The Ministry of Commerce and Industry (MoCI) is conducting a review of existing FTAs, following a call in the Economic Survey for a “reality check” on the agreements.
There are mixed views on FTAs in the Indian government. While the Department of Industrial Policy & Promotion has said FTAs have negatively impacted the manufacturing sector, initial findings of the MoCI review has found that Indian manufacturing has not been harmed substantially.
The Survey echoed criticism from the Federation of Indian Chambers of Commerce & Industry of the inverted duty structure arising from India’s FTAs, which makes some manufactured goods dependent on raw material imports uncompetitive. Import duty on finished goods is at times nil or lower than duty on imported raw materials. For example, aluminium rolled products are imported at 5% basic customs duty, whereas aluminium fluoride is imported at 7.5% basic customs duty.
India has taken a hard line in opposition to the Bali Package, the first multilateral WTO agreement in two decades with an adoption deadline of 31 July, 2014. The agreement would require countries to upgrade port facilities, streamline customs procedures, and implement new customs technology. India is opposed to the agreement in its current form, citing concerns over insufficient financial support for poorer countries to implement the proposals, and the lack of consensus on food security.
Under the proposal, India would become restricted in stockholding by purchasing food from farmers at above market price from 2017. The agreement contains a commitment to not increasing agriculture export subsidies, and an objective of eliminating agricultural export-stimulating measures, including export credits, food aid, and state trading.
The package could benefit other Indian exporters; developed countries not already doing so have committed to providing duty-free and quota-free market access for at least 97% of products originating from LDCs. Developing countries have also committed where possible to providing duty and quota-free access for such products.
Alongside the Bali negotiations, EU-India FTA negotiations have also progressed at a slow pace, having missed several deadlines. However, the Modi government recently met an EU condition of raising the FDI ceiling in insurance companies to 49%. While the EU currently directs its efforts towards the Trans-Atlantic Trade and Investment Partnership, the EU-India FTA is still in the pipeline.
Talks on other bilateral agreements are ongoing, including on FTAs with Argentina, Australia, Canada, Israel, Peru, South Africa, and others. India-New Zealand FTA talks are now back on schedule, charting a difficult course through agricultural policy.
Positive news has arisen from bilateral FTAs; the Minister for Steel and Mines recently informed Parliament that the FTAs with Japan and South Korea have not harmed domestic production. The Commerce Ministry study found that preferential exports from India following FTAs with ASEAN, Japan, Malaysia, and South Korea have increased by 17%, 22%, 3.47% and 21% respectively. Steel imports from Japan and South Korea have become cheaper, and there has been a shift in sourcing imports from the two countries.
The renewed focus on the impact of FTAs on the Indian economy is a positive sign. A new FTA strategy appears to be developed, supporting Indian businesses and further integrating India into the global supply chain. With the proposed pan-Asian Regional Comprehensive Economic Partnership seeking to bring together existing FTAs into a single comprehensive agreement by 2015 encompassing ASEAN, Australia, China, India, Japan and New Zealand, opportunities for investors in and exporters to India seem set to grow.
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