In a rather unexpected announcement, the Finance Ministry announced that it has started a review of India’s free trade agreement (FTA) framework following rumblings from policymakers and industry that these FTAs have served little purpose to improve India’s trade. Indeed, many stakeholders have complained that these agreements have benefitted partner countries more than India, while negatively impacting Indian manufacturers. While the Ministry has given no indication of what the review’s results might look like, given the pressure mounting from stakeholders, it looks likely that the current FTA framework’s days are numbered. Intriguingly, this comes against the backdrop of a renewed push by India to normalize and strengthen trade relations with the US, with Commerce & Industry Minister Piyush Goyal meeting Indian officials. US President Donald Trump has recently accused India of taking unfair advantage of WTO allowances, further flaring up tensions already running high after the US decision to withdraw GSP benefits for Indian goods. However, the recent meeting indicates that both sides wish to resolve matters amicably, and offer a cautious hint of reconciliation in the future. Similar sentiments have also been expressed by the Australian High Commissioner to India, who highlighted that Indo-Australian trade continues to rise steadily. Such growth will be required, especially given the recent poor performance of several export sectors, notably yarn and fabrics. The fall in shipments has forced many mills to close down as well, with more closures feared in the future. With the Indian government reviewing the FTA framework, it is imperative that steps are taken at the earliest to redeem the situation before it implodes.
Trade Update
24TH AUGUST
# 38
The finance ministry has initiated a review of India’s free trade agreement framework to assess the impact of such pacts on the overall economy. The view has been gaining ground among policymakers and industry that these free trade agreements (FTAs) brought little tangible benefit to India while helping the partner country. There is also a sense that FTAs have adversely impacted India’s manufacturing, which the government is trying to boost through ‘Make in India’.
Commerce and Industry Minister Piyush Goyal met a delegation of US Congressmen in New Delhi on 16th August to discuss strengthening of Indo-US bilateral trade ties two days after US President Donald Trump hit out at India and China for claiming they were developing nations and taking advantage of WTO flexibilities. “The US is our largest trade partner. We have to ensure that bilateral ties stay strong despite the hiccups. The meeting between the US Congressmen and the Commerce and Industry Minister stressed on the good relationship that both countries have shared for a long time and reinforced the need to work towards strengthening trade ties,” a government official told BusinessLine.
Australian High Commissioner to India Harinder Sidhu on 19th August said the trade between India and Australia is growing year by year and hoped that the two countries could “do a lot more together”. “Last year we saw 10% growth in Australian exports to India but we also saw 10% growth in Indian exports to Australia. It is growing year by year. We can do a lot more together,” said Sidhu while talking to ANI.
Yarn and fabric exports have taken a big hit this financial year with shipments falling sharply in the first quarter and large-scale job-losses reported in mills. Exporters say the delay in extension of the new scheme for rebating input taxes has made things worse and further eroded competitiveness but the government has promised to help. “The drop in cotton yarn exports by 50% in June has forced about 15-25% drop in the working of mills and some mills have fully closed down. In the spinning sector alone, more than two lakh workers would have lost their jobs across the country,” Sanjay Jain, Chairman, Confederation of Indian Textile Industries (CITI), told BusinessLine.
State Bank of India (SBI) Chairman Rajnish Kumar has said that digital lending platforms could help improve the capability of banks to provide credit to small businesses. “The ‘PSB loan in 59 minutes’ platform can provide loans of Rs. 1 lakh to Rs. 5 crores by analyzing cash flow using data from GST, income tax returns, and bank statements,” said Kumar. He added that a Rs. 5 crore loan could support a Rs. 25 crore turnover, which would cover over 95% of small and medium enterprises (SMEs).