India's Trade Policy in a Hyper-Disruptive Environment
India's trade policy is crucial in fostering economic growth, enhancing competitiveness, and creating jobs amidst a tense geopolitical landscape and rising protectionism.
Key Pillars of India's Trade Policy
- FTA Network:
- Aims to secure stable, binding market access with major economies covering nearly three-quarters of global demand.
- Strategically shields key and vulnerable sectors, allowing time for industry competence building supported by policies like the PLI scheme.
- Market Access:
- Focuses on digital services and safeguards against future protectionism.
- Gains commitments on professional and worker mobility through bilateral accords.
- Environmental and Labor Standards:
- Avoids strict standards that could hinder growth or become non-tariff barriers.
Strategic Goals
- Establishing a stable trade environment to attract lead firms in Global Value Chains (GVCs).
- Ensuring minimal barriers for companies importing essential inputs, machinery, or services.
- Developing India as a global manufacturing hub through its large market, talent pool, and global market access.
Innovative Trade-Investment Linkage
- The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (Tepa) ties market access to a $100 bn investment over 15 years.
- Allows India to withdraw market access if investment targets are not met.
Future Directions
- Global Rule Reforms: Take the lead in reforming industrial policy rules to provide flexibility for developing countries.
- Trade and Industrial Policy Harmonization: Address overlaps and unfair practices by non-market economies like China.
- Domestic Legislation: Consider legislation for imposing tariffs on partners using unfair practices.
- FTAs for Diversification: Use FTAs to diversify import sources and reduce overdependence.
- Supply-Chain Cooperation: Include chapters on supply-chain cooperation in future FTAs.
Domestic Reforms for Trade Policy
- Extend the ease of doing business to states and address inefficiencies in factor markets.
- Rationalize MFN duties post-GST reforms, addressing the inverted duty structure.
- Identify and remove unnecessary protection for goods and services.
CPTPP Consideration
- Actively consider the pros and cons of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Potentially replace a complex network of bilateral agreements with a comprehensive framework.
Coordinated Policymaking
- Coordinate policymaking across trade, industrial, and supply-chain domains at the highest level, with the Prime Minister's Office (PMO) taking the lead.
- Implement a unified strategy to replace the current siloed approach.
