Updated on : Wednesday, October 28, 2020,
3:17 PM IST
Atmanirbhar Bharat and Free
Tree Agreements: Can both go hand in hand?
By R Kannan
Atmar
Nirbar Bharat and Free Tree Agreements: Can both go hand in hand? ANI
Free trade agreement (FTA), a form of
trade pacts, determine the tariffs and duties that countries impose on imports
and exports to reduce or eliminate trade barriers. Thus, encouraging trade
between countries. The agreements are focussed on providing for preferential
tariff treatment. The deal also often include clauses on trade facilitation and
rule-making in areas such as investment, intellectual property, government
procurement, technical standards and sanitary and phytosanitary issues.
The advantages of these agreements are
many. Countries like Singapore and Vietnam benefitted a lot from the FTAs.
These agreements helped these countries, helped them to improve the
international trade volumes and emerge as leading nations in trading. The
leading trading nations in the world benefitted from the FTAs they have signed
with many countries in the world.
The main advantages of FTAs are:
increased economic growth, increased ease of doing business, lower expenditure
by the government on subsidies, increased FDI, development of global expertise
and access to the latest technologies.
The agreements help to produce the
goods in which there is a comparative advantage. International trade enables
countries to obtain the advantages of specialisation. International trade
permits industry to take full advantages of the economies of scale (large-scale
production). If certain goods were produced only for the home market, it would
not be possible to achieve the full advantage of large-scale production.
FTA permits industry to take full
advantages of the economies of scale (large-scale production). If certain goods
were produced only for the home market, it would not be possible to achieve the
full advantage of large-scale production. Free trade is often an efficient way
of breaking up domestic monopolies. International trade and commercial
relations often lead to an interchange of knowledge, ideas and culture between
nations.
Free trade increases the earnings of
all the factors as they are engaged in the production of those goods in which
the country has a comparative advantage. Consumers of the different countries
get the best quality foreign goods, often of a wider range of choice, at low
prices. Free trade stimulates home producers, who face foreign competition, to
put forth their best effort and thus increase managerial efficiency.
FTA also puts pressure on several
fronts including increased outsourcing from other countries, theft of IPR,
affecting the performance of domestic industries. The disadvantages of Free
Trade include the dependence of a country on other countries increases. The
domestic industries of the developing countries would not be able to develop
rapidly due to the superior strength of foreign industries. The foreign
companies become dominant players in the local market. This could lead to a lot
of imports which are not essential for the country. Many a times, free trade
creates a lot of geo-political and geo-economic issues between nations.
In the last three years, there is
increased protectionism being seen in the leading trading countries in the
world. This has been aggravated by coronavirus. The rise in protectionism due
to coronavirus has made governments across the world to review their approach
to globalisation, including by calling for supply-chain reshoring and
heightening their scrutiny of foreign direct investment. Calls for trade diversification
is expected to gain further traction in 2021. Strategies of nearshoring with
supply chains becoming more regionalised—will become the norm going forward.
The present situation and the state of
geopolitics and geo-economics offers a lot of opportunities for India to
realise the vision of 25 per cent of GDP to come from manufacturing. The 'Make
in India' can be given a good boost. Further to achieve the desired higher
economic growth rate, India has to increase trade growth in big way. The leading
economists in the world believe that India can achieve higher economic growth
by giving a big boost to trade. When India was growing at a fast pace, trade
contributed to the growth of the economy.
Prime Minister’s Programme of
Atmanirbhar Bharat Abhiyan, which translates to 'self-reliant India' or
'self-sufficient India', is the vision of the Prime Minister of India of making
India "a bigger and more important part of the global economy",
pursuing policies that are efficient, competitive and resilient, and being
self-sustaining and self-generating. Atmanirbhar Bharat does not mean
self-containment, isolating away from the world or being protectionist. Under
this programme, already more than 27 sectors identified for growth.
The government has also brought out
production-linked incentives. After the announcement of the programme, many of
the global multinationals in the world expressed their interest to set up their
manufacturing operations in India. A few large multinationals like Samsung have
already announced their plans to set up large factories in India.
In the central government budget also,
there was an emphasis to increase the presence of Indian industries in the
global value chain. The countries, which are leading global value chain, have
more liberal trade policies and many FTAs. Bangladesh and Vietnam with more
liberal policies overtook India in apparel exports and emerged as preferred
nations for new factories in Asia.
India’s experience of the signing of
these agreements is mixed. In many instances, after signing the agreement, the
objectives set while signing the agreement were not achieved. The nations which
signed the agreements benefitted more from the agreements. This is one of the
reasons, India is treading carefully in signing new agreements. In fact, in
some of the earlier agreements, the terms of the agreement were modified to
protect India’s interests. In the last few years, India’s trade with Asian
nations reduced but the trade with the US and Europe increased. There were
review and renegotiation of the existing FTAs with ASEAN, Japan and Korea, and
at the same time, forging enhanced trade alliances with the European Union, UK,
US and Australia.
India can formulate a strategy, which
will increase the exports and trade of India and contribute to a significant
increase in economic growth. The FTA strategy to be formulated should take into
consideration the following.
Government policies for the identified
sectors should take into account the entire
ecosystem for the sectors. The role of each stakeholder in the ecosystem should
be identified and policies evolved should facilitate the balanced growth of all
the stakeholders. The trade policies relating to these sectors should be
liberalised after taking into consideration the protection of stakeholders who
are likely to be affected by the policies. Schemes should be developed for the
stakeholders who will be affected by the new policies.
Improving the Competitiveness of the
sectors identified. Many sectors in India are already
globally competitive. The sectors like automobiles, pharma, chemicals,
apparels, IT&ITES, R&D. But in a sector like apparels, countries like
Bangladesh and Vietnam have improved their competitiveness. For the identified
sectors, the best practices adopted by other countries to achieve the
leadership should be studied in detail and strategies could be evolved to
achieve competitiveness.
To become a part of the global value
chain, it is very important the input costs and cost of
factors of production are very competitive. There is a need to lower duties on
raw materials and intermediate goods. In a few products, there is also an
inverted duty structure.
The government is working on a strategy
of improving the quality standards in
different industries. The conferences on improving quality were also held in
collaboration with a leading institution like CII. Quality standards have to be
defined and it should cover the entire ecosystem and value chain of an industry
which have been identified for growth.
Logistics cost is
one of the highest in the world today at 14 per cent of GDP. The government’s
objective is to bring this down to 9 to 10 per cent of the logistics cost like
the developed countries. This will go a big way in improving competitiveness.
Towards this end, many initiatives on railways, waterways , logistics parks and
centres were developed. This will go a big way in reducing the logistics cost.
After corona, every country in the
world is concerned about protecting the local industries. It is very difficult
to fully open the trade because MSMEs in India contribute a lot to the GDP and
exports. They required government support during the liberalisation process. If
a country has to improve the exports, then the export and import policies
should be very liberal. There should be policies to ensure an easy import of
components and raw material. The policies should consider a calibrated and
phased approach to liberalise the trade in phases.
The new policies by the government have
created a lot of interest from leading manufacturers in the world to set up
their factories in India. Formulating a FTA policy taking into consideration
the above aspects will help to make India a preferred location for
manufacturing and accelerating the economic growth through increased trade.
R Kannan is an expert in finance and strategy with
more than 35 years’ experience. He has been associated with TCS, Hinduja Group,
ICICI Bank, among others.
https://www.freepressjournal.in/analysis/atmanirbhar-bharat-and-free-tree-agreements-can-both-go-hand-in-hand
