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Mains Practice Questions

  • Q. ‘The US is one of the largest trading partners of India at present.’ In the light of the statement discuss the issues prevalent in the trade relations of the two countries. (250 Words)

    15 Sep, 2021 GS Paper 3 Economy

    Approach

    • Start with giving some facts on India's trade with the US.
    • Discuss the issues and challenges persisting in the trade relations of the two countries.
    • Suggest a way forward.

    Introduction

    The USA is one of the few countries with which India has a trade surplus. In 2019-20, the bilateral trade between the USA and India stood at USD 88.75 billion. However, recently, the new US administration has indicated that it is no longer interested in securing a bilateral Free Trade Agreement (FTA) with India.

    Body

    Issues in the Trade Relationship

    • Tariffs: Both the countries cite market barriers including both tariff and non-tariff barriers, as well as multiple practices and regulations that disadvantage foreign companies.
    • Generalised System of Preferences (GSP) Programme: Effective from June 2019, the USA decided to withdraw duty-free benefits to Indian exporters under the GSP programme.
    • Services: A key issue for India is the USA's temporary visa policies, which affect Indian nationals working in the United States.
      • India also continues to seek a “totalization agreement” to coordinate social security protection for workers who split their careers between the two countries.
    • Agriculture: Sanitary and phytosanitary (SPS) barriers in India limit USA agricultural exports.
      • Each side also sees the other’s agricultural support programs as market-distorting.
    • Intellectual Property (IP): The two sides differ on how to balance IP protection to incentivize innovation and support other policy goals, such as access to medicines.
      • India remains on the “Special 301” Priority Watch List for 2020, based on concerns owing to its treatment of patents, infringement rates, and protection of trade secrets.
    • "Forced" Localization: The United States continues to press India on its “forced” localization practices.
      • Initiatives to grow India’s manufacturing base and support jobs include requirements for in-country data storage, domestic content (such as laws protecting India’s solar sector), and domestic testing in some sectors.
      • India’s new data localization requirements for electronic payment service suppliers such as MasterCard, Visa, etc.
    • Investment: US concerns about investment barriers remain nevertheless, heightened by new Indian restrictions on how e-commerce platforms such as Amazon and Walmart owned Flipkart conduct business.
    • Defense Trade: The United States urges more reforms in India’s defense offsets policy and higher Foreign Direct Investment (FDI) caps in its defense sector.

    Way forward

    • Switching to Multilateralism: Given that India is not party to any mega-trade deals, this would be an important part of a positive trade policy agenda.
      • Having walked out of RCEP, India needs to demonstrate to its potential FTA partners, including the EU and the UK, that it is a viable alternative to China in a post-Covid world.
    • Economic Reforms: India’s trade policy framework must be supported by economic reforms that result in an open, competitive, and technologically innovative Indian economy.
    • Improving Manufacturing: The share of manufacturing in theGDP needs to rise through efficient implementation of schemes such as the Make in India initiative.
      • Further, Implementation of India’s major schemes—the Smart City Project, Skill India Program, and Digital India—will require foreign direct investment and a comprehensive rebooting and rejuvenation of India’s manufacturing sector.
    • Need For Innovation: If innovation needs to be promoted, perhaps India should have unveiled an innovation incentivization policy, as intellectual property rights are the flip side of the innovation coin.

    Conclusion

    There is a huge potential to boost bilateral trade between the countries especially on account of increasing anti-China sentiment in both the nations.

    Thus, the negotiation should focus on the resolution of various non-tariff barriers and other market access improvements as early as possible.

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