India must rework its trade policies to avoid being a simple dumping ground for foreign goods as opposed to a preferred destination for foreign investment
The Seventh Trade Policy Review of India by WTO reveals that the country has become the most attractive destination as a dumpyard of the world, but not the most attractive destination for investment that the country was aiming at. Additionally, the frequent changes made by the government in the policies had created uncertainties in trade. The period under review covered the period after June 2015 corresponding to the period of Modi rule in the country.
India continues to rely on trade policy instruments such as the tariff, export taxes, minimum import prices, import and export restriction, and licensing. These are used to, inter alia, manage domestic demand and supply requirements, protect the economy from wide domestic price fluctuations, and ensure conservation and proper utilization of natural resources. As a result, frequent changes are made to tariff rates and other trade policy instruments, which create uncertainties for traders, the report has emphasized.
India maintains imports and export prohibitions and restrictions. Restrictions are imposed to (i) protect human, animal and plant life or health; public morality; historical heritage; the environment; and intellectual property rights (IPRs); (ii) prevent the use of deceptive practices and the illegal trade of arms and ammunition; and (iii) comply with UN resolutions. Also, India continues to use designated state trading enterprises (STEs) to import some agricultural products, fertilizers, and oil products, with the stated purpose of ensuring a fair return to farmers; safeguarding food security; managing the procurement of fertilizer for farmers; and implementing the domestic support price system for oil products. Since the last review, some products, such as onions and sugar (under TRQ since 2019) have been removed from the list of exports subject to state trading and may currently be exported by any eligible exporter. Despite these measures, India struggled to prevent the country from becoming the most attractive dumping ground.
India has become the main user of anti-dumping measures in the WTO. During 2015 to December 2019, India had to initiate 233 investigations, a sharp increase from 2011 to 2014, when the initiations stood at 82. Most of the investigations initiated during the review period relate to products originating in China, followed by those originating in the Republic of Korea and the EU-28. At the end of 2019, India had imposed 254 anti-dumping duties.
These measures affected mainly chemicals and products thereof (40.6 per cent of all measures). The average length of anti-dumping measures in force as of December 2019 was 5.9 years; however, 58 measures, which applied mainly to imports originating in China (45 per cent), have been in place for more than 10 years. During 2015-20 (January), India initiated 20 countervailing investigations, and there were 11 measures in place. As in the case of anti-dumping duties, most of the measures applied to imports originating in China. India is also an active user of safeguard measures; as of June 2019, India had initiated 46 investigations (12 per cent of all the safeguards investigations initiated by WTO Members). There is one safeguard measure in force.
The current account deficit narrowed for much of the period under review. The services balance remained in surplus, while the deficit in merchandise trade narrowed, especially in 2019-20 as imports declined more rapidly than exports. The current account deficit continues to be financed by both foreign direct and portfolio investment, which grew during the period, although portfolio investment has been volatile. EU-28 and the United States remained India's main export markets, while most imports originate in China. Major exports and imports remain largely unchanged.
Trade policy objectives are set out in the Foreign Trade Policy (FTP) of the country, which is issued every five years and is revised from time to time. However, India continued to make frequent changes to its trade policies and measures through circulars and notifications.
India continued to liberalise its policies on FDI, further permitting FDI up to 100 per cent without the need for prior government approval in an expanded list of agricultural activities, defence, broadcasting carriage services, telecommunication services and business-to-business electronic commerce, insurance and intermediaries, and airport and other services and non-scheduled air transport services.
The basic tariff structure remains unchanged since 2015. However, following the adoption of the GST in 2017, the additional duties and special additional duties previously added to the basic tariff were removed. The 10 per cent social welfare charge, which applies only to imports, remains in place.
The tariff treatment that India accords to certain goods in the information and communications technology sector is currently the subject of a dispute at the WTO.
Since 2015, some of India's technical regulations have also been subject to specific trade concerns in the WTO Committee on Technical Barriers to Trade. During the review period, members raised seven concerns, of which only two were resolved.
India has also implemented various IPR measures since 2015, such as the establishment of commercial courts to expedite IPR-related court proceedings. However, since 2018, Customs is no longer allowed to seize infringing imports. Therefore, at present, a court injunction is required to protect rights against infringement at the border, the report opined.
The report has specifically mentioned the worsening economic conditions of India since the first half of 2019, mainly due to lower consumption and investment, particularly private investment, with gross fixed capital formation growing by only one per cent in fiscal 2019-20, and the severe impact of the COVID-19 pandemic on the economy and the living conditions. However, given India's continued need for better infrastructure, it has suggested a reduction in subsidies being given to farmers and poor by better targeting to free up resources for investment.
In the present scenario, India needs to identify the trade policies that attract the other countries to dump their products here and to suitably change them. The government must also change its attitude of frequently changing its trade policies and measures and come out with more stable changes by better analysis of the ground realities to remove trade uncertainties hampering the interest of our country.
Views expressed are personal