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India must address trade barriers

A report in this newspaper on Thursday showed that India’s two largest trading partners — the United States (US) and the European Union (EU) — have raised concern over regulatory and non-tariff barriers. These issues came up during the trade-policy review at the World Trade Organization (WTO). It’s a periodic peer-group review of trade policy, which allows members to raise issues, and the individual country addresses those through its response. The issues raised relate to higher tariffs, sanitary and phytosanitary norms, technical barriers to trade, restrictions related to digital trade, and quality-control orders (QCOs), among others. However, India’s trading partners are also encouraged by its engagement through free-trade agreements (FTAs), which will increase transparency and openness. 

To be fair, some of the criticism of trade policies and specific restrictions by trading partners are sometimes off the mark because many countries themselves impose stringent conditions on imports on grounds such as public health and environmental protection. Be that as it may, some of the points made by the US and EU are worth considering, and it is in India’s own interests to be more open to international trade. It is well accepted that tariffs in India are high. Some rationalisation has happened over the past few years, but more needs to be done. The issue of QCOs is also valid. The number of QCOs has multiplied over the years, and their coverage has increased from about 100 in 2014 to over 650 product categories. There has been some relaxation and rollback in recent months, but the system and the reach of QCOs need thorough review. The EU has acknowledged that India is addressing this issue. QCOs have been used as a trade barrier and particularly affect smaller businesses that depend on cheaper imports to remain competitive. 

India of late has shown considerable openness and has concluded several FTAs, including those with the EU and the United Kingdom. However, it still needs tariff rationalisation in general. India’s trade-weighted “most favoured nation” tariff, according to one estimate, is at 12.6 per cent, which is much higher than that of its trading partners. This needs to come down substantially. Over 50 per cent of global trade happens in intermediate goods. Thus, with relatively high tariffs, it is difficult to be part of global value chains. Foreign direct investment, to a large extent, is also driven by trade openness. Multinationals would hesitate in setting up manufacturing units in a country where it is difficult or expensive to import inputs. Since India needs to attract large amounts of foreign investment to supplement domestic savings and sustain higher growth, it must be more open to trade along with addressing other concerns of overseas investors. It is worth highlighting that this is a good time to bring down tariffs because the rupee has weakened significantly in real terms and is providing protection to Indian businesses. A weaker rupee has also helped merchandise exports, which expanded by over 15 per cent during April-August this year. 

While India needs to be more open to trade, it is worth highlighting that one of the critics of its trade policy, the US, has been imposing tariffs to curb imports and achieve other objectives. The reasoning of the administration is that the trade deficit is a reflection of unfair trade policies of trading partners. Also, India was targeted with punitive tariffs last year. India is negotiating a trade agreement with the US, and it is to be hoped that it will be concluded soon, providing much-needed stability to trading relations between the two countries.