FTA strategy: India may well give up hope to become global manufacturing hub and exporter; here is why

December 8th, 2017 | Esther Parimala | Tags:

Dec 08, 2017

Indian policy on free trade agreements (FTAs) and, more generally, over the country’s external trade policy remains confused with India out of sync in various trade negotiations. It is unable to generate interest among members at the Regional Comprehensive Economic Partnership (RCEP) on its demand for greater market access in services. It is unable to decide on how to proceed on pending FTAs with the European Union, Australia and Canada. And at the World Trade Organisation (WTO), it continues to block other proposals (for example, multilateral rules on e-commerce), while not finding takers for its own (for example, trade facilitation agreement on services). Why is India so confused on trade and why are its positions at global and regional trade talks so much at variance with most of the rest of the world, developed and developing? The nature of India’s economic integration with the world and its mindset on imports are important reasons in this regard. As the world globalised from the 1980s onwards, production begun getting offshored, with developed economies outsourcing several key functions to developing countries. Many among the latter—such as China, Mexico, Turkey, Thailand, Ethiopia, Vietnam, Bangladesh and Cambodia—benefited by picking up labour-intensive outsourced manufacturing. These economies specialised in exporting manufactures back to countries like the US that outsourced production in the first place. India, too, benefited, but not as extensively. Limitations on expanding scale, difficulty in accessing cheap credit and lack of adequate labour with the right skills prevented India from exploiting manufacturing offshoring as much as many others.
However, the country benefited significantly from globalisation and outsourcing in another respect. It picked up the largest chunks of global outsourcing in information technology (IT), communication and financial services from developed nations. It also became one of the largest suppliers of specialists to advanced country markets as businesses in the latter invested billions in software, digital technology applications and new financial products. With globalisation easing labour mobility, Indians began moving overseas to various professions in large numbers, across a range of skills, elevating India to its current status of the largest remittance recipient in the world. This pattern of India’s economic integration has had a great influence on its vision of trade and FTAs. Many other developing countries from Asia and America, which are bigger manufacturing exporters than India, aggressively push for greater liberalisation in market access for manufacturing exports. India, while not reluctant on such access, contrasts the rest in its forceful demand for liberal market access in services, particularly movement of skilled professionals. The relative contrasts often become sources of contestation in trade negotiations between each other.

Source: Financial Express

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