India trade policy
Up
to 1991 the Indian economy is under the coverage of heavy tariffs more than 200
percent and there was extensive imposition of quantitative restrictions and
full protection on the foreign investment in India.
In
1991 the India economy got liberalized and almost in all the sectors the
restrictive policies abolishes only under the conditions of extreme necessity.
Since that time the trade has produced remarkable achievement in the GDP of
India which is increased from 15 percent from 1991 and in 2005 the percentage
share of trade in the total GDP in 35 percent and now in 2012-13 it is 43
percent.
In
the recent years India stand on the path of beneficial trade policies for the
producers as well as the consumers and for the whole economy as well. With the
passage of time India is quite sensitive in its trade policies which are
reflecting in the recent trade policies. The trade policies of 2004-09 and
2009-14, in these policies it is determined that India had to facilitate those
imports which are required to stimulate our economy
Indian Trade policy 2015
Make in
India, Digital India, Skill India, The list of slogans for the government’s
economic initiatives is ever expanding.
This
public relations effort remains critical for the government, which needs to
reshape how foreign business people perceive India to increase foreign
investment.
However,
many local business people are concerned that the government has not
implemented more measures to support its bold sloganeering.
The
Modi administration’s first Foreign Trade Policy, unveiled on April 1,
represents a pragmatic step forward in this regard. Much like the admiration’s
first budget, unveiled on February 28, the policy targets critical industries
with useful reforms and incentives.
Perhaps
more importantly, however, the trade policy has sought to back-end the
government’s ambitious goals.
The
global economy is undergoing a major transition whether it is from the point of
view of the producer or the consumer. This major change is occurring due to the
rapid technological and socio-economic changes that are occurring.
Technological
changes have led to major innovations and faster obsolescence of existing
products. Earlier, the developing economies had more time to adapt and evolve
with the changes in the environment. However, the availability of time is a
luxury nowadays which is not easily available.
Consumers
are defining consumption patterns globally and owing to their technological
literacy skills, they are able to adapt to the new products and technologies at
a rapid rate.
As a
result of the above changes and use of artificial intelligence in production
processes, there is need for the emerging economies to reorient their trade
policies in a manner that keeps pace with this quick evolution.
India:
Foreign Trade Policy
Although India has steadily opened up its economy, its tariffs continue to be high when compared with other countries, and its investment norms are still restrictive. This leads some to see India as a ‘rapid globaliser’ while others still see it as a ‘highly protectionist’ economy.
Although India has steadily opened up its economy, its tariffs continue to be high when compared with other countries, and its investment norms are still restrictive. This leads some to see India as a ‘rapid globaliser’ while others still see it as a ‘highly protectionist’ economy.
Till
the early 1990s, India was a closed economy: average tariffs exceeded 200
percent, quantitative restrictions on imports were extensive, and there were
stringent restrictions on foreign investment. The country began to cautiously
reform in the 1990s, liberalizing only under conditions of extreme necessity.
Since
that time, trade reforms have produced remarkable results. India’s trade to GDP
ratio has increased from 15 percent to 35 percent of GDP between 1990 and 2005,
and the economy is now among the fastest growing in the world.
Average
non-agricultural tariffs have fallen below 15 percent, quantitative
restrictions on imports have been eliminated, and foreign investments norms
have been relaxed for a number of sectors.
India
however retains its right to protect when need arises. Agricultural tariffs
average between 30-40 per cent, anti-dumping measures have been liberally used
to protect trade, and the country is among the few in the world that continue
to ban foreign investment in retail trade. Although this policy has been
somewhat relaxed recently, it remains considerably restrictive.
Nonetheless,
in recent years, the government’s stand on trade and investment policy has
displayed a marked shift from protecting ‘producers’ to benefiting
‘consumers’.
This is
reflected in its Foreign Trade Policy for 2004/09 which states that, "For
India to become a major player in world trade ...we have also to facilitate
those imports which are required to stimulate our economy."
India
is now aggressively pushing for a more liberal global trade regime, especially
in services. It has assumed a leadership role among developing nations in
global trade negotiations, and played a critical part in the Doha negotiations.
Regional
and Bilateral Trade Agreements
India has recently signed trade agreements with its neighbors and is seeking new ones with the East Asian countries and the United States. Its regional and bilateral trade agreements - or variants of them - are at different stages of development:
India has recently signed trade agreements with its neighbors and is seeking new ones with the East Asian countries and the United States. Its regional and bilateral trade agreements - or variants of them - are at different stages of development:
- India-Sri
Lanka Free Trade Agreement,
- Trade
Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China, and South
Korea.
- India-Nepal
Trade Treaty,
- Comprehensive
Economic Cooperation Agreement (CECA) with Singapore.
- Framework
Agreements with the Association of Southeast Asian Nations (ASEAN),
Thailand and Chile.
Preferential
Trade Agreements with Afghanistan, Chile, and Mercosur (the latter is a
trading zone between Brazil, Argentina, Uruguay, and Paraguay).
Problems
- India’s
trade policy has a major limitation wherein it focuses on incentivizing
businesses after exports have taken place. As a result the trade promotion
incentives do not target emerging firms to attain export competitiveness
but reward already successful exporters to improve their margins.
- The
trade policy does not have provisions for interventions focusing on
value-addition and employment generation. This implies that the policy is
not working on long term structural measures but more towards short term
result oriented measures which are not sustainable in the long run.
- Trade
promotion is still restricted to traditional trade fair type activities.
No doubt that these activities are important for promotion and business
development, but a change of approach is required in this age of growing
internet and mobile technology which requires activities to be more
network oriented.
- Absence
of institutions which can provide support for new product development and
their placement in the global market in a selfless manner. These
institutions can be used for ancillary activities such as development of
prototypes, research and development etc.
- India’s
trade policy also suffers from an archaic design. The trade policy and
negotiations over emphasis on tariffs which are not very important for
market access gains. Trade today is guided by various other factors such
as technical and quality standards.
- India
has not been successful in tapping the potential that the huge domestic
markets and the economies of scale offer to attract foreign direct
investment and technology transfers. This is observed based on trends
which show that MNCs attracted by the size of the Indian consumer base
often do not expand operations in India.
- Investors
have to face a combination of high transaction and input costs,
supply-side constraints, and infrastructure deficits which is a major
obstacle in setting up and operations of industries. As a result
international investors also show reluctance in setting up and expanding
business in India.
Reforms
needed
India has to overcome
the existing limitations in the trade policy. Simultaneously it also has
to gear up for the upcoming changes in technology and socio economic setup to
meet the rapidly evolving needs and demands of consumers and producers India
needs to bring changes as suggested below.
- India should restructure in a manner where it is able
to move human resources and capital from under-performing or dying sectors
and re-employ them in more competitive activities.
- The trade policy should be on which adequately rewards
value-addition and promotes employment in more productive sectors.
- To match the pace of changes taking place, India should
promote investment in innovation and new product development and also help
such products find a global market.
- Fair market access for Indian products subject to
stringent technological and quality standards in global markets is also
essential.
- The huge Indian markets and the domestic economies of
scale that they offer should be tapped efficiently to attract FDI in
productive sectors.
- Indian firms should be assisted and aided to be able to
meet the quality and technical standards defined by government regulators
or as a result of the competition in the market. Trade agreements and
other institutional solutions can be used to reduce the cost of complying
with these standards. This will also help in empowerment of the Small and
Medium Enterprises (SME).
The challenges posed by
changes in technology and global consumer preferences are changing the pattern
of FDI-led outsourcing and reducing the future FDI-led export growth.
The governments measures
in areas of administrative changes through ease of doing business reforms and
infrastructure development might help in reviving the potential of FDI in
economic growth.
A review of the overall
trade strategy is the need of the hour for India. The changes have to be made
in terms of trade promotion schemes and activities and the design of trade
agreements and negotiating priorities.
These measures will
determine India’s ability to undertake structural change and push for
longer-term competitiveness.
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