The global trade and investment landscape will not be the same after the full impact of the Covid-19 crisis plays out. Hence, India’s post- Covid-19 policy responses cannot be business as usual. Indian policymakers have to move out of their comfort zones and bring greater focus on key priorities. Three clear urgent priorities stand out:

Reducing overdependence on certain countries (especially China) for key imports.

Integrated trade promotion and investment policy that leverages the Post Covid-19 strategic shift away from China-based manufacturing supply chains

Proactive trade policy that allows Indian manufacturing to expand into new markets and products

In order to objectively frame policies, one has to understand the sectoral peculiarities of India’s import profile and its trade-related sensitivities. The basic unit of product specialisation in the Indian context is the India Trade Clarification Harmonised Code at the eight-digit level, or ITC HS8. Of the 10,264 ITC HS8 product lines in which India imports, only 2,656 lines can be considered important, and account for an overwhelming 97 per cent of imports. These ITC HS8 product lines had imports of at least $10 million in 2018-19, and regular imports in the last four years. We will call these ITC HS8 Key Import Product or KIP lines, and focus on them.

Reduce China dependency

India depends heavily on China for 797 of these ITC HS8 KIP lines (ie at least 40 per cent of imports come from China in that line). India thus has a dependence on China for a substantive 30 per cent of the KIP lines. Categorising these imports into consumer, producer and natural resource imports, China would account for close to half of all consumer goods imported into India. China’s share of producer goods is lesser, but still substantive at 24 per cent.

If the ITC HS8 KIP product line imports are categorised by technological sophistication, a vast majority are associated with low- and medium-technology products (close to 60 per cent). This means that there are large parts in the global value chains (GVCs) that do not require significant technological sophistication, and where India has the economies of scale. Yet, India has not managed to develop local capabilities here.

Reorient supply chains

These represent the low-hanging fruits where India could expand local capabilities generating exports and employment by taking advantage of the shifting supply chain priorities in a global economy that is increasingly wary of putting eggs in one basket. But in order to do so, it is imperative to retool our trade and investment policies.

India could consider a progressive customs duty on a range of ITC HS8 KIPs, with increasing rates of applied duty on imports from a particular country as it crosses certain thresholds. For example, if the MFN applied rate on solar panels is 7.5 per cent, and imports of solar panels from a particular country cross 40 per cent of total imports, the applied rate on imports of solar panels from that country would go up to 15 per cent.

Another strategy for reorientation of supply chains could be to extend non-FTA preferences by identifying the most competitive alternatives to China and extending preferential tariffs for those products to these alternative source countries irrespective of whether they have an FTA with India or not.

India should dovetail its strategy with the supply chain reorientation plans of countries like Japan, Germany, Korea, and the US. A special unit reporting directly to the PMO should be made responsible for ensuring that any investment proposal related to such reorientation is given expedited clearance, with a Joint-Secretary level officer serving as a dedicated investor relations representative to each prospective investor. Aggressive monitoring from the PMO to ensure a hassle-free investment experience should be made a top policy priority.

Engage in trade agreements

India needs to aggressively engage in trade agreements that allow it to broadbase its exports and move up GVCs. This would be especially critical in the post Covid-19 crisis environment, where major economies would also be seeking to broadbase their supply chains, reducing dependence on China.

Serious FTA negotiations require the ability to give and not just get market access. India would have to be ready to offer close to 90 per cent of its tariff lines as duty free. India has been hobbled in the past by not being able to ruthlessly bring focus and identify lines of interest that need to be protected, and the ones where it can be more flexible.

As pointed out, there are 7,708 of 10,264 ITC HS8 lines where imports are typically below $10 million and irregular, representing 75 per cent of India’s traded tariff lines. These could be easily liberalised.

In the remaining 2,656 product lines, there are 260 raw material and agro-produce related lines that should ideally be marked for liberalisation. For the manufacturing related lines, we could use the following rules of thumb:

Whether the product line represents a critical input with significant value-addition happening in India.

Whether the product line is related to processing of raw materials cheaply available in the exporting country

Whether it is a technology-intensive product line and Indian demand for that product is not a significant percentage of global demand. Thus, tariff protection is unlikely to lead to production relocation to India.

If the answer to any of the three questions is yes, then product line is a good candidate for liberalisation. Analysis suggests at least 1,150 ITC HS8 KIP lines related to manufactured goods would meet these requirements. That would bring down the number of lines which genuinely deserve protection to just about 1,200.

In return for tariff liberalisation, India should require partners to provide concrete solutions for technical and regulatory barriers to trade. In services, instead of focusing on facilitating movement of Indian professionals, priority should be on barriers that would impede remote service delivery using electronic or digital means. The Covid-19 crisis has expedited the move towards working and delivering services remotely, but protectionist barriers in terms of taxes that punish offshoring or incentivise local sourcing, regulations that disallow offshore delivery, data localisation and privacy requirements can all emerge as barriers.

The writer is an independent logistics sector specialist and trade strategist. Views are personal

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