Study shows no surge in trade deficit owing to business pacts

NEW DELHI: The free trade pacts India has signed with various countries have not led to a surge in trade deficit, the commerce department has concluded after a study, underplaying concerns that the country’s manufacturing has been hit by these pacts.

The study has found no material increase in raw material import from partner countries; instead the share of intermediary goods imports has increased, indicating that India is becoming part of regional value chain of South Asia.

On the exports side, the study has concluded that India has not become a raw material exporter, as feared. On the contrary, the share of intermediate and capital foods exports has increased, which could be linked to value addition of our exports, the department said in a statement.

However, it did not provide any concrete data to substantiate its claims on the impact of FTAs on domestic manufacturing. Neither does the government have data on exports using the preferential route, which it is trying to fetch from the partner countries.

“We will shortly share data on preferential imports with those countries, only after which we will get export data from them,” said a commerce department official. Government is also looking at ways to get preferential export data through modification of the format for filing of data in the electronic shipping bill, to enable customs to capture the data. This mechanism would likely to be put in place from next year onwards. India has so far entered into FTAs with Japan, Singapore, South Korea, Malaysia, Asean and South Asia.

Indian industry and some government departments, including DIPP, steel ministry and finance ministry have raised serious concerns about these pacts on how they are impacting domestic manufacturing.

Last week commerce and industry minister Nirmala Sitharaman had said, “There is a feeling that some of the FTAs are benefiting the partner countries and there is absolutely no discord between finance and commerce ministries in this regard. We in the commerce ministry want better utilisation of the agreements for increasing exports from the country. The government will ensure that.”

The analysis on impact of FTAs showed that “the imports have not increased to any level that would create concerns and we have not become suppliers of raw materials. This is the good part”, the officials said.

The study shows that India’s total imports through the preferential duty route from Asean, Singapore, South Korea and Japan stood at 14.5%, 10.8%, 21.8 % and 22.4%, respectively.

Imports have been low under the preferential tariff route offered under the FTA because of tough Rules of Origin (ROO) norms, which call for high value addition for imported products to qualify for FTA benefits, the official said.