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How India plans to attract more foreign investment

August 14, 2014 13:25 IST
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India will look to play a key role in the APEC, EU and Africa regions to increase its competitiveness, says T S Vishwanath.

The August break at Geneva not withstanding, the trade world is abuzz trying to understand how the trade facilitation agreement - the big prize at the Bali Ministerial meeting of the Word Trade Organisation (WTO) in December 2013 - has been halted, albeit temporarily, due to the current impasse at Geneva over another Bali decision - public stock holding for food security purposes.

While the blame game continues to unfold, several people are trying to piece together the evolving strategy of the National Democratic Alliance government at trade negotiations. 

The question being asked is whether India will be a spoiler or a consensus-builder at the multilateral forum and more importantly, what will be the Indian stand on bilateral and regional trade agreements.

Many analysts point out that while special and differential treatment can be sought at WTO, in bilateral negotiations the underlying principle will have to be reciprocity.

While there are no official answers available, there are some thoughts in the public domain that need a close look. First, it is important to accept that India has never been a reluctant participant in regional and bilateral trade agreements. It has remained a willing partner, but a tough negotiator. 

However, it is believed that the current government's focus for building strong bilateral or regional agreements seems to be focused first on South Asia. Prime Minister Narendra Modi's visit to Nepal and the visit by External Affairs Minister Sushma Swaraj to Bangladesh paved the way for strengthening bonds with two important neighbours that had frayed in the last few years.

The call for a South Asian Association for Regional Cooperation (SAARC) Bank and closer economic co-operation among SAARC nations by the prime minister seems to be a clear signal that South Asia is on top of the government's agenda. 

This focus is followed by the attention on larger Asia, especially the CMLV (Cambodia, Myanmar, Laos and Vietnam) countries. To build meaningful value chains and make worthwhile foreign investment, these countries will remain key to create competitiveness in manufacturing for Indian companies.

These countries will also be important for Indian companies to build regional value chains. Japan and South Korea will remain crucial since companies from these countries are large investors in India and these two nations remain key partners for India to establish a strong presence in the region. Japan, especially, is expected to be a significant partner. 

India will also be looking to play a much larger role in the Asia-Pacific Economic Cooperation (APEC) region. In this context, the Regional Comprehensive Economic Partnership (RCEP), comprising the 10 Asean nations, Australia, New Zealand, China, Japan, Korea and India will be important for New Delhi. 

Many in the government and outside point out that this focus towards the east will be matched by the attention on Africa since the potential of that continent remains immense. Interestingly, both industry and government find Africa alluring. New Delhi has several friends in that continent who look towards India to work with them at multilateral forums. They in turn support India at Geneva. 

The European Union (EU) and US will continue to remain strategic partners but the current overdependence on these two markets for trade and investment is expected to decline in the coming years. On the other hand, China will grow as an important economic partner and the government will work to build a stronger relationship with the country. 

Given this background, India is expected to play its cards at regional and bilateral negotiations carefully. Studies show the current level of agreements with several trade partners is not benefitting India enough and there may be a need for a relook.

How serious this review will be may depend on the push the industry will give to seek higher market access. Overall, India is expected to look for some real gains and will be ready to provide reciprocal benefits in return. 

Overall, the indications are that the current government will remain pro-business but is expected to be very focused on ensuring a balance that represents the wider mandate it has received from the people. 

The writer is Principal Adviser at APJ-SLG Law Offices.

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