more” preferential tariff line liberalisation in its FTAs and settled for limited deals according to professor Amita Batra of the Jawaharlal Nehru University. India and Australia thus have decided to expedite negotiations for an interim agreement.
The passage to a full-fledged FTA with Australia, however, is far from easy. Bilateral negotiations have been ongoing since 2011 and an important sticking point is India’s reluctance to open up its market for farm and dairy products. The domestic dairy industry’s apprehensions of stiff competition in milk and milk products from Australia and New Zealand were responsible in large part for India to walk out of the Regional Comprehensive Economic Partnership. As Australia and New Zealand are part of this regional grouping, a full-fledged FTA with India would necessarily entail the latter making a similar level of preferential tariff line liberalisation. Australia, Brazil and Guatemala also secured a WTO ruling in their favour, that India’s price support to sugarcane farmers violates the Agreement on Agriculture. FTA negotiations entail a process of give and take for greater access to each other’s markets. If India seeks greater market access, it must also allow partners to sell more of their goods and services .The need is to mutually lower tariff and non-tariff barriers for trade to be a win-win situation for both partners so that FTAs can boost India’s outward shipments manifold to its top 30 markets in the future.
Subscribe to FE Daily Newsletter for latest updates on markets, business, money, infra & more, right in your mailbox