Economy

‘Regional pacts in the past proved to be adverse for India’

K.V. Kurmanath Hyderabad | Updated on November 04, 2019 Published on November 04, 2019

Post FTAs, trade deficit with ASEAN tripled to $26.6 bn from $9.4 bn: Emkay

With the Regional Comprehensive Economic Partnership deliberations entering into a crucial phase triggering a nationwide uproar over possible adverse effects, a research firm has pointed out that past experience with such regional partnerships had proven to be adverse for India.

Trade deficit had widened considerably post such treaties. “India’s past experience with FTAs warrants caution. The country’s trade deficit with ASEAN has tripled since FTA with some of them,” an analysis by Emkay Global Financial Services has said.

The RCEP seeks to create a free trade zone among the 10 member states of the Association of Southeast Asian Nations (ASEAN - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and its six FTA partners, China, Japan, India, South Korea, Australia and New Zealand.

If the pact is concluded, it will emerge as the world’s largest economic bloc, covering nearly half of the global economy.

At a time when China is looking out to diversify its exports and India’s MSME sector in a terrible state after it was hit by demonetisation and GST, the RCEP in the current context might prove to be adverse for the country. Entry of New Zealand, a very strong player in the diary industry, could also impact the dairy sector.

 

“We already have FTA arrangements in place with most countries (forming 20.3 per cent and 35.7 per cent of the block of 10 (ASEAN) countries. In that context, this agreement would be important with respect to its trade relations with China, Australia and New Zealand,” the report said.

Past experience

The free trade pacts have mostly hurt the country’s trade position in the past. Most of the country’s FTAs with some of the RCEP members have turned out to be adverse with trade deficit almost doubling. “The trade deficit with ASEAN tripled to $26.6 billion from $9.4 billion in 2009-10. FTA tariff reduction has happened in four major sectors ― textiles, metals, automobiles and machinery,” it said.

Quoting the 2016-17 Economic Survey, it said FTAs have had a bigger impact on metals on the importing side ― a 10 per cent reduction in tariffs for metals increases imports by 1.4 per cent. The trade balance has worsened in 13 out of 21 sectors.

However, Indian players in some sectors could not utilise the benefits of FTAs because of lack of information on the same, delays and administrative costs associated with the rules of origin, and non-tariff measures.

What’s in store

Micro Small and Medium Enterprises (MSMEs), which have been majorly impacted after demonetisation, need to be strengthened to face competition from other players. India’s agri sector might also be impacted with FTAs.

“It is tough to say whether Indian services will benefit, as China and Thailand are emerging as new services hubs for attracting FDIs (foreign direct investments),” the report said.

Published on November 04, 2019
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