Economic Survey 2020: FTAs have been beneficial, insecurities over trade deals misplaced

Last year, India backed out of the proposed free trade agreement under RCEP that comprises 16 countries in the larger South East Asian region after some of its key concerns were not addressed

Citing a 0.7 per cent increase in trade surplus per year for manufactured products and 2.3 per cent surplus for total merchandise, the Economic Survey 2020 has strongly advocated India to participate in global trade deals that will help India increase its share in exports to 3.5 per cent by 2025 and 6 per cent by 2030. The survey says this will create 4 crores well-paid jobs by 2025 and 8 crores by 2030.

Last year, India backed out of the proposed free trade agreement under Regional Comprehensive Economic Partnership that comprises 16 countries in the larger South East Asian region after some of its key concerns were not addressed. It is also in negotiations for a number of other FTAs (free trade agreements) with developed economies such as EU and the US but the progress has been tardy. In fact, India that is part of 14 FTAs till date, has not signed any new agreement since 2011.

"An apprehension is that most of the FTAs that India had signed in the past had not worked in "India's favour." The argument that is put forward is that the agreements led to worsening of India's trade deficit with the partner countries with which the agreements have been signed. This is the mercantilist way of evaluating the gains from trade," the survey says. "Manufactured products from India has clearly benefitted 122 Economic Survey 2019-20 Volume 1 from eight out of the fourteen trade agreements. Four of the agreements (SAFTA, BIMSTEC, Thailand and Sri Lanka) had no effect on exports of manufactured products while the bilateral agreements with Korea and Japan exerted a negative effect."

The trend is more mixed in merchandise exports as several primary products are generally in the negative or sensitive lists in trade agreements.

"Only four trade agreements (MERCOSUR, Nepal, Singapore, and Chile) show a positive impact. Even as some of the agreements led to increase in imports, for most of the cases, the percentage increase in exports is higher than the percentage increase in imports. The exceptions are the bilateral agreements with Korea, Japan and Sri Lanka, where the percentage increase in imports are higher than that of exports," it says.

Once growing at over 20 per cent, India's exports have been stuck at around $300 billion for the last decade, driven by loss of export competitiveness and volatility in global markets. In the early days of the trade war between the US and China, experts saw India as a beneficiary as US companies looked at relocating their export oriented units outside of China but that has also not played out as per the script so far.

The overall impact on India's exports to the partners, with which the agreements have been signed, is 13.4 per cent for manufactured products and 10.9 per cent for total merchandise. The overall impact on imports is lower at 12.7 per cent for manufactured products and 8.6 per cent for total merchandise. Therefore, from the perspective of trade balance, India has clearly "gained," it says.

It also suggests India should take a leaf out of China's policy of deliberate specialisation and creating large scale in labour intensive sector.

"The current environment for international trade presents India an unprecedented opportunity to chart a China-like, labour-intensive, export trajectory and thereby create unparalleled job opportunities for our burgeoning youth. As an India that harbours misplaced insecurity on the trade front is unlikely to grab this opportunity, our trade policy must be an enabler," it adds. "China's remarkable export performance is driven primarily by deliberate specialization at large scale in labour-intensive sectors, especially "network products", where production occurs across Global Value Chains (GVCs) operated by multi-national corporations. China used this specialised strategy to export primarily to markets in rich countries. Similarly, India must place laser-like focus on enabling assembling operations at mammoth scale in network products."

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