India needs to rethink its trade strategy

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India needs to rethink its trade strategy

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•  A new world: After the COVID-19 crisis ends, the world's trade and investment scene would be different. Three focus area for Indian policymakers need to be - (i) Reducing overdependence on some countries for imports, (ii) Integrated approach to use the shift of manufacturing supply chain away from China, and (iii) Proactive approach to find new markets.
• The ITC HS8: The unit of product specialisation in India is the 8-digit level ITC HS8 - Indian Trade Clarification Harmonised Code.

1. Total lines imported are 10264, of which 2656 are important, and 97% of total imports
2. Each of these 2656 had a minimum of $10 m imports in 2018-19. These are KIPs - Key Import Product lines.

• China dependence: Of these 2656 ITC HS8 KIP lines, India depends on China for at least 40% of volumes. So 30% of 2656 is China-dependent. If we categorise these into consumer, producer and natural resource imports, Chinese goods are more than half of all consumer imports into India. For Producer goods, it is 24%. And by technological sophistication, more than 60% are not high-tech products. So a large part of GVCs (global value chains) are not technologically sophisticated. Why is India not building at least these?
• A new design for supply chains: India can easily reorient these, and create exports and jobs. Since the world is wary of China, and looking for parallel alternatives, here's the opportunity too.
• What to do: Apply progressive customs duty on a range of ITC HS8 KIPs, with higher rates as thresholds are crossed. Find countries that make same products (as that by China) and offer them preferential tariffs, whether they have an FTA with India or not. Orient such plans to those being made by US, Japan, Korea and Germany. Give fast clearances.
• Get trade agreements: India has to broadbase exports, and move up the GVCs. India will need to give as well as get, market access. Offer upto 90% of tariff-lines as duty-free. Focus on only those that are really crucial. At least 7708 of the 10264 ITC HS8 lines have irregular, low imports. Liberalise them. For the remaining 2656, at least 260 are for raw material and agro-produce lines, which can be liberalised.
• How to liberalise those: Ask 3 questions -

1. Does India do a major value-addition locally in it
2. Is it related to processing of raw material cheaply available in source country
3. Is it a technology-intensive product line and Indian demand is low (as a % of global demand)? In that case protection won't shift to India through tariff protection.

• Liberalise: For the above 3 questions, if we get even one YES, then that product line can be liberalised. Today, at least 1150 would be thus. So, not more than 1200 need protection.
• What to ask for in return: India should ask for solid solutions for technological and regulatory barriers to trade, in return for tariff liberalisation. Instead of moving professionals across borders (in services), get more access for remote services. (e.g. data localisation, privacy needs, etc.)

Read more on - Polity | Economy | Schemes | S&T | Environment

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