Signing India USA Trade Agreement – Win Win to Both

Indian policy at present is more inward-looking on signing trade agreements. India policymakers should not paint the world with one color only. It is not essential that all trade agreements would work against the national interest. In the case of USA, we would like to bring the following points on why India should consider signing the agreement with USA. The world on the two sides of India -RCAP countries – and USA have different policy approach towards India:

1.       India has a trade surplus with USA. We are of the opinion that there are no hidden rules at the local state level in USA which makes it difficult to implement the agreement and negate the benefits to India.

2.       The exports from USA to India are high tech products and do not compete generally with the local production except for fruits/dry fruits. If we can have enhanced trade by signing the agreement, the reciprocal on the high-tech items should not be a problem. In any case, Indian Industry and the public will need most of US high tech products. For the agricultural part, it would be politically suicidal for the political parties to agree for better trade conditions for imports. USA should understand that with the growing economy, India, in any case, will have to import fruits/dry fruits and that will continue to happen with/without signing the agreement. With expected GDP growth of ~ 6% over the next few decades, it would be difficult to meet the enhanced local requirements without resorting to imports.

3.       RCAP agreement do not support India’s trade-in Services and the member countries are of the opinion that it could be detrimental to their respective markets. USA and Middle East are the only regions where trade in services except the financial services is not so restricted as rest of the world.

4.       India needs a reciprocal market to balance and grow its industry before meeting RCAP member countries’ desires. In case of the USA, such demands are already reciprocal in nature. We must understand that, the second round of trade agreement between USA and China is likely to be very tough. USA companies are already looking out to shift their supply chain out of China. This provides a big opportunity to Indian manufacturers to ramp up their operations and make supplies to USA. USA companies will wholeheartedly welcome, if India works towards improving its capability to make supplies to USA. So, this is a win-win for USA and India. There is a need to have an economic and political alignment on this.

5.       Where India need to work is to guard it’s IP Rules, should not make medicines costly for the masses in India. There should be some more work done on this.  We understand that drug research is more complex now. Getting a generic developed and testing takes ~7-10 years. The government will have to study this further and decide if holding back on the changes in IP rules worth its salt, with prolonged period of generic development time.  But we would like to trade cautiously on this and get a middle path in the agreement.

6.       Some of the push for opening the markets for e-commerce companies to push products by killing domestic mom and pop stores should not be agreed. We feel, a reduction in disposable income for large number of families would not be of interest to either India or US companies in long run. It would be good to focus on GDP and average disposable growth. If it happens at 7-8% annually, the increase in size of the market itself would make space for US e-commerce companies to operate with more Revenue. This is a policy issue, which should not be compromised in India.

To conclude, taking into consideration the highlighted points, we recommend that it is in India’s interest to sign a trade agreement with USA. The interest and business needs of USA and India are not conflicting but complementary. The nature of both economies is consumption-driven. By not signing RCAP agreement,  India will head towards “Make for India”  regime whereas  by signing this agreement, India can concentrate on “Make in India”.

The Article is Written by Dinesh Goel, MD, East West New Markets and he has been involved in policy planning for Government of India between 2002-2007.

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