Doors of trade: Letting in much more than sending out

In the Indian context, "First Time Aberration" is a more appropriate expansion of the acronym FTA, which otherwise stands for Free Trade Agreement. FTAs are aimed at promoting trade between countries on a bilateral, symbiotic basis. But that's where one of the early Indian FTAs, with Thailand, has begun to sour. Trade data shows that we have exported less and imported more from the East Asian major in recent times.

Fortunately, the Thais have so far enjoyed only a diet menu, and not the entire spread-in trade terms, that means the 'early harvest programme' (EHP) on which the Indian government has allowed zero-duty imports, beginning a few years ago.

Between 2004 and 2005, imports from Thailand jumped 47 per cent. What is more critical is that the EHP imports jumped 80 per cent. On the other hand, India's overall exports to Thailand grew 12.5 per cent, while exports pertaining to EHP have dropped 2.3 per cent.

The consequent injury to domestic manufacturers was only to be expected. Reason: the government did not undertake detailed discussions with industry when it opened the gates. "The situation now is far better than before. However, there is scope for vast improvement. There is need for greater interaction between industry and government," says T.K. Bhaumik, Chief Economist, Reliance Industries. Adds LG Electronics India Vice President Girish Rao: "We are hopeful that the government will do the needful in ensuring a level playing field with regard to taxes vis-a-vis the ASEAN countries."

Argues Bhaumik, who was previously Senior Advisor, Confederation of Indian Industry: "Industry organisations need to hire better talent to understand the sectoral needs and comprehensively communicate it to the government."

Evidently, the government is attempting to get its act together. "We are tapping high knowledge teams across the country. The need of the hour, however, is to institutionalise it. And, we are working on doing so," says Commerce Secretary S.N. Menon.

Importantly, the impact of hastily opening trade doors is not lost on the polity. Close to 60 per cent of the Indian workforce still depends on the agriculture sector, which contributed 17.6 per cent of the country's gross domestic product in 2004-05, down from 25.9 per cent in 1995-96. The political class understands that farmer suicides and industrial joblessness as a result of unfavourable trade deals are a one-way ticket to political oblivion. UPA Chairperson Sonia Gandhi has written to the government highlighting the pitfalls of such treaties. And Finance Minister P. Chidambaram is worried about revenue losses.

But then, a defensive play is not enough. Export competitiveness is no longer a choice but an imperative. Just as companies need to improve their operations, the government needs to improve the infrastructure it provides industries. Power tariffs and transaction costs need to come down. Clogging at ports must ease and rail movement must become faster.

With the margin for error narrowing, the government's trade gatekeepers, on their part, need to be careful as they negotiate the country's trade deals with neighbours.