Towards a smarter trade policy

The Asian Age, April 17, 2015

By Pradeep S. Mehta & Bipul Chatterjee

The new foreign trade policy (FTP) of India, 2015-20, is SMART: specific, measurable, achievable, result-oriented and time-bound. It is not overambitious and is a welcome departure from its earlier avatars for at least four reasons.

First, for the first time, a government policy document spelt out its intention to follow a “whole-of-government” approach, which is public service agencies working across portfolio boundaries to achieve a shared goal and an integrated response to particular issues. One of the pitfalls of our governance system is that departments love to work in silos protecting their own turfs and, worse, sometimes our right hand does not know what the left hand is doing.

The new FTP argues why every arm of the government, including state governments, should work together to achieve its objectives, which are much more than just export promotion and employment generation. It encourages state governments to come out with their own export policy in line with the “Make in India” and “Serve from India” initiatives. In partnership with the state governments, a new body will be formed for export promotion.

This approach recognises that trade policy should not be looked at in isolation but in terms of its linkages with other major macroeconomic policies of the country. It will help India to better negotiate and implement its trade agreements because, with respect to trade, objectives of different departments are often in conflict with each other. For better realisation of the benefits of this approach there should be a “Policy Coherence Unit” in the Prime Minister’s Office to enhance coordination and cooperation, and reduce policy and regulatory uncertainty.

Second, the FTP rightly argues that trade is not an end in itself but a means to achieve larger objectives. It shows a departure from the past when trade was considered a residual activity as against a means to achieve strategic and security interests. This is reflected in its focus on those markets where India has its strategic interests.

South Asia is an example. For the first time, our neighbourhood receives attention in this policy, that too with respect to how trade and investment can boost collective growth and development of our region. There is equal emphasis on eastern parts of Asia and the Pacific and rightly so with the intention of getting into their production networks. This will help India attract as well as promote export-oriented foreign direct investment.

Furthermore, a welcome emphasis has been made to explore the unexplored markets as there is much scope to boost India’s trade with Eurasian and Central Asian countries, Latin American and Caribbean, and African countries. India should go for free trade agreements with these regions as there are huge market access opportunities as well as for FDI from India, which will help sourcing strategic natural resources such as oil, gas, coal and precious and semi-precious stones through long-term commodity agreements. This will give boost to both “Make in India” and “Serve from India” initiatives.

Some innovative thinking is required. With the Iran nuclear deal progressing towards a successful conclusion, India should take this opportunity to fully utilise the International

North-South Trade Corridor, which links Iran with Northern parts of Russia. The cost of doing trade will get drastically reduced. Similarly, as today’s trade is all about reducing transaction costs so as to become more competitive, there should be initiatives to set up large warehousing zones in Latin American and African countries. These storehouses will reduce distance and, hence, cost of doing trade.

Third, the FTP talks about enhancing India’s trade competitiveness through domestic reforms and not just by providing incentives to our producers and exporters. All incentive schemes have been merged into two overarching ones: one for merchandise exports and the other for service trade. It rightly notes that subsidies cannot be looked as a right and right to trade has to be looked at through competitiveness.

The FTP has outlined areas where domestic reforms are most required and why our trade agreements will push those reforms. The institution of standards is one such area. Much reforms are needed to modernise our domestic standards regime to avail emerging opportunities of international trade. Similarly, the institution of intellectual property rights has to be improved if linkages between trade, FDI and technology transfer are to be strengthened.

India needs effective national policies on standards and intellectual property rights, rather than just hortatory statements. While a policy has been drafted on the latter, there should be a national debate to draft a balanced policy on standards, keeping in mind market access objectives as well as consumer welfare.

Fourth, there will be no annual supplement to this policy; thus, reducing the scope for rent-seeking, which happens when vested interests lobby for frequent changes. And, now, such an opportunity will be curbed. Instead, there will be a mid-term review after two and half years. The proposed Centre for Research in International Trade should do this in consultation with all stakeholders, including those from outside India since one of the objectives of this proposed centre is to build global coalitions. Its aim should be to place India in a leadership position to balance the future agenda of trade between mercantilism and development.

Pradeep S. Mehta is secretary-general and Bipul Chatterjee is deputy executive director of CUTS International. They can be reached at and

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