INSUBCONTINENT EXCLUSIVE:
By Nilesh Shah After years of hard fought negotiations, India pulled out of RCEP
We must have taken a right decision as many ‘friends’ of India have called it a historical blunder
Our experience with free trade agreement (FTAs) isn’t very satisfactory as reflected in stagnant exports and widening trade
deficit.
During the West Indies tour of India in the 80s Clive Lloyd praised local umpires and compared them with the best in the world
For that praise or otherwise benefit of doubt ended up in favour of West Indies
We must resist the temptation of giving away valuable access for empty global praise.
In my humble opinion FTAs should be negotiated to
cover following aspects for creating a mutually beneficial deal.
Countries which have surplus capacity want tariff free access for their
goods to our vast domestic market
We must link access to our domestic market to reciprocal access for our services and labour
We are surplus in labour and competitive in services
Countries preaching us to open our domestic market for their goods must reciprocate by opening their services and labour market for us
In services like technology, tourism, research - development, consulting, BPO / KPO we are pretty competitive
With reciprocation we can breach language and cultural barrier
We can provide white collar officers as well as blue collar workers to any country in whatever quantity they desire
Middle East is a shining example of how Indian knowledge and perspiration can create a miracle
The reciprocation between tariff free goods market, unrestricted labour and services market will ensure mutually beneficial outcome from
FTAs.
We should link access to tariff free domestic goods market to foreign exchange (FX) neutral / marginal trade balance outcome
An FX neutral FTA will ensure that we don’t run large trade deficits
Obviously FX neutrality should not come by routing of existing exports or buying of gold jewellery
It should come through genuine value add
For example, if country X wants to sell their goods in India, they should encourage their citizens to spend equal money on tourism in India
or they should set up a unit in India to manufacture and export to balance their FX outflow
Such FX neutrality will ensure mutually beneficial outcome from FTA
FX neutrality is a small price to pay for exclusive access to a large and growing market
From denying F-16 fighter planes to offering it to make in India is the kind of change which large market access can achieve.
We must
negotiate for mutually beneficial outcome for our vulnerable section
For example, if a country wants to sell their excess milk in India, they must help our milk producers to export valueadded items like butter
and cheese for an equal amount
If a country wants to export electronics to India it must reciprocate by helping our manufacturers export components of equal amount.
While
it looks impractical, Maruti Suzuki has done this in the automobile sector without being asked to do so
Auto sector today contributes more than 40 % of our manufacturing GDP
Our trade surplus in auto and auto components was about $ 13 billion last year
In fact it is the only manufactured product where we have trade surplus of this scale
While India has benefited by presence of Maruti, Suzuki has also benefited with Maruti producing more cars than Suzuki and having higher
market capitalisation than Suzuki
If we market the Maruti example appropriately, many companies will be willing to trade and invest in India despite seemingly tough
conditions of supporting vulnerable sections of society.
We must seek settlement of trade surplus in rupee
Imagine if instead of running $ 58 billion trade deficit with China last year we had run ₹4,06,000 crore trade deficit with China
The burden of running trade deficit financed in rupee would have been far lower than financed in hard dollars
One can legitimately ask why China should agree as rupee is not a reserve currency like the US dollar
However, we must remind that we are negotiating only for the trade surplus and not for the entire trade
In a large country like India they will always be able to find an opportunity to invest or trade with their rupee surplus
It isn’t going to be an easy negotiation but if we begin the journey some day we will reach the destination.
As Mahatma Gandhi said first
they ignore you, then they laugh at you, then they fight you and then you win.
Today on RCEP, 15 countries are neither ignoring us nor
They may not be fighting against us but are certainly standing on the opposite side
I am sure if we negotiate on above points we will be able to create a win-win situation not only for a India but also for all for the other
countries.
At the same time we must remember that access to a large market isn't the only leverage to attract investors
We must encourage entrepreneurship by liberating factors of production like land, labour and capital along with rule of law.
(The author is
MD of Kotak Mahindra Asset Management)
