BY PRAFUL BIDWAI
ROLLS Royce, Mercedes-Benz and BMW cars to get cheaper for Indian millionaires? Premium Scotch whisky brands set to become more "affordable", with import duty reduction from 150 per cent to just 60 per cent? More European cheese to enter India as tariffs are lowered while huge subsidies continue at home? Higher profits for European pharmaceuticals manufacturers at India’s expense?
Nothing could have had India’s rich salivating more copiously than the prospect of luxury products becoming cheaper. And nothing would have pleased the crisis-bound 27-nation European Union’s industries and services more than greater access to India’s fast-growing market.
However, Indian and EU leaders failed to clinch the proposed EU-India Free Trade Agreement last week. The 15th round of negotiations didn’t produce the expected "political framework".
Imbalance in Economic Relations
This is largely welcome. An FTA between the two vastly dissimilar entities, which treats them as equal, would have further skewed the imbalance in their economic relations, and hurt some of India’s most vulnerable people. One’s only regret is that the proposed FTA’s sole progressive part, on labour and environmental rights, has fallen by the wayside — because of India’s opposition.
With zero tariff for 92 per cent of all products, an FTA would have shrunk the Indian government’s capacity to protect its people’s access to food and the country’s agriculture, industries and services.
Worse, low-tariff imports of industrial products would defeat the National Manufacturing Policy objective to raise manufactures’ share of GDP from 16 to 25 per cent in the coming decade. By 2020, projections show, the EU would gain $1.8 billion in vehicle sales and $7.9 billion in manufacturing exports. India would gain a pittance.
The talks failed for many reasons: pressure from Indian industry sectors like automobiles; differences on market access in services, public procurement, temporary work permits/visas, and to an extent, opposition from Indian and EU-based non-governmental organisations representing farmers, agricultural workers and small traders, or working in public health, right to food, sustainable development, and Dalit rights.
A turning point came when the Society of Indian Automobile Manufacturers (SIAM), representing a powerful, fast-growing industry, issued an angry statement saying: "This FTA is being done with minimum consultation with industry and [without public] debate... the pressure to sign an agreement is politically motivated and not driven by economic logic." Past fortnight, Mr Ratan Tata moved from supporting the FTA to opposing it. That sealed the talks’ fate on industrial tariffs.
Similarly, on public procurement, or government purchases of goods, the EU wanted contracts in the Railways, energy, and public sector units. India wanted this limited to government departments.
Deal in Favour of EU
On agriculture, the proposed deal was totally loaded in the EU’s favour. The EU wouldn’t have to reduce its huge subsidies or lower its food standards which are major barriers to Indian exports.
But EU wanted India to reduce import duties on wines, alcoholic beverages, cereals, dairy, poultry, fisheries and agro-processed goods. This imbalance would threaten the livelihoods of India’s small farmers.
The EU will increase trade by $ 470 million in agrofood and animal-origin products by 2020. But India will gain only $84 million. In cereals, the EU will gain $133 million while India will gain $1 million. As the UN Special Rapporteur on the Right to Food said: "This FTA represents a clear risk to India’s obligation to respect, protect and fulfil the right to food if sensitive agricultural sectors were opened up…."
Medicine prices will also rise sharply under harsh patent enforcement in India which goes even beyond the World Trade Organisation’s stringent rules.
The EU sought unfettered EU access to retail, banking, insurance, energy, telecom, postal services etc. This would compromise the livelihoods of informal retailers and vendors and jeopardise India’s 12 million small unorganised businesses.
Recently, the government under strong opposition abandoned its move to open up multi-brand retail to foreign investment. Even if French retailer Carrefour creates 1.8 million jobs, as claimed, it will still mean a frightening loss of 2.9-to-6.7 million informal jobs.
More FDI in banking would adversely affect people’s access to financial services and also increase systemic risk. Opening up the financial sector amidst the current global crisis will severely impair the government’s ability to implement capital controls and regulate financial activities.
The FTA, then, is an unequal bargain. There is nothing worthy about free trade with a bloc of nations that has a per capita income more than 10 times higher than India’s.
Trade Talks with Pakistan
By contrast, India must enthusiastically pursue trade talks with its neighbours, particularly with Pakistan, to which the Commerce Minister, Mr Anand Sharma is leading a large delegation with 100 CEOs. (How one wishes he had also included farmers and workers and peace-oriented NGOs!)
This visit, the first by an Indian Commerce Minister in 35 years, comes amidst positive signals of a turnaround in economic relations.
Pakistan’s cabinet has in principle granted India the Most Favoured Nation status. A structured dialogue on trade has been underway since April to address sector-specific issues and non-tariff barriers, and on improving cargo movement. A big "India Show" has been mounted in Lahore, with some 400 Indian exhibitors.
India recently lifted its block on EU concessions for Pakistani textiles. Pakistan has indicated that it will soon move from its "positive list" of some 1,940 items that India can export, to a shorter "negative list": all other products can be exported. India has a negative list of about 800 products.
The two countries have long underperformed as trading partners despite their economic complementarity. In 2010-11, bilateral trade was only $2.7 billion. India is Pakistan’s eighth top supplier, but Pakistan doesn’t even figure among India’s top 50 partners.
India and Pakistan have announced that trade will be boosted to $6 billion by 2014. There is potential, say industry sources, to raise the volume to $10 billion by 2015.
This means that India must not only level the trade field; it must make unilateral concessions to Pakistan. This will generate tremendous goodwill and help political-diplomatic reconciliation. This is also a precondition for India’s progress.
