Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth
From UPSC perspective, the following things are important:
Prelims level: Not Much
Mains level: The ongoing trade war between the US and China and its latent benefits for India.
- Union Minister of Commerce & Industry has released a study by the Department of Commerce on India-China Trade.
- The report tries to analyze the magnitude, extent and plausible reasons of India’s rising trade deficit with China.
Addressing the Deficit
- India’s trade relationship with China is unique and no other bilateral trading relationship evokes as much interest in India as the India-China trade relationship.
- From being a small trading partner of India in 2001, within a span of fifteen years, China has rapidly become India’s biggest trading partner.
- Trade between the two countries has been expanding but India’s trade deficit with China has been growing.
Trade War Looming FTAs
- Most industry associations want the Government to pursue a defensive approach to Free Trade Agreements (FTAs) and raise tariffs on the doctrine of domestic markets for domestic producers.
- The global use of protectionist measures in 2018 was unprecedented with the trade wars looming between two of the largest economies of the world.
- This analysis helps in studying whether an FTA or tariff concessions by China to India can be beneficial in increasing India’s exports to China.
Why such a study?
- The idea behind this exercise has been to identify whether tariff concessions by China to other countries impede raising the share of India’s exports in the Chinese market.
- These lines can be taken up by India for negotiations with China under agreements like Asia Pacific Free Trade Agreement (APTA) in which both India and China are involved during the review exercise.
- Competing countries that have FTAs with China, limits the scope for Indian exports.
- This is due to higher tariffs faced by exporters as compared to competing nations who have secured tariff concessions under their FTAs.
- The study also underlines the opportunity available for India in increasing its services exports to China.
- The imports of China from these countries as well as China’s Most Favored Nation (MFN) rates have been studied.
- Indices like Revealed Comparative Advantage (RCA) and Trade Complementarity Index (TCI) have been used to analyse the extent of India and China’s competiveness in this arena and the potential for the future.
- There is a separate section on the opportunities arising for India out of US – China trade standoff with a detailed analysis of specific tariff lines.
- The new tariffs that have been levied by China on the US amidst the ongoing trade war brings in the potential for India to fill the gaps left by America in the Chinese market.