Pursue trade deals, but focus equally on enhancing industry competitiveness

India is negotiating trade agreements with the developed countries in the west while its trade relations with Bangladesh and Turkey are worsening somewhat. 

Last week, our commerce minister held detailed discussions with the United States Trade Representative with the intent to conclude the first tranche of a bilateral trade agreement between the two countries as quickly as possible. A team of officials from the commerce ministry went to Brussels to discuss with the officials of the European Union on the way forward for an early harvest free trade agreement. The government has already concluded a mini trade deal with the United Kingdom, the details of which are not yet available on the public domain.  

All these trade talks have acquired urgency since President Trump imposed reciprocal tariffs and then held them in abeyance for 90 days while retaining minimum 10 per cent duties on most goods entering the United States. 

India retaliated against some ill-considered statements and actions by the Bangladesh government by closing its land borders for import of some goods from that country.  

Following some military and other support Turkiye gave to Pakistan recently, the government withdrew security clearance for a Turkish firm handling cargo at some airports. Only 2.63 per cent of our exports go to Bangladesh and 1.32 per cent to Turkiye.  So, the trade impact is not much but better use of diplomatic channels may also help in improving the relations with both countries. 

The negotiations with the US, EU and UK get priority because about 19.31 per cent of our exports go to US, about 17.45 per cent to the EU and around 3.3 per cent to the UK. However, it must be noted that the weighted average tariffs for non-agricultural goods in the EU, US and UK are less than 3 per cent. 

So, even if the tariffs come down for some items to zero, the improved market access may not result in more exports if the goods from competing economies like China or Vietnam are cheaper by more than 3 per cent. So, while we may pursue the trade negotiations, the focus should not shift from improving our competitiveness. 

India is unlikely to give greater market access for agriculture or dairy products because the livelihood of millions of farmers will be affected. The richer countries are unlikely to relent on non-tariff barriers because they are not India-specific. So, the scope for negotiations narrows down to industrial products, services and investments.  India is interested in better market access for labour intensive goods, but gains through such trade deals may be temporary because the richer countries are negotiating similar trade deals with other countries also.  

Any gains in market access through preferential tariffs can evaporate as soon as any competing country is granted a similar concession. 

So, India should consider integrating with global supply chains by joining the Regional Comprehensive Economic Partnership agreement and the Comprehensive and the Progressive Trans-Pacific Partnership agreement. 

India’s share in global merchandise exports has been stagnant at 1.8 per cent since the past 11 years. While we have taken many actions to improve our infrastructure and lower the logistics costs and adopt information technology to improve the ease of doing business, our competitors are doing more to improve their competitiveness. The prescription of our chief economic advisor to bring down the tariffs on imported goods and deregulate should be taken more seriously.  Gains through higher productivity are more enduring than gains through trade deals. 

tncrajagopalan@gmail.com