India must overhaul its labour-intensive industries to make the most of US, EU trade deals

India must overhaul its labour-intensive industries to make the most of US, EU trade deals

#opinion

Any rational mind would have expected that President Donald Trump’s US was going to extract significant concessions for a trade deal with India. That’s what he has done with most countries.

Based on what has been revealed from the Indo-US joint statement on Saturday—some things are likely still being worked out—this is exactly what has happened, but India shouldn’t mind because it has gained too.

India has managed to secure a tariff rate of 18%, which is lower than that of most countries, especially in key labour intensive sectors. The effective tariff could be even lower. India has also managed to prevent or postpone any blanket opening up of sectors such as farming or dairy, which would have jeopardised mass livelihoods.

There is also a promise that things might get better going forward. But all of this will require a significant increase in imports from the US, including in energy markets and defence and bringing even farming and dairy to the discussion table. The net impact of the deal on the key headline number—India’s trade surplus with the US — remains to be seen.

To be sure, there are benefits beyond merchandise trade here. Sentiment, both in financial markets such as equity and currency, and for business in general, should improve now that India has a deal with both the EU and the US. This can potentially boost private investment going forward. Exports matter for growth. It will also ease policy constraints on the macroeconomic stability front.

There is bound to be a critical debate on the broad and fine prints of the deal. And that’s entirely to be expected and welcomed in a democracy.

But this debate should not be allowed to distract policy focus from the key challenge at the moment. India needs to throw the kitchen sink at reviving its labour intensive industries and do all it can to harvest maximum gains from the trade deals which have required a significant opening up of our markets. Wihtout such a zeal to revive and overhaul labour intensive sectors, notional gains from the US and EU deals will continue to be just that—notional. Doing this will require a better synergy between the government (both the centre and the states) and markets than what we have managed in the past.

A trade deal is only good for a country if it can trade well.

-Khmer Times-