Pushing the wrong way

Government must not hold up EU-India FTA further

Since 2007, India and the European Union have agreed in principle that they should sign a free-trade agreement (FTA). Naturally, this has only gained in importance over the years. For one, the Doha round of multilateral trade talks appears to be difficult to revive; its place has been taken by free trade between trading blocs. India cannot afford to be left out of this burgeoning set of international free-trade networks. Second, in the intervening period, China has lost the cost advantage it had in its exports, especially in price-sensitive sectors like textiles, also a focus for Indian exporters. Meanwhile, weak world demand means that export-intensive sectors in India have seen revenues collapse, leaving many out of work, and shutting down workshops. Taken together, this means that the FTA between India and Europe should have been a priority. However, the government has allowed itself to be browbeaten by industry groups and activists into delaying the process. The commerce secretary admitted last week that the "gap" to be bridged in negotiations was infinitesimally small - but said that it was proving difficult to get to agreement anyway. Unfortunately, the Indian side is wedded to a zero-sum-game idea of trade negotiations - always fearing that India will "lose" too much. That is not how free trade works. Unfortunately, this also means that various lobbies, such as automobile manufacturers, can hide behind a patriotic insistence that no "concessions" be on offer to foreigners and scuttle a much-needed trade pact.

One of the major remaining problems in the way of a free-trade agreement is that India is still unable to open up its insurance sector to foreign investment. This is, of course, in India's interest as much as it is in Europe's; it is to be hoped that the government's renewed focus on foreign direct investment will cause this problem to go away. The Opposition should not be allowed to mindlessly block this reform, especially since the Bharatiya Janata Party introduced it in the first place. Europe's demand that wine and liquor not be subjected to extortionate tariffs is also reasonable; there is no reason why the Indian wine sector, not noted for its quality, should be protected. India's objections are less reasonable. On the one hand, India insists that it be certified as a data-secure destination, to facilitate market access for its software companies. But the fact is that this certification has to be carried out independent of trade negotiations - that is, in fact, only logical. Insistence on this point by India should not derail negotiations. And complaints from the automobile sector that European luxury cars should continue to be subject to higher tariffs should be summarily ignored. The Indian automobile sector, thanks to protection, has focused on serving the upper end of the market rather than using its cost advantage smartly. It is in the interest of Indian consumers and producers that this distortion of the market is ended.

Thus, even without further concessions from the European Union, India must sign the free-trade agreement swiftly. If it does not do so with dispatch, it will get locked out of trade just when it is needed the most. The last bilateral meeting was a failure thanks to the commerce ministry's obstructive attitude. The ministry must change its attitude, or be made to do so by the prime minister.