The report by the High Level Advisory Group said India stands to benefit even more when the US and China are locked in a global trade war.
Illustration: Uttam Ghosh/Rediff.com
Less than a week before Prime Minister Narendra Modi reaches Bangkok for the final set of talks on the proposed Regional Comprehensive Economic Partnership (RCEP) pact, a government-appointed panel on trade has strongly batted for it.
Released on Wednesday, the report by the High Level Advisory Group (HLAG) on growing India’s trade, argued despite existing challenges RCEP can be ‘particularly beneficial for India.’
RCEP nations continue to pressure India on finalising the deal on November 4, the deadline as of now.
Referring to a study by the National Council for Applied Economic Research, the report said India stands to benefit even more when the US and China are locked in a global trade war.
Domestic industry, especially in the manufacturing and agriculture sectors have come out strongly in opposition to the pact, fearing an influx of goods from export powerhouse China.
But the report has squashed such fears, arguing there is a long-term opportunity which needs to be recognised.
“The Chinese economy has been lately slowing down and is likely to remain that way.
"China is focusing more on its domestic consumption at the moment; it has been facing the American wrath and is likely to continue to do so for some more time and is therefore slightly vulnerable at the moment,” the report said.
Set up in October, 2018, by the Commerce Department, the 12-member HLAG consists economists, policymakers and academia and is chaired by economist Surjit Bhalla.
Bhalla has been appointed India's executive director at the International Monetary Fund.
Its report has focused on increasing India's share of global exports, managing bilateral deals and mainstreaming new age policymaking.
Regarding RCEP, India has suggested a mechanism to fix an import ceiling particularly for China, the first time New Delhi has pushed for such a condition in any trade negotiation.
The proposal has been opposed by China at the talks, buoyed by support from other nations, a senior government official, said.
Earlier, India had agreed to reduce tariffs on 76 per cent of all items for all nations, apart from special measures for China.
Others had demanded New Delhi open up at least 90 per cent of all items.
Currently, it is broadly accepted that the RCEP will lead to tariffs being eliminated on 28 per cent of the traded goods to begin with.
This will be followed by 35 per cent of all products being eliminated in phases.
The report has flagged several issues currently holding back exports.
“Businesses in India face the highest costs for capital and labour in the world,” Bhalla, said at an event organised by Confederation of Commerce and Industries.
Also, it's sad that agricultural and financial exports have not contributed to India's export growth, he added, pointing out that value of current financial exports are even lower than agricultural exports back in 1980.
Going against a long held complaint of exporters, the report has also argued the rupee is not overvalued.
"Countries that have really performed well (Bangladesh and Vietnam) have seen a large increase (over 30 per cent) in their real exchange rate.
"Rates have also appreciated by 28, 21 and 10 per cent for China, Philippines and Thailand respectively," it said.
On the US-China trade war blowing up globally, the report states that India stands to gain if it does not face higher tariffs as a result of the trade war.
"It would not be sensible for India to raise tariffs in a US-China trade war.
"In fact, reducing own tariffs would be a wiser step," it says.
It has also pushed for a broad reduction of customs duties to be reduced over a five-year period.
"The so-called nuisance tariffs (up to 2 or 3 per cent), which serve little purpose, should be reduced to zero over a three-year period," the HLAG has said.
It has also said government is spreading our resources too thin through by focusing on ‘across-the board’ schemes for export promotion.