FTA hesitancy

Govt and industry must be open to free trade pacts

NITI Aayog Chief Executive Officer Amitabh Kant recently told an industry grouping that Indian companies had an excessive fear of free trade agreements (FTAs) and that they should seek to become globally competitive rather than lobbying for greater protection. He correctly pointed out that India would suffer enormously if it failed to take advantage of the free trade opportunities that were becoming available. He argued that, even if India did nothing, free trade blocs would eventually form — and, if they excluded India, then both corporate India and the country in general would suffer lost opportunities. Mr Kant further pointed out that value addition in exports was greater — he could have added that the solution to India Inc’s earnings growth problems lies in expanding export opportunities.

 
Mr Kant has emerged as a strong and able advocate for freer trade, which is in the broader economy’s interests. This is precisely what is hoped for from the person behind the Union government’s influential think tank. It is to be remembered that Prime Minister Narendra Modi has also in the past, including at the World Economic Forum in Davos, spoken about the benefits of broader economic integration. Corporate India, which has devoted too much time to lobbying for protection and against free trade, needs to pay attention to Mr Kant’s advice. But, for that matter, so should certain ministries and departments within the government, which have interpreted the prime minister’s recent stress on “self-reliance” to mean protectionism. A turn towards protectionism, as Mr Kant has explained, would leave India weaker.

 
Part of the reason that export pessimism had crept into both government policy and the corporate outlook was that it was felt that previous free trade agreements, such as those with the Association of South East Asian Nations, or Asean, had not completely “benefited” India. This, of course, was the wrong way to look at freer trade — even if India failed to increase exports as much as hoped for, consumer welfare certainly increased through access to more and cheaper goods. Yet the apparent failure to increase exports to Asean and others is also the fault of companies that did not seek out new opportunities and markets. As other options open up for post-pandemic trading realignments, particularly in the context of continuing economic tensions between the United States and China, this hesitancy cannot be allowed to hold India back. This is not just an economic but also a geo-political necessity.

 

Among the opportunities in front of India is the resumption of dialogue with the European Union on an FTA, which was recently announced following the India-EU leaders’ summit. India’s negotiators must remember that they will need to give as much as they get. It is not enough to open negotiations; it is also important to remember that some sectors will have to give up protections in order that others — including labour-intensive export sectors like readymade garments — should benefit. In the past, India-EU negotiations stumbled because of excessive demands from established Indian sectors like IT and automobiles among others. The focus should not be on the sectors that might lose out alone, but also on those that have much to gain from free trade.

 
Mr Kant’s words hopefully reflect a deeper realisation on the part of the government that trading integration with nations that share India’s democrat and market-economic ethos is a geopolitical, strategic, and economic necessity.