Making for the world

The just-unveiled foreign trade policy is best judged by its treatment of two crucial issues of the day: how it links up with ‘Make in India’ and the position it adopts on regional trade and investment pacts (also called FTAs, free trade agreements), a huge concern among sections of industry. The policy does not disappoint. Acknowledging the apprehensions over FTAs (and even post-FTA deficits), it says it will conduct an ‘impact study’ of India’s decade-long experience, particularly with the Asean group. However, the policy recognises both the potential and inevitability of FTAs as the cornerstone of world trade. The tenets of multilateralism — by which India rightly swears to this day — cannot be disregarded, but the fact is that the Doha Round is mired in disagreement. Domestic producers, with the help of the right policies and WTO-permissible incentives, should move up the value addition chain, rather than hope for tariff sops to come their way. Indeed, the focus should be on negotiating the right trade deals rather than erecting trade walls, which will destroy our competitiveness and productive skills at a time when they sorely need to be enhanced. A target to double India’s goods and services exports to $900 billion, raising its share in world exports from 2 per cent to 3.5 per cent, can be achieved through a more intelligent approach to openness than was displayed by the UPA. Researchers point out how India kept textiles, clothing and plastics out of its FTA for one set of East Asian countries, while including them for another, thereby worsening its trade balance, given the developed trade links between these countries.

The policy promotes indigenous capital goods production — which has been in the doldrums for years and a major contributor to the current account deficit — by reducing the export obligation for those who source such goods through the EPCG scheme. ‘Duty credits’ for imports under the newly announced Merchandise Exports from India scheme — which clubs a number of earlier schemes and therefore irons out procedural hassles for exporters — can be made to vary with the indigenisation level of the exported goods. The same can hold true for credits awarded under a similar umbrella initiative to promote services exports. The need to integrate with global value chains, for which India needs to get its systems and processes in order, cannot be overemphasised. Efforts to reduce the number of mandatory documents needed for imports and exports to three will certainly help.

Yet, export-orientation cannot work beyond a point. The EU and Japan are in recession mode with only the US showing signs of a pick-up. A slowing world is also turning protectionist, putting up a variety of non-tariff barriers. Monetary easing in advanced countries leaves emerging markets with overvalued currencies. The policy realises the challenge of breaking into markets where mega FTA deals are being worked out, as between the US and Europe. While pursuing regional trade talks within the WTO framework, India should also tap new markets and create the right policy climate for investment back home.

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