India's Trade Overview



Why has India not been able to evidently gain from the trade agreements vis a vis its trade partners?

Reasons for a peculiar trend of relatively higher increase in imports than exports with the trade partner post the signing of a trade agreement:-

Larger tariff reduction by India

Economic Survey 2016-17 opines that since India has to undergo larger tariff reduction as compared to the FTA partner, the change in exports for the partner has seen an exponential rise as compared to India. Case in point is- India-MERCOSUR trade PTA which came into effect in 2009.

Agreements favour partners with excess capacity  

Most of the nations has focussed on creating massive capacities to take advantage of economies of scale. However with slowing demand, the search for newer markets has always been the priority of the nations with excess capacity like Korea, Japan, and China etc. while India’s export are primarily led by MSMEs which have limited capacity and hence the trade favours the country with surplus capacity.

Feigned trade rules

Non-tariff barriers, re-routing of commodities to avail the benefit of a trade agreement e.g. steel from China is re-routed through ASEAN, lack of transparency in the rules of origin certification process requires a focussed approach to address the underlying shift in trade dynamics. Recently a paper released by the Ministry of Commerce and Industry to understand difference in the competitiveness of the pharmaceutical industry in terms of manufacturing of API vis a vis China revealed that the time taken in granting registration is a significant contributor to poor competitiveness of India API manufacturing industry. Such cases are prevalent in addressing trade tariff and competiveness issues through proxy measures.

Rise in protectionism

Developed countries are growing wary of free trade. The biggest markets i.e. developed countries for the products positioned at the lower end of the value chain are shunning the developing countries by blocking access to markets. This has led to glut in the global market and search for newer economies to absorb the capacity.