Source: Times of India
NEW DELHI: It was supposed to be a brainstorming session convened by Prime Minister Manmohan Singh to discuss India’s trade engagement with the rest of the world. But it was overshadowed by the warning sounded by finance minister P Chidambaram against hasty signing of bilateral trade pacts, and his forceful argument that government needed to boost local manufacturing activity to create more jobs.
Monday’s meeting of the Trade and Economic Relations Committee, the government’s think tank on trade, saw passionate exchanges, with Planning Commission deputy chairman Montek Singh Ahluwalia’s support for greater trade openness coming under attack from Chidambaram and V Krishnamurthy, chairman of National Manufacturing Competitiveness Council.
Industry chambers and trade bodies have for long complained that the free trade agreements(FTAs), which allow zero or low duty import of goods, have hurt local players, without ensuring commensurate gains for local exporters. The revenue department in the finance ministry has also maintained for long that the commerce department needs to undertake an impact assessment of the FTAs. Claims of India gaining through services exports and higher investment in return for lower duty access for imports, they have said, are not backed up by data.
The worry found full expression with Chidambaram questioning Ahluwalia’s claim about FTAs being an advantage. When contacted, Chidambaram declined to comment.
‘No study to check effect of FTAs’
Sources quoted Chidambaram as telling Ahluwalia that this was not borne out by India’s experience over several years. Finamne minister’s assertion was supported by Krishnamurthy, who emphasized that 90% of imports faced nominal customs duty, ranging from zero to 5%.
Doubts about the benefits flowing from FTAs are not new, but they have been strengthened by instances such as that of Asean, which keeps putting off an agreement on services years after a goods deal was signed, leading to steep tariff reduction on several commodities. In fact, the decision to delink goods and services agreement was done at the behest of the PMO and had faced criticism as India lost its bargaining chip.
The latest debate over FTAs comes after a long gap and coincides with the commerce department chasing a small window to sign a trade deal with the European Union. In the past, agreements with Asean have come under scrutiny from top Congress leaders, including Sonia Gandhi and defence minister AK Antony, forcing the commerce department to tweak the deals to address the concerns raised by the bigwigs.
Chidambaram, who has refrained from going public with his grievance, made good use of the TERC platform to state his position, in what could escalate the debate on FTAs. Sources said not only did the finance minister complain about the “perfunctory” presentation by the commerce department, which pilots FTAs but also spoke against the absence of a study to gauge the effect of the agreements.
He then went on to argue how manufacturing was key to the Indian economy, said a source. When Ahluwalia, a key aide of the PM who has pushed FTAs, argued for the need to stay engaged as India will otherwise miss the bus, Chidambaram, sources said, retorted by saying that earlier, he too believed that the gains would accrue.
The strong pitch came as a surprise to many, considering that the finance minister has often been criticized for his stance on opening up. Sources said FM cited possible adverse impact of customs duty cut for automobiles and parts under proposed trade and investment treaty with the EU that has been under negotiations for over six years.