NEW DELHI: With a little over two months to go before elections in the United States, India’s window for a quick and limited trade deal is closing. Senior officials in Delhi were not hopeful that a deal could be concluded before the November 3 election, which means negotiations can resume only after the new president takes office.

What if the new president is not Trump but his challenger Joe Biden? Then everything goes for a six. The uncertainties for India rise many fold notwithstanding Biden’s recent pro-India utterances. For one, Biden is expected to re-embrace the world, mend fences with alliance partners and, more importantly, sign the Trans-Pacific Partnership (TPP) that Trump had repudiated. This is a free trade agreement of 12 countries (not including India).

Recall, Delhi had earlier walked out of the negotiations on RCEP (Regional Comprehensive Economic Partnership), which brings together the 10-member states of ASEAN and five other partners (Australia, China, Japan, New Zealand and South Korea), saying it needed to protect domestic industry.

 

Why A Trade Deal Is Important

“So India may get locked out of the world’s two major free trade agreements,” a senior official pointed out. “They will trade with each other at minimum or zero tariffs while imposing high tariffs on any Indian products coming in.” Add to that, a Biden administration could be tough on human rights or Kashmir (Democrats generally are) or demand that NRC-CAA be rolled back, or even link “progress” on these issues to U.S. trade concessions. There could even be a softening of current U.S.-China trade and other tensions, leaving India to fend for itself.

Which is why economists are urging that India nail even a limited trade deal with the U.S. at the earliest. “The importance of even a limited trade deal cannot be minimized,” says Rajat Kathuria of the Delhi-based economic policy think tank ICRIER. “Last year, bilateral trade was $150 billion and the U.S. was India’s largest export destination for goods amounting to nearly 17 per cent. The U.S. ranks No.2 on India’s import list. A deal, even if it covers only 15 per cent of our total bilateral shipments, will include some 50-100 separate items. It will be a major confidence builder.”

 

The Deepening Muddle

But talks so far have stumbled on issues, many long standing, others of more recent origin. For instance, India wants the restoration of GSP privileges that were withdrawn by President Trump in June last year after his administration determined that Delhi had not “assured the U.S. of equitable and reasonable access to its markets”. The benefits withdrawn amounted to less than $6 billion and the wonder is India’s exports to the U.S. have gone up in the period after the withdrawal. So does GSP matter at all? Is India pushing it as a negotiating tactic or is the problem deeper?

The official believes that sky’s the limit for India’s exports given that U.S. tariffs amount to 5 per cent or even less. “But we need to compete on quality, on cost and delivery schedules, that’s where we stumble,” he says. “Input costs for, say, steel in India are 40 per cent higher than anywhere else in the world. The current emphasis on ‘atmanirbhar’ may accentuate the problem as a whole range of imported goods are being put on the banned list. This may complicate the ongoing negotiations with the U.S.”

As it is, the U.S. is standing tough on some areas India deems strategically critical: Intellectual Property Rights (IPR) and the free flow of data.

“In IPR the U.S. would like India to amend two provisions of the Patents Act, one which does not allow patenting of mere formulations and new uses of existing products, thus preventing perpetuation of patent monopolies,” notes Prof. Biswajit Dhar, economist at Delhi’s Jawaharlal Nehru University. “The other is the threat of compulsory licensing used to ensure lower prices by pharma companies. The U.S. is also peeved over India recognizing farmers as plant breeders, this is to ensure they are not at the mercy of seed companies.”

 

Squabbling Over Data, Milk

As for free flow of data, this is a no-go area for India since data is the “new oil” and the aim is to ensure data generated within the country stays within. The flaw in this argument is not hard to find. As the official explained, “Reliance Jio has tied up with Microsoft and Facebook. It paves the way about a decade from now, for Jio to change hands with a foreign buyer taking over lock stock and barrel with all that precious data included. Where does that leave us?”

The U.S. wants India to open up its dairy market. India has dug its heels in, claiming the diet of American cattle would go against the religious sentiments of Hindus. If that is a strange argument, it is one that India has held to for years with some success. Does it make sense for the world’s largest milk producer to stand tough on this, more so when any foreign dairy product will only cater to the premium segment of the market?

Kathuria lists other issues the two countries continue to squabble over: the price of medical devices such as stents and implants; there is discord over the U.S. determination to gut the appellate body of the World Trade Organization; Washington refuses to accept India’s demand for special and differential treatment, insisting that any country with a world trade share of over 0.5 per cent should not be entitled to the resulting trade benefits.

Foreign businesses keep telling India that all they want is transparency, fixed rules and ease of governance. But retrospective taxation has got them by the short and curlies. The story goes that the government got after Amazon following complaints from the trader lobby, that the e-commerce giant’s deep discounts were hurting their business. While Amazon may have been tamed, economists say Reliance Retail may end up doing exactly what Amazon has done. The Amazon experience may have underscored the view that India is a hard place to do business.

Trade experts are concerned that many of these issues are not fully understood at the political level, resulting in a sense of complacency that India’s one billion-plus “market” will ensure a flood of investors to our door. The only investors are those seeing an opportunity to make money in the Indian stock markets and such “hot money” doesn’t stay long. The only Foreign Direct Investment (FDI) seen so far is Reliance Jio, which is less about the government’s efforts and more about the value that companies like Jio have built up in the marketplace.

There is a perception the government has misread and continues to misread issues relating to international trade and business. Partly this may be the result of pressure from entrenched lobbies, or the lack of proper advice and guidance from the bureaucracy or perhaps the bureaucracy itself does not have the capacity to go to the depth of such issues and come up with practical alternatives. Either way, India will pay the price.

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