India does a turnaround on trade spurred by post-Covid economic reality
- IBEF
- October 12, 2021
By the end of March 2022, India is planning to complete a slew of quick-fire bilateral trade agreements. The shift also means that Indian government is prioritizing “early harvest” pacts over comprehensive free trade agreements.
The Indian government is pushing its ministries, particularly the foreign affairs and commerce, to execute early agreements with countries such as Australia and the UK. This is despite India's withdrawal from Asia's largest multilateral accord in 2019 and its lack of interest in the Trans-Pacific Partnership so far. The stakes are high politically as Prime Minister Mr. Narendra Modi attempts to resurrect country’s economy battered by the pandemic and trying to attract more investment from the US and its allies who see India as a counterweight to China. According to officials, the drive to close transactions quickly arises from the realisation that the window of opportunity to benefit from global supply chain realignment may be limited. The government is negotiating bilateral trade agreements with 20 countries and expects to complete half a dozen deals, including those with Australia and Britain by this December and March 2022. India's focus to prioritise trade as a geopolitical strategy has resulted in targeting for more exports and faster trade accords that can increase GDP growth. In August 2021, the Prime Minster Mr. Modi conveyed the urgency as he addressed the heads of India’s overseas missions and urged them to help boost exports as global supply chains realign.
As per Mr. Amitendu Palit, an economist, specialized in international trade and investment at the National University of Singapore, India’s announcement of manufacturing sops such as production linked incentives to attract global supply chains and create employment, could take longer to show results.
Mr. Piyush Goyal has set kept a target of US$ 400 billion for annual merchandise exports almost 38% higher than US$ 290 billion achived in last year and plans to achive US$ 2 trillion annual merchandise exports by the end of this decade.
As per the Senior Commerce Ministry official India has earned more trust from trade partners during the pandemic as not a single supply chain was disrupted, which has led to a surge in interest about signing agreements given the country’s economic growth plans.
National interest
The Indian government is focusing to strengthen the trade with G-7 nations with strong Indo-Pacific strategies and those with growing influence in central Asia such as the United Arab Emirates.
The UK and India are negotiating tariff cuts and market access for ~600 products each in a bid to clinch an interim agreement by March. This product list includes Indian textile products, leather, footwear and chemicals and in return, India may grant access to processed food, farm products, fin-tech, life sciences, and medical equipment industry.
Reform gaps
The government should focus on regulation in crucial areas such as investment protection, e-commerce, data protection and agriculture need to be in line with those in place in European and OECD markets. This gap should be filled before the broad trade agreements can be completed.
According to Richard Rossow, the Wadhwani chair in US-India policy studies at the Center for Strategic and International Studies in Washington, the current enthusiasm for quick deals could be linked to a pandemic-related drop in India's global goods trade deficit to US$ 88 billion in the year to November 2020. The US$ 133 billion deficit in the August 2021 would put a damper on any attempt to create a comprehensive trade agreement. India might yet move forward with a trade agreement with modest commitments, but a world-class accord does not seem feasible.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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