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JANUARY 14, 2007
 Letter From
 Message From
The Prime Minister
 Editor's Letter
 The Great Indian
M iddle Class
 India'S Poor
 The Next 15 Years

Flying High
The Indian aviation industry is growing at a rapid pace, thanks to air transport deregulation, emergence of new operators, lower fares and large untapped demand for air travel. The numbers tell an interesting story: India will require an estimated 1,100 aircraft. The average annual passenger traffic growth in India through 2025 is estimated at 7.7 per cent, well above the world average of 4.8 per cent and China's 7.2 per cent.

Bars Of Gold
The global gold industry is flourishing, largely fuelled by Asian demand and a weak US dollar. The boom is probably only halfway through since prices bottomed out in 2000. Since 1800, the boom and bust cycles have averaged about 10 years. While production is down, the value of gold purchased today is up 47 per cent from a year ago. The super-cycle of high metal prices is seen to be spurred largely by demand from China and India. An analysis.
More Net Specials
Business Today,  December 31, 2006
Globalisation's Unlikely Gainer

Once an underdog in global trade talks, India-like a few other developing countries-has learnt to speak up and demand its pound of flesh.

Speaking up for developing nations: Commerce Minister Kamal Nath (L) with Brazil's Minister of External Relations Celso Amorim during the WTO ministerial conference in Hong Kong in December 2005

Around mid-November, when European Union (EU) Trade Commissioner Peter Mandelson visited New Delhi, he announced that the EU would soon begin talks with India for an ambitious and wide-ranging bilateral trade and investment agreement. The fact that such an agreement-if at all signed-may take another two years, is not important. What's important is this: the European Union, which for long had made access to Indian agricultural markets a precondition to any multilateral trade agreements under the World Trade Organisation (WTO), is now wooing India.

In a sense, this captures the new order. With the WTO talks hitting a stalemate-all 149 countries have to agree on a single consolidated package-global trade talks have gained momentum on a fractured basis. Bilateral and regional trade formations are the order of the day. Not surprisingly, there are close to 200 global trade agreements. The last WTO meeting in Doha in early 2006 also ended in a stalemate, as positions between the developed and developing countries hardened. One key determinant that led to this development was the India factor. It held steadfast on issues relating to access to the domestic agriculture market, among others.

Finally, thanks to its growing importance in the global market place, India has found the courage to speak up and be heard. But this did not happen overnight and not without our share of mistakes and missed opportunities. In other words, given that globalisation is a reality to contend with, have we always negotiated trade terms favourably? Says Arun Jaitley, India's former Commerce Minister: "We fared poorly in the 90s. It was only towards the end of the 90s that our skills improved."

WTO & India
1995: WTO is born. India signs up despite internal debate on inclusion of Agriculture and TRIPS

1996: India resists the inclusion of competition policy, trade facilitation and transparency in government procurement in WTO

1999: India voices its dissatisfaction on the non-implementation of promises made by developed countries during Uruguay Round

2006 (July 24): Doha development round (2001) suspended as no consensus emerges

No te: Not all WTO trade rounds are included

However, it was in the middle of the 90s that we signed the only agreement that WTO has so far produced-the Marrakech agreement in 1995. What did it mean to Indian industry? It sought to eliminate textile quotas (under the Multi-fibre Agreement) around the world in a decade's time. Early last year, when the phase-out happened, trade statistics show that exports from China, and not India, vaulted. "Yes, in several dimensions, reforms in the domestic industry did not match up to demands of the agreement," says S.M. Menon, who recently retired as Union Commerce Secretary.

But the fact remains that India and Brazil have championed the cause of the developing countries during the nine encounters with developed countries on the WTO platform. India's identity has, however, evolved far beyond this. It was best demonstrated, ironically, by its isolation in the WTO talks held in Hong Kong in 2005. Trade talks make for strange bedfellows, therefore, India went along with the developed countries on the issue of services and it-enabled services. On the other hand, Brazil, a net exporter of agriculture products, aligned itself with developed countries on the issue of access to agriculture markets.

Such fissures have been responsible for the current stalemate in WTO talks. The question then is: How do our bilateral and multilateral trade deals fare? While it is too early for a complete play-out of the deals that we have signed or are in the process of signing up, the intensity of political intervention cannot be underestimated. President of the ruling United Progressive Alliance (UPA) party, Sonia Gandhi, recently shot off a letter to Prime Minister Manmohan Singh cautioning the party against opening up agriculture and manufacturing in a hurry.

Subject of dispute: European farms such as this one are big beneficiaries of state subsidies, which add to their competitiveness

Her apprehensions may be justified going by the results of the 'early harvest scheme (EHP)' of the FTA (free trade agreement) with Thailand. While India's exports to Thailand under items listed in the EHP dropped 2.3 per cent, imports grew a significant 80 per cent. Evidently, injury to domestic manufacturers cannot be condoned not only from an economic standpoint but also a political one-flight of manufacturing means loss of jobs, which is unacceptable for any politician. Says Girish Rao, Vice President, LG Electronics India: "We are hopeful that government will do the needful in ensuring a level playing field with regard to taxes vis-a-vis the ASEAN countries."

In the case of the free trade agreement with Sri Lanka, several industry bodies in Southern India are already complaining. They argue that pepper imported from Sri Lanka is actually sourced from Vietnam. Patchwork to reassure the domestic industry-that Sri Lanka is not used as a mere transit port-means that strict safeguards are enshrined in the agreement under a section termed 'rules of origin'. And, herein lies an administrative problem-for every bilateral agreement, the government gatekeepers at ports and airports will need to keep a set of 'rules of origin'. While at present, the number of bilateral agreements is still in single digit and so perhaps manageable, it might not be so into the future. On the CECA agreement being negotiated with Singapore, Commerce Minister Kamal Nath is one of the few in India that see Singapore as a model for financial discipline or as a major hub for attracting investments into India. At any rate, Singapore has already emerged as the fifth largest foreign investor in the country.

An attractive port of call: But the interests of the local industry need to be safeguarded in the face of cheaper imports

A Fair Deal

As India embarks upon many such agreements, the 'floor' deal is fairly clear. First, that industry interest cannot be undermined at the altar of consumer interest-cheaper imports is a by-product of a liberal trade regime. Secondly, concessions in the farm sector cannot be given unless reforms are undertaken. Furthermore, it cannot be at the cost of paring of labour force. Here's why: Sixty per cent of the country's labour force is employed in the farm sector, besides which agriculture's contribution to GDP has been shrinking over time. And no politician can afford to annoy this vast vote bank of a sector.

Thirdly, the changing dynamics of global trade make the job of trade negotiators even more challenging. For instance, till some time back, ASEAN countries did not bring any negative list on their drawing board when negotiating with India. At best, it was a restrictive list that meant a delay before nil duty on import of such goods into their country. Today, they are mulling a negative list. "There is no doubt that competitiveness of Indian industry needs to be matched by the government's ability to negotiate trade deals," says Biswajit Dhar, Chief of WTO studies, Indian Institute of Foreign Trade.

Else, either we fail to seize opportunities or we end up stranded in the market place with no one willing to buy our wares. With India still ranked at a distant 155 on the global scale in World Bank's assessment of dealing with licences, the country has a long way to go on the reform front. Till then, the trade doors need to remain ajar, not fully open.




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