A meeting of the Trade & Economic Relations Committee was held on 4th November, 2013. Detailed discussions were held on India’s trade engagements specifically India-EU BTIA, SAFTA, RCEP and Africa. A number of issues were discussed including impact of FTAs that have been entered into by India with its trading partners especially on India’s manufacturing sectors.

Some concerns were expressed on the adverse impact of FTAs on the manufacturing sector as well as the trade balance and that imports from such countries had increased much faster compared to exports subsequent to signing such FTAs which had further worsened India’s trade balance.

Commerce and Industry Minister clarified that most of the regional/bilateral FTAs signed by India either related to SAARC countries or to South East Asia and North East Asia. As far as SAFTA was concerned, India has huge trade surplus of about $12 billion. With ASEAN, exports have more than doubled after signing of the Indo-ASEAN Trade in Goods Agreement in 2009, though imports have also grown as is natural in any trade agreement. It was further mentioned that a significant part of India’s imports from this region related to essential imports like edible oils from Malaysia and Indonesia and petroleum products and coke from Indonesia. In case these essential imports of more than $16 billion are discounted, India enjoys a trade surplus with ASEAN. Even globally if we were to rationalize our imports by deducting imports of essential products like mineral oil, edible oil, coal and some other raw materials the export of manufactured raw materials was doing well. Though there is significant possibility of improving our position, exports have done reasonably well in the last three months and trend is expected to continue. With China, there is a huge trade deficit amounting to $38 billion which is a matter of concern. This is an issue that has been repeatedly taken up with China bilaterally at the highest level and all efforts are being made to promote exports from India like pharmaceuticals and IT services. Further, continuous efforts have been made within the constraint of resources provided to the Ministry to boost exports in general as well as specific sectors and markets which need assistance.

It was highlighted that there is an inbuilt mechanism of review in all FTAs which provides an opportunity for mid-course correction, if required. A comprehensive study has been conducted by the Department of Commerce to assess the impact of FTAs in the Indian context. It was outlined that Indian exports to different regions are crucially dependent on competitiveness which is guided by other factors such as ushering in the second generation reforms on taxation, rolling out of GST, reform in labour laws, Upgradation of infrastructure relating to power, ports and roads. High transaction costs and cumbersome procedure on the border at times hampers the ease of doing business in India which need to be addressed simultaneously to retain India’s competitiveness in global markets.

Free trade agreement impact: FTAs to be reviewed and domestic reforms pursued to protect manufacturing and competitiveness. The Committee mandated continued FTA engagement while scrutinising adverse impacts on manufacturing and the trade balance, noting regional differences (SAFTA surplus, improved Indo ASEAN exports offset by essential imports, and a large deficit with China). It emphasised existing FTA review mechanisms and a Department of Commerce impact study for mid course corrections, and stressed that export competitiveness depends on domestic reforms (GST, labour law reform, infrastructure) and on reducing transaction costs and border procedural barriers.