Free Trade Area between India and China:
An FTA between India and China had been a subject of intense debate in recent years in both academic and policy-formation groups. The issue can be approached from the perspective of both China and India.
For China, an FTA focussed on trade in goods would enable them to best leverage their comparative advantage. For India, on the other hand, an agreement restricted to or focussed on merely free movement of goods across borders would not be advantageous.
While it would give Chinese manufactures ready access to Indian markets, India has less to gain from such an FTA. This is because Chinese tariffs are already lower in most areas as China was forced to lower them in return for its late entry into the WTO.
The experience after the dismantling of quantitative restrictions on imports suggests that fears about Chinese goods swamping India were exaggerated. But Indian industry continues to be wary of taking on China’s manufacturing prowess in a no-holds-barred contest. The government, of course has to factor this while responding to China’s overtures on the FTA.
In the circumstances, it is better that India sets itself in a proper order by increasing the competitiveness of its manufacturing, instead of rushing headlong into an FTA with China at this juncture.
Preparing for an FTA:
A move towards an FTA with China should be preceded by a number of preparatory stages. These can hardly be bypassed.
The first step towards this would be for India to diversify its trade basket. Since manufactured goods have a much higher level of duty compared to raw materials, free trade will mean giving away more advantages than gaining from them. Besides, unless our exports become more diversified, trade will not be sustainable in the long-term.
Second, the two countries must resolve to scrap a whole range of barriers to free trade. These have been identified in which NTBs are a major hindrance to trade. Yet another area, which calls for immediate attention is the need for harmonisation of the standards, certification and regulatory practices of the two countries. In this context, both India and China should work towards mutual recognition agreements to achieve this.
Thus, it is only when these two areas have been duly sorted out, and when the trade path is smoothened, that India and China should look into the prospects of an economic co-operation agreement. Economic cooperation envisages not only trade, but also investment and collaboration in various areas, like energy security, development of small and medium enterprises, water resources management, space research, remote-sensing techniques, urban management, city development and disaster management. .
Underlying all these is the mutual promotion of investment. China is emerging as a major overseas investor. India can profit from its investment in areas like white goods. Similarly, India firms are also investing increasing amounts overseas and some part of it could go into providing Chinese facilities.