Is India’s exports really gaining momentum from bilateral trade pacts?

Manish K. Pandey | The Dollar Business

There has been a lot of confusion and an excessive display of concern (or rather distress!) lately about free trade agreements (FTAs) and their impact on Indian economy. In fact, on one hand, there are many who are happy that the ASEAN-India FTA in services and investment is getting closer to the finish line (Thailand's Ministry of Commerce has accepted the terms outlined in the region-wide accord), on the other hand there are critics who continue to question the viability of such regional trade pacts. Interestingly, the discord was more evident than ever at the National Council Meeting of the CII held recently in New Delhi. While the Commerce Secretary was of the view that "the utilisation of FTAs by India’s trading partners was not much to worry about", the Department of Industrial Policy & Promotion (DIPP) Secretary blamed FTAs for the poor state of manufacturing sector. Somehow developing nations like India have been really enthusiastic about free trade agreements since the collapse of the Doha rounds of talks at the WTO. Currently India has FTAs with 20 countries and is in talks with Australia, Canada, New Zealand and EU for a similar accord. No doubt, this sounds logical at a time when trade agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are moving global trade away from MFN routes toward regional routes. But then the question remains: Is India’s exports really gaining momentum from these bilateral pacts? Although we don’t have a proper mechanism to capture preferential trade data, those from our trading partners reveal that a lot still needs to be done to augment India’s share in the global exports pie. The Commerce Ministry analysis shows that following India’s FTA with Malaysia, Japan and ASEAN, preferential exports to these countries or regions have increased by about 3.5%, 20% and 17% respectively. No doubt these numbers look impressive, but they actually are not, considering that preferential imports from these countries too have increased at an equal pace, if not faster. A testimony to the fact is India’s widening trade deficit. It’s not that I am anti-FTAs. My only concern is that such decisions are not taken in haste without creating a level-playing field for our exporters across Industries. For instance, a recent news report by English daily DNA India revealed that "a trade pact between India and Thailand had made a major investment by a Japanese automobile company into India unviable." The reason sighted was that “following the agreement, import of engines to India from Thailand became cheaper for the company than setting up a manufacturing base in India.” Result: A loss of billions of dollar of FDI, apart from a chance to export high value-added products which could have added billions of dollar more to India’s forex reserves. And there are many more such cases. As per the National Accounts Statistics, “the annual growth rate (at 2004-05 prices) of the manufacturing sector in 1991-92 was negative at (-) 2.4%, after which the annual growth rate remained positive in successive years before becoming marginally negative at (-) 0.7% in 2013-14.” This trend is bound to reverse if we continue to ignore such critical points while negotiating a trade pact. In fact, it’s high time we start thinking about boosting “value-added exports” than just “exports” and negotiate FTAs on those lines. China is a clear example of what value-added exports can do for a nation. India has been talking about it for years. But nothing much has happened on the ground. All it requires is a level-playing field for Indian exporters and a few trade pacts that are comprehensive in nature covering all aspects of economic growth. Is that too much to ask for?