Free-trade pacts slammed

Trade: Emphasis on export of electronic hardware

Economic Survey-2013-14 has slammed the free-trade agreements (FTAs) signed under the United Progressive Alliance government, saying these had led to a number of concerns. The Survey also pitched for India’s export basket to be made more demand-driven, rather than supply-based.

The comprehensive economic partnership agreements (CEPAs) India had signed with Japan, Korea and the Association of Southeast Asian Nations (ASEAN) had resulted in an inverted duty structure, rendering India’s manufacturing exports uncompetitive, the survey said. It, therefore, suggested a sort of “reality check” on FTAs. India should be prepared to counter threats from the emergence of mega trade pacts such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, it said.

“Regional/bilateral FTAs with Japan, South Korea, Asean, etc, have added to a new inverted duty-like situation, with some final goods of these partner countries having nil or low duty, while the material for these items from other countries has higher duty. Inverted duties are found in different sectors. This needs to be avoided and there should be a right balance between different stakeholders,” the Survey said.

It also pitched for an increase in the share of India’s merchandise exports to global trade. This has increased from 0.5 per cent in 1990 to 1.7 per cent in 2013; during the same period, China’s share to word trade increased from 1.8 per cent to 11.8 per cent. The Survey said India should set a goal of increasing its share in global trade to at least four per cent in the next five years. For this, exports will have to grow at a compounded annual rate of about 30 per cent.

The Survey said special attention should be given to the export of electronics hardware and electrical equipment to gain a competitive edge in international markets.

“Till now, our focus was on exporting what we could (supply-based); now, we have to shift to items for which there is world demand and we have basic competence. A demand-based export basket diversification approach, with a perceptible shift to the three Es (electrical, engineering and electronic), could lead to greater dividends for India,” it said.

Further, the Survey made a case for extending FTA concessions to special economic zones, languishing for a couple of years. It said a “clear signal” was necessary, in terms of incentives to these tax-free zones.

In a first, the Survey recommended a comprehensive Indo-China trade strategy, taking into account the widespread concerns of dumping of cheap Chinese goods.

The share of China in India’s total trade increased from 2.5 per cent in 2000-01 to 8.6 per cent in 2013-14, while India’s share in China’s total trade increased from 0.7 per cent in 2001 to 1.6 per cent in the same period.