New government likely to relook at trade pacts likely to boost manufacturing.

NEW DELHI: The new government is likely to take a relook at the country's trading arrangements, including tariff structures under free trade pacts that may be undermining domestic manufacturing. "There is a need to spur manufacturing... A group is looking at the tariff structure in respect to the trading arrangements," a finance ministry official told ET.

According to the official, the underlying principle of trading arrangements should be to promote value addition and manufacturing in the country. While this requires tariffs to be lower on inputs and higher on processed and final goods, several of India's trade pacts are not aligned to this principle, the official said.

A study is expected to suggest a course correction by emphasising removal of inverted duty structure to eliminate the cost disadvantage for Indian manufacturers.

The revenue department, too, has expressed reservations on India signing a Regional Comprehensive Economic Partnership (RCEP) that includes China, according to another finance ministry official.

India has signed free trade agreements with about 20 countries, including Japan, Korea, ASEAN nations, Sri Lanka and Nepal while it is negotiating market-opening pacts with Australia, Canada, New Zealand and the European Union.

A course correction is also seen serve two objectives—discouraging imports that have posed a challenge to the external sector and boosting domestic manufacturing.

Poor performance of India's industrial sector has become a cause for worry for policymakers who are looking for ways to create jobs. Industrial production remained almost flat in 2013-14, declining 0.1 % compared with an expansion of 1.1% in 2012-13, mainly on account of a drop in output in manufacturing, especially capital goods.

The finance ministry has readied a detailed plan outlining key action points required to improve business sentiment, spur growth, contain inflation and maintain price stability, boost infrastructure, deepen financial sector and rationalise the foreign investment regime. The government is expected to take up market reforms, paving the way for free movement of farm goods, open market sales and deeper forward markets to enable price discovery of agri goods.

In infrastructure, the focus is on energising the public-private partnership model by inviting bids for projects after clearances are in place and at least 80% of the land required has been acquired. The idea is also to improve model concession agreements to cut down on litigation. On the taxation side, the goods and services tax and the direct taxes code are pending reforms.

Source : economictimes.indiatimes.com