Subsidies, taxes risk India-Asean FTA: Study

The free trade agreement (FTA) between India and the Association of South East Asian Nations (Asean) could run the risk of being asymmetric by favouring Asean countries more, if the government does not rationalise the plethora of subsidies and taxes that plague the Indian economy, says a study.

The FTA signed in August 2009 for trade in goods seeks to gradually slash tariffs on 4,000 product lines and covers a market of around 1.8 billion people. The agreement to have a similar deal of services in underway and is expected to be concluded by the end of the year.

A pragmatic tariff elimination schedule, transparent policy regime and reform of subsidies are the need of the hour if the FTA has to be made beneficial for the people on both sides, says the study conducted jointly by consultancy major Deloitte and industry body Ficci.

“India is going to clearly benefit, but asymmetrically, Asean will benefit more than India. The government should focus sharply on coordinating various policies to be able to really realise the potential of free trade with Asean. A large part of the future benefits of trade will be enhanced if we include services in the trading basket,” said Shanto Ghosh, principal economist, Deloitte India.

The agreement, which came into effect on January 1 last year, has been implemented with eight countries — Malaysia, Singapore, Thailand, Vietnam, Myanmar, Indonesia, Brunei and Laos. Two other countries in the bloc — the Philippines and Cambodia — are yet to ratify the deal.

The report also highlights the fact that sectors such as chemicals, pharmaceuticals, textiles, leather and handicrafts will benefit from free trade given India’s relative competitive advantage in these industries.

For Asean countries, the deal would prove to be successful in electronic goods and machinery industries. They are expected to gain more from the FTA than India.