Revenue foregone to service Asean FTA more than doubles to Rs 26,000 crore

The government reportedly fears the figure for revenue foregone may be as high as Rs 60,000 crore for the proposed Regional Comprehensive Economic Partnership deal once it goes live

India's revenue foregone due to the trade agreement with Asean has more than doubled to nearly Rs 26,000 crore in 2018-19.

The free trade area with the 10-nation Association of the Southeast Asian Nations (Asean) bloc came into effect on January 1, 2010. Exports to the 10 economies stood at $37.4 billion in 2018-19, up by 9 per cent on year. On the other hand, imports were higher at $59.31 billion, up by 25 per cent from the previous year's $47.13 billion. The figure is expected to strengthen calls for a more stringent review of existing free trade agreements (FTAs) with South Korea and Japan, which haven't been able to reduce India's trade deficit with these nations.  

On the other hand, the government fears the figure for revenue foregone may be as high as Rs 60,000 crore for the proposed Regional Comprehensive Economic Partnership (RCEP) deal once it goes live, the Times of India has reported. RCEP is India's most ambitious trade pact currently under negotiation. Based on India's existing FTA with Asean, the RCEP will include all the nations with which the Asean has trade deals — New Zealand, Australia, China, India, Japan and South Korea. 

New Delhi has consistently focused on services trade norms, such as those allowing the free movement of trained professionals across national boundaries. This would effectively allow Indian professionals — such as chartered accountants, teachers and nurses — to practice in other RCEP nations without the need for bilateral mutual recognition agreements.  

Where things stand 

Under planning since 2012, the talks have seen little movement since partner nations have been unwilling to concede on crucial issues. This includes the market access for foreign goods and reduction of import duties on them, discussion areas where India is gravely cautious since manufacturing powerhouse China is part of the arrangement. Also, richer nations like Australia and New Zealand have remained adamant on issues such as seeking more leeway in selling specific products such as dairy and fruits in India. New Delhi has also moved slowly on investment norms, especially dispute settlement guidelines.

New Delhi has resisted calls by most nations, which argued that India should slash existing tariffs on up to 90 per cent of all goods. There were demands by developed economies such as Japan and Australia that India opens up the market to specific products such as dairy and engineering goods.

Now several ministries such as those of steel, agriculture, mines, and information technology remain opposed to the talks. Under such pressure, the Prime Minister's Office decided to assess the pact and its fall-out despite the Prime Minister's promise to seal the deal by 2017.

Industry fears

Domestic industry, across a broad range of sectors, has called for caution on India joining the RCEP bloc. Fear of Chinese goods flowing into the country unhindered if the deal goes through was the primary concern among industry representatives. Commerce and industry minister Piyush Goyal met representatives during a series of parleys in Mumbai last week, to allay fears.

The government has assured the steel sector that items that had earlier been removed from the purview of the RCEP, won't be brought back. Steelmakers had demanded that steel products be completely removed. Now, steel products have been divided into five categories with products set to carry customs duties for five, 10, 15, 20 and 25 years, respectively. Within hot rolled and cold rolled products, there are different duties.

In its most direct statement on the matter ever since talks began, India told Asean nations earlier this month that the domestic industry is not convinced that the proposed RCEP deal will create a 'win-win situation for all' and ensure balanced outcomes for both goods and services.

Accounting for nearly 45 per cent of the global population with a combined gross domestic product of $21.3 trillion, it is to be the biggest trading bloc on the planet, also bringing together the biggest economies of the region for the first time.

So far, 26 rounds of talks have concluded, apart from six minister-level meets. The next ministerial meet is slated to begin in Beijing on August 2-3, at a time when the Asean nations desperately want to sign the deal by 2019-end. While the Ministry of External Affairs is reportedly on board, others, including steel, agriculture, and chemicals are in favour of India leaving the deal.   

Revenue foregone due to FTAs shoots up 

.	Revenue Impact (2017-18)(Rs. Crore)	Revenue Impact (2018-19) (Provisional)(Rs. Crore)	Annual growth (%)
Due to concessional customs duty for goods imported from ASEAN	12,042	25,718	113
Due to concessional customs duty for goods imported from Korea	6,695	7,327	9.43
Due to concessional customs duty for goods imported from Japan	2,592	4,053	56.36
Due to concessional customs duty for goods imported from SAFTA	431	500	16
Others	20	34	70
Total	21,780	37,632	72.78

Note : SAFTA - South Asian Free Trade Area
Source :  Revenue Impact on account of FTA/PTA/CEPA/CECA, Receipt Budget 2019-20