Joakim Reiter, Deputy Director General and Head of the International Trade Policy Department, Ministry of Foreign Affairs, Sweden, was in India recently to discuss the link between the ‘Make in India’ initiative and India’s future external policy. The Dollar Business caught up with him to not only understand the linkage between the two, but to also know why India-Sweden trade is still skewed towards the latter

Interview by Vanita Peter D’souza | The Dollar Business

 

TDB: What brings you to India?

Joakim Reiter (JR): The purpose of my current visit was to participate in a seminar, hosted by Sweden and the Confederation of Indian Industry (CII), where we discussed the link between the ambitious and much welcomed ‘Make in India’ initiative and the future external policy of India. Put bluntly, if India is supposed to become a global manufacturing hub, what trade policy should it implement to ensure that the country becomes more linked up to global value-chains and performs better in exports?

TDB: What is your opinion on the ‘Make in India’ initiative, and how does the Swedish government plan to take advantage of this movement initiated by PM Narendra Modi?

JR: This is a very welcome development because it puts the question – ease of doing business – at the center of the government’s priorities. India has been underperforming. For example, in the World Bank rankings, India’s ambitions of growth and employment creation are not reflected. This is considering where India should have featured in the rankings. Of course, we are just at the start of this initiative and the key challenge will be delivery. This is perhaps where also Sweden can contribute. The Swedish government is ready to have conversations with India to find out areas of collaboration with respect to implementation of policy reforms. In addition, we will try to coach our companies to identify new opportunities that hopefully will arise with these reforms. So, obviously, if ‘Make in India’ is successful, it should open up for new investment opportunities. It should also facilitate competitive cross border trade. This would be good for India and Indian business houses, just as for Sweden and Swedish business houses.

TDB: If we look at trade figures, while India imports in abundance from Sweden, Swedish importers seem to be very cautious. What do you think is the reason behind this trade imbalance and how can this be resolved?

JR: Sweden is a free trade nation. We welcome imports of goods and services, including from India, and we actively try to promote both two-way trade and two-way investment. In addition, being part of the EU, we have the same trade policy as the rest of the EU countries. But ultimately, what we import, and from whom, is determined by the market. So the question is whether India’s basket of products is attractive to Swedish consumers and other companies. This brings us back to the issue of global value chains. As per our economic structure, a very important proportion of Swedish imports constitutes inputs, be it goods or services, for manufacturing. As India is insufficiently linked up with global supply chains, thereby, almost automatically, India become less important to our companies as supplier of such inputs. I think that, at least partly, explains why we have a discrepancy in our trade and perhaps also why there is a general discrepancy in India’s trade. Our hope is that ‘Make in India’ will begin to address this discrepancy. We will welcome much more trade with India.

 

TDB: What are the various challenges faced by Swedish commercial communities while doing business in India?

JR: To simplify, let’s divide the challenges into three categories. Firstly, various policies, regulations and instruments related to trade – imports as well as exports. This includes measures causing delays in customs clearances, non-tariff measures, technical regulations deviating from international standards, high tariffs, fees and charges on imports, etc. The second set of problems is linked to the business climate and concern the complexity of regulations that add to the cost and unpredictability of doing business. The third set of issues is the lack of internal market in India, for example, poor infrastructure and variations on laws and regulations between states. You have to look at these three categories together. It would seem to me that the government is now stepping up its efforts in the latter two sets of issues, even if there is a long way to go. And, in these areas, many of the problems in India are obviously the same for Swedish companies as they are for India’s companies, especially those that are looking to go global. But we have felt that there is an enormous potential for India to also readjust its trade policy in line with the objectives of ‘Make in India’. As far as we can see, this is still the missing piece. And this is a category of problems that tend to disproportionately hurt foreign companies, together with those Indian companies that want to export and become global.

TDB: So, are you optimistic about the ‘Make in India’ campaign?

JR: Yes, I am. The first step to change is to acknowledge that status quo will not do. The second is to formulate the new path. The third step – to implement change, is of course the most decisive one. And, here, the verdict is still out there. But one has to be patient and remain optimistic and supportive. Change takes time.

 

TDB: What are your expectations from India-Swedish bilateral ties?

JR: If the reforms are properly implemented and external dimension is added to ‘Make in India’, then there is an enormous potential to explore trade between India and Sweden. Why so? Because Sweden, despite being a small country, has many incredibly competitive multinational corporations (MNCs) that are particularly active in global supply chain. They are already active in India, supporting some 7,00,000 jobs, but these are mainly made to satisfy demands in the Indian market. What we would like to see in India is a global manufacturing hub servicing the world market. This is attractive to our companies, given the fact that they are global players. It also will enable India to attract investors and thereby create employment opportunities in the country. Above all, India becoming a manufacturing hub will boost its exports.

TDB: The new government in India is making the right noise regarding the proposed India-EU FTA. What’s your thought on this?

JR: Europe is legitimately expecting a signal from the Modi government, on what it wants to do with this agreement. The reforms that he has initiated in India should, over time help finalise the FTA. In my view, the FTA will be very important for both partners; Europe is very good at global supply chain and has a lot of MNCs. Europe invests heavily in India. And India wants more investment, link up to value chains and increase exports. The problem in the past, however, was that the Indian government didn’t provide a sufficient level of ambition. The domestic reforms in India should hopefully pave the way for a higher level of ambition, which should satisfy Europe. Similarly, Europe needs to get a sense that this is a political priority for India. On our side, I believe that we are prepared to participate in negotiations to wrap this up, provided the level of ambition is right and the commitment is there. Once we get the go ahead, I think we would be able to finalise the FTA. But, to my mind, it has to come from the Indian side.

TDB: In most countries, including India, we see only big trading houses benefitting from trade agreements. Don’t you think it is discouraging for small entrepreneurs as they are not really given a fair chance to compete against the big players?

JR: I disagree. We do not see FTAs as a policy that favours MNCs. Also, as matter of fact, Swedish MNCs are not the strongest supporters of FTAs. Large multinational trading houses, that are truly globalised, actually prefer global trade deals within WTO, such as ITA (Information Technology Agreement). It’s the small and medium enterprises (SMEs) that are more in need of FTAs. For example, in the FTA between EU-US, which we are currently negotiating and is a huge priority for the Swedish government, the main beneficiary from this would be SMEs because they do not have the capacity currently to figure out how to enter the US market. Facilitating trade would reduce the entry cost and that would be more beneficial for SMEs, relatively speaking, than large corporations.

 

TDB: Is there anything in the pipeline when it comes to collaboration between Indian and Swedish SMEs?

JR: I recently met Mr. Amitabh Kant, Secretary in the Department of Industrial Policy & Promotion, Government of India. We had an interesting conversation on standardisation, which is a big issue for SMEs that are struggling to meet the standards of different markets. This is an area where Sweden has extensive experience. India should link up with international standards. This is an area where we have our expertise and can help Indian standard setting bodies to become much more compatible with their global counterparts.

TDB: Do you feel that tariffs and other barriers such as anti-dumping duties to trade have increased since the financial crisis began?

JR: Yes, much to our regret. Sweden is generally not in favour of anti-dumping and we think this instrument has been extensively used on dubious grounds. We are not directing our critics to India but to all countries. We regret that. Since the 2008 crisis, although India has made some downward adjustment in tariffs, she has also made a number of tariff increases which has not only hurt India or Sweden but also other developing countries. We encourage India to take its G20 pledge seriously and not apply protectionist measures.

TDB: What would be your message to Indian exporters who are looking at Sweden as a potential market?

JR: Go for it. You are most welcome both to Sweden and in using Sweden as an access point to EU’s internal market. Also, if you lack the capacity to venture to Sweden at this stage, try to become a partner and supplier to Swedish companies here in India. This may, in the medium term, allow you to access the supply networks of Swedish companies not only in Sweden but in many parts of the world.