Free Trade Agreements can help India achieve its targets

Negotiations for the bilateral free trade agreement will not only foster the development of India as a manufacturing hub and lead to the expansion of infrastructure of India, but also benefit other nations through more imports from them, says Dr. S. P. Sharma, Chief Economist & Director-Research, PHD Chamber of Commerce and Industry, in an exclusive interview with The Dollar Business. Interview by Sisir Pradhan | The Dollar Business The Dollar Business (TDB): Do you think India anyway close to a position where its foreign trade and economy can gain from FTAs? S.P. Sharma (SPS): There are important trade complementarities and promising areas of bilateral cooperation between India and other countries of the world. Keeping in mind that India has always wanted to promote multilateral trade liberalization, Free Trade Agreements (FTAs) can me an important means in achieving this end. The economic linkages that India has with other nations can harvest immense business opportunities through mutually beneficial agreements. Negotiations for the bilateral free trade agreement will not only foster the development of India as a manufacturing hub and lead to the expansion of infrastructure of India, but also benefit other nations through more imports from them. Thus, FTAs can lead to enhanced trade for both. FTA adequately identifies and deals with issues of deeper integration between nations. 

Dr. S. P. Sharma, Chief Economist & Director-Research, PHD Chamber of Commerce and Industry.

TDB: Now if we compare India to Singapore or China why India has not been so successful as the other two Asian countries as far as trade growth due to FTAs? SPS: Even though China has a closed, centrally planned, non-market economy it realized that its reformation is urgent and thus began doing so much earlier than India. India always had a large private sector and subject to rigid state controls. Only after a severe macroeconomic crisis in 1991 did India introduce trade reforms. The political environments under which reforms were initiated and implemented in the two countries and their resultant effects have been very different. India continues to be an democracy, while China has an authoritarian, one party regime, and still liberalizing more than India. Further up, China has lower costs in many products than India. It is no surprise that China has gained, and India has lost, market shares in the world markets. Thus it is very important for India catches to become internationally competitive to break even with other countries in future.  The strategic location of Singapore has put her at an advantage over the other nation’s specially India, to emerge as a trade oriented country. Government initiatives in the form of various tax holidays have further proven to be an added advantage for boosting to domestic industries which have further given impetus to foreign trade. Even though China has a closed, centrally planned, non-market economy it realized that its reformation is urgent and thus began doing so much earlier than India. India always had a large private sector and subject to rigid state controls. Only after a severe macroeconomic crisis in 1991 did India introduce trade reforms. The political environments under which reforms were initiated and implemented in the two countries and their resultant effects have been very different. India continues to be an democracy, while China has an authoritarian, one party regime, and still liberalizing more than India. Further up, China has lower costs in many products than India. It is no surprise that China has gained, and India has lost, market shares in the world markets. Thus it is very important for India catches to become internationally competitive to break even with other countries in future. The strategic location of Singapore has put her at an advantage over the other nation’s specially India, to emerge as a trade oriented country. Government initiatives in the form of various tax holidays have further proven to be an added advantage for boosting to domestic industries which have further given impetus to foreign trade. TDB: India is still focusing on East Asian countries whereas the country’s tariff is already higher compared to these Asian countries. Don’t you think this gives an impression that India is not clear in its vision for FTAs? East Asian countries are a natural and attractive source for Indian investment. There is more potential in East Asian countries and thus India wishes to boost ties in every possible field and establish a global partnership. The absence of serious historical tensions between India and this part of the world is also an important factor in determining trade direction.    

May 29, 2015 | 4:55 pm IST.