Updated: August 23, 2021 8:16:49 am
A fter raising questions over the benefits flowing to India from the Free Trade Agreements (FTAs) it had signed, and choosing to opt out of the Regional Comprehensive Economic Partnership (RCEP) trade agreement, the Union commerce minister in his recent comments has suggested that the government is re-orienting its foreign trade policy. Addressing the export promotion councils on Thursday, Piyush Goyal announced that the government was working towards “early harvest” agreements — precursors to free trade agreements (FTA) in which tariff barriers are lowered on a limited set of goods — with Australia and the UK. While a trade agreement with the US is unlikely to materialise in the near term, there is “positive momentum” for signing trade deals with the EU and the GCC (Gulf Cooperation Council) nations, the minister said. Successful culmination of these deals would indicate an embrace of freer trade, and a shift away from the protectionist impulses that seem to have guided recent government policies.
The series of tariff hikes since 2014 marked an abrupt reversal of the decades-long policy of lowering tariff barriers. Coupled with the advocacy of Atmanirbharta, it seemed to suggest that the country was turning its back on the enormous benefits flowing from free trade. Seen against this backdrop, the minister’s comments that India also needs to open its markets, and be able to compete, are indeed welcome. After all, raising tariffs to protect domestic industry only opens up the space for lobbying for further protection, leading to inefficient outcomes.
Considering the current economic environment, a re-evaluation of the trade policy is much needed. With both private consumption and investment likely to remain subdued, and with the ability of the government to support the economy during this period being limited, exports can serve as an important driver of growth, more so when global growth is on the upswing. India is already benefiting from this upswing in global trade. The country’s overall exports (merchandise and services) in the first four months of the current financial year stood at $204.97 billion, up 47.87 per cent over the same period last year, and 15.35 per cent over the year before that. It should move quickly to seize this opportunity. The government has recently announced the rates under its Remission of Duties and Taxes on Exported Products (RoDTEP) to reimburse exporters for duties paid across the supply chain, making exports zero-rated. While some have expressed disappointment over both the rates, and the exclusion of some sectors, the larger policy thrust should be to integrate with global value chains, boost the competitiveness of exports.
This editorial first appeared in the print edition on August 23, 2021 under the title ‘Freer trade’.
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