Former NITI Aayog Vice-Chairman pitches for trade pact in services with US

Former NITI Aayog Vice-Chairman Arvind Panagariya said on Friday India could explore the possibility of a free trade agreement (FTA) with the United States (US) in the services sector.

India currently has FTAs with over dozen countries including Japan, South Korea, Singapore and ASEAN nations.

“Down the road, the US being such an important strategic partner. One area where we can explore an FTA agreement is services. I think goods is problem with the US because the US will insist on agriculture liberalisation,” Panagariya said at an event organised by the Confederation of Indian Industry (CII).

He said it may be difficult to have an FTA with the US in goods but both the countries can look forward to a free trade pact in services sector because both the countries have some common interest.

On an FTA in goods with the US, Panagariya said, “You need to deal with agriculture because the US would never do goods agreement only in industry.”

Noting that it will also be a bit inconsistent with World Trade Organisation (WTO) rules, Panagariya said, “So, you can’t fudge it, and we will not open our agriculture market, because US is a super competitive country in agriculture. So FTA with USA in goods at least in the near future does not look to me like something that can happen.”

Panagariya also stressed that India must continue the liberalisation of its top tariff rates and the country should not revert back to import substitution.

“The whole fascination of import substitution which we had thought that we have overcome after 1991 and we have progressively opened up our market, suddenly has now been reversed. We should have liberalised more. But after 2007-08 we stopped (liberalising trade) completely and in the last two years we have reversed,” Panagariya opined.

Noting that if India once again returns to inward looking and import substitution which failed in the country for 40-50 years, he said, “then we are shooting ourself in the foot.”

The eminent economist also reiterated that India should complete its ongoing FTA negotiations with the European Union (EU) and the Regional Comprehensive Economic Partnership agreement (RCEP).

Replying to a query on recent monetary policy announcements, the Columbia University economist said the Reserve Bank of India (RBI) should have cut the benchmark interest rate by 50 basis points or half a percentage point.

The Reserve Bank of India (RBI) on Thursday cut benchmark interest rate by 0.25 percentage point for the second time in a row to bring interest rate to the lowest level in one year on softening inflation.

Commenting on the controversy over gross domestic product (GDP) data, he said that some cynical economists have questioned GDP data and when he was in the government for three years and it was never an issue.

Former RBI Governor Raghuram Rajan had recently expressed doubts over Indian economy growing at 7 per cent when not enough jobs were being created and had said the current cloud over the GDP numbers must be cleared by appointing an impartial body to look at the data.

Also expressing concerns over “political interference” in influencing statistical data in India, as many as 108 economists and social scientists had called for restoration of “institutional independence” and integrity to the statistical organisations.