India, China To Look At FTA Again

India and China are going discuss a bilateral trade agreement later this week, with officials from the two sides meeting in New Delhi, armed with a second opinion. A joint study group (JSG), which analyses the feasibility of a trade pact, had earlier recommended a free trade agreement (FTA), but India had to put the idea on the backburner due to concerns of the domestic industry. With Beijing keen on going ahead with an FTA, which will result in India and China lowering customs duty on products, the neighbours have assigned the job to independent agencies to look at the possibility of a pact. The JSG had also recommended a second opinion by a joint taskforce, which will meet this week. A report by National Council of Applied Economic Research (NCAER), mandated by the Indian government to analyse the impact of a pact, has found areas of comparative advantage for products from both India and China. While both have advantages when it comes to textiles, silk and iron and steel, China seems to have an upper hand in the manufacturing sector. This is precisely the fear that the Indian industry has and had last time round managed to convince the government that a trade pact for trade in goods will result in a flood of cheap imports. Besides, a section in the government also thinks that a trade agreement with China may not be beneficial to Indian companies. The no-sayers point to the fact that Beijing is still not treated as a market economy since it provides subsidised inputs and capital - thanks largely to the absence on any prudential standards. Besides, with an artificially pegged currency and subsidies, many of which are hidden, the industry is of the opinion that Chinese exports have an unfair advantage.

While NCAER has used bilateral trade data to work out the areas of comparative advantage, the report is seen by the industry as largely a mathematical exercise which does not factor in the concerns on subsidies and an artificially pegged currency.