NEW DELHI: A high-level advisory group on trade has said that a knee-jerk tit-for-tat approach by raising import duties may not be a good strategy for the government, which should look at reducing tariffs to take advantage of the US China trade war.
The panel, headed by economist Surjit Bhalla , submitted its report to commerce and industry minister Suresh Prabhu on Wednesday. The recommendations are expected to be followed up by the new government as slow export growth is seen to be dragging overall manufacturing sector.
It said that India performed well below its potential on the export front, an observation that the commerce department has refused to acknowledge and has blamed the global situation for the poor performance. Doubling India’s exports to $1 trillion over the next seven years would require an annual growth of 10% compared to the 2% average in the last five years.
Suggesting that the focus also needs to be on broader issues, the committee had proposed a reduction in the effective corporate tax rate from the current level of 24%, arguing that India’s competitors have effective rates of under 20%. Similarly, it recommended a sharp reduction in the real policy rate, which is the “highest ever” given that the median rate in rivals has stated around 0.8% a year.
The panel also suggested that an Empowered Investment Promotion Agency needs to be set up and empowered to take quick decisions to identify and attract investors based on pre-defined criteria. This is particularly important to leverage “China plus One” opportunity as companies are looking to diversify their investments across the globe.
It has pointed to the need for optimising free trade agreements and suggested an indepth assessment of the existing trade pacts and their impact on the competitiveness of the Indian industry. Remedial measures should be taken for future negotiations, if required. “Regional trade agreements can be important tools for expanding markets, improving competitiveness and developing production networks
through building regional value chains, if partners are selected with rigour and foresight, and negotiations are pursued to gain effective market access,” it warned.
At the same time, the panel has proposed that the scope of the negotiations should be widened to include non-tariff barriers as several gains due to duty cuts were not available as countries blocked imports using standards and other tools.
The committee also underlined the need for a rationalisation of India’s tariff structure to make it more predictable to encourage participation in global value chains
Source: timesofindia.indiatimes.com