Event Reports

India’s future in trade lies in neighbourhood itself

Photolabs@ORF
2016
May
25

India needs to establish clear and transparent Standard Operating Procedures (SOPs) and re-consider many Non-Tariff Barriers (NTBs) on imports to drastically improve trade relations with neighbouring countries, according to Mr. Somi Hazari, Chairman, Foreign Trade Panel, FICCI (Tamil Nadu State Council).

Initiating an interaction on “India: Neighbourhood Trade and Investments” at the Chennai Chapter of Observer Research Foundation on  May 14, 2016, he stressed that India’s future in international trade lies in the sub-continent. He went on to explain that India’s policies often tend to forget the tremendous value of what it can offer the neighbourhood and of what it can get in return.

India also needs to realise that trade with its neighbours is much easier than trade with countries of the West or the far east. Well thought out long-term strategies and transparent trade policies with neighbouring countries would be the way forward, he said.

Dampening trade

Starting off with India’s trade relations with the island state of Sri Lanka, he described it as historical, especially with Tamil Nadu’s proximity and close relations with the country. India’s products are very well received in Sri Lanka, he added. Sri Lankans believe that Indian goods are of good quality and are reasonably priced. There is also a sentiment amongst several groups that India is an ally and its products need to be patronized.

Despite this, he claimed, the commerce and industry agencies in Sri Lanka are dissatisfied with the general trade relations with India, particularly because of some serious barriers that India has imposed to Sri Lankan imports. Indian has a Free Trade Agreement (FTA) with Sri Lanka. In principle, this means that both countries have preferential access to each other’s markets. Unfortunately, this is not really reflected in practice due to the presence of Non-Tariff Barriers (NTBs) which restrict trade by means other than the imposition of tariffs. NTBs also go against the general policy of the Ministry of External Affairs (MEA), which prefers long-term strategies in trade relations with other countries.

While all FTAs are signed by the Ministry of Commerce, the Ministry of Finance and the Ministry of Health & Family Welfare also have a say, Mr. Somi Hazari said. Specifically, the functions of the Food Safety and Standards Authority of India (FSSAI), under the Ministry of Health and Family Welfare, are used to facilitate many NTBs.

These are usually in the form of conformity assessments (tests or activities that determine that a product or a service meets relevant standards), he added. Pressure from lobbying groups and cartels of Indian manufacturers is known to be the primary reason for imposing these NTBs. In the past, the import of vanaspati (vegetable oil) from Sri Lanka, under bilateral FTA, suffered seriously due to such measures.

Re-working FTAs

Mr. Hazari proposed that FTAs should be reworked to transparently include any provisions to protect India’s domestic interests, thus alleviating the need for any NTBs. While the current Ministry of Commerce is planning to revisit many such FTAs, he emphasised the urgency of the matter.

To further simplify trade procedures, India needs to sign on for Mutual Recognition Agreement (MRAs), Mr.Hazari said. MRAs are international agreements through which countries agree to mutually acceptable conformity assessments. This will remove any need for assessment of goods on an individual or ad-hoc basis which create delays and other hurdles to smooth trade.

Not cheap

Mr. Hazari opined that India’s trade policies need to take into account the fact that the neighbouring countries do not find Indian products to be cheap anymore. Moreover, India cannot afford to look down upon its neighbours, as it used to be in the past. Most of the neighbouring countries have agricultural and manufacturing sectors that are equally or perhaps more efficient than their Indian counterparts.

It is also important that India shares its know-how with friendly neighbours. As an example, he cited that India can help Sri Lanka with technology/ infra-structure know-how for efficient rice storage due to the lack of which Sri Lanka is forced to import rice despite sufficient local produce. Such measures will only serve India’s standing in the sub-continent.

Full potential

On India-Bangladesh trade, he noted that the full trade potential is yet to be realised. Imports from Bangladesh are particularly low. One such area where opportunity has not been capitalised is the huge demand for Hilsa fish in many parts of India, while Bangladesh produces this variety in large quantities.

Mr. Hazari expressed admiration for the Bhutan’s style of doing business with its neighbours. He said Bhutan adopts a refreshing, straight-forward approach in its trade negotiations: it holds its environmental laws as sacrosanct, it is very particular about the quality of goods being imported and it is very respectful in its dealings and negotiations.

On India-Myanmar trade relations, he noted that the Marwari and Chettiar communities in India have been historically doing business with Myanmar. Notable imports to India from Myanmar include toor and orid dal which form an integral part of the South Indian diet.

Trade with Nepal, China

Mr. Hazari briefly talked about trade with Nepal and China. He admitted that there are some anti-India forces in Nepal that affect trade with India. On the other hand, India has started encouraging free trade with China.

Many crucial areas like solar energy technology have been opened to the Chinese and they have been taking full advantage of such opportunities. The general impression is that their prices are very competitive though most of their products are “use-and-throw”. Despite this, there is clearly a huge demand for such products in India.

On cross-border land trade, he stated that there is much to improve in terms of simplifying procedures and enhancing facilities at border-crossings. Often, there are very long queues of trucks carrying goods (sometimes as long as five kilometre) due to delays at check posts.

It is important to note that delays cost money and thus push prices up. There are also instances of illegal check-posts which need to be kept under constant check. In general, roads also need improvement with roads leading into Bangladesh needing particular attention.

Responding to a question on illegal trade, he said that despite stringent curbing mechanisms, sizeable illegal trade exists with many neighbouring countries leading to negative externalities like money laundering.

This report is prepared by Raghav Ranganathan, Associate, Observer Research Foundation, Chennai.