Free trade pacts may not lead to trade deficits, says Commerce Ministry

Our Bureau Hyderabad | Updated on February 19, 2015 Published on February 19, 2015

Insists that they bring significant opportunities for exporters, importers

Senior officials from the Union Ministry of Commerce and Industry on Thursday sought to allay apprehensions that Free Trade Agreements could lead to trade deficits for India.

In a seminar on ‘India’s Engagement with FTAs’ here, the officials said that with tariff barriers coming down all over, India had no choice but to push for trade pacts.

In fact, FTAs brought about significant opportunities for exporters and importers, with the chief goal being to increase India’s competitiveness, they added.

Sanjeet Singh, Director, Department of Commerce, said FTAs were not responsible for trade deficits. “Our trade deficit is the highest with China, but we have no trade agreement with that nation,” he said.

Allaying fears

On FTAs leading to possible higher imports than exports, he said not all imports were bad for India, especially in the context of the Centre’s Make in India programme.

Moreover, FTAs have adequate safeguard mechanisms to tackle the adverse effects of imports on the domestic industry and to take corrective action against import surges.

Anuradha Guru, Director, Department of Commerce, said a recent analysis by the Ministry showed that trade diversion has been limited after the FTAs were signed, which meant that FTA partners had not displaced other markets.

The Department of Commerce had analysed the broad trend of India’s preferential imports under the trade pacts India has concluded with countries such as Thailand, Singapore, South Korea and Japan.

Though preferential imports have been increasing from 2009-10 to 2013-14, they are still not significant, ranging from 3.4 per cent of total imports under the India-Malaysia pact to 22.4 per cent under the India-Japan pact.

This clearly indicates that preferential imports under FTAs have not contributed to the increase in trade deficits with some countries, said the Commerce Department.

India’s rationale for entering FTAs is to diversify and expand its exports of both goods and services, access to raw materials, intermediate products and capital goods to stimulate value-added domestic manufacturing and address non-tariff barriers.

Published on February 19, 2015
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