The past two years have been particularly difficult for India's foreign trade in the wake of the global economic slowdown. World trade received a severe jolt due to the sub-prime mortgage debacle in the United States of America, which developed into a global financial crisis and started to move the global economy into recession. The Indian economy as a whole exhibited tremendous resilience, posting a GDP growth rate of 7.2 per cent in the year 2009-2010. India's foreign trade has also gradually started showing signs of recovery from the global economic slowdown as the month-on-month export growth has returned to positive territory post-November 2009.
Against the backdrop of global economic downturn, the trade policy measures adopted by the government of India and the Reserve Bank of India (RBI) during this year primarily focused on mitigating the adverse impact of the global recession on the Indian economy. Such policy measures came in the form of three stimulus packages announced in 2008-2009, measures by the RBI and the government in the Union Budget 2009-2010 and the foreign trade policy (FTP) 2009-2014 to help the export sector in general and the employment-intensive sectors affected by the world recession in particular.
In times of recession, trade protectionism tends to be pervasive. Governments all over the world try to shelter their domestic industries from import competition by imposing new protectionist trade barriers. India has stood out for its frequent use of trade remedies during the crisis. However, pursuant to its commitment towards liberalising trade, India has also concluded two important free trade agreements (FTAs) with ASEAN and South Korea during the past year, while it has hastened the process of concluding an FTA for trade in goods with its largest economic partner, the European Union (EU). India is also committed to an early conclusion of the Doha Round of trade negotiations, provided the core concerns of developing countries are addressed.
Major trade policy measures
The Indian government took a series of monetary and fiscal steps, which included a number of trade policy measures to minimise the impact of global meltdown on the Indian economy and boost and fuel growth in demand. Most of these trade policy measures were announced with the aim of increasing the level of exports by providing as many incentives as possible to the exporters. As a general measure to boost the manufacturing sector, the government reduced excise duty across the board and simultaneously made provision for additional funds to ensure a full refund of taxes made on deemed exports. The government also extended a full refund of the service tax paid by exporters to foreign agents as a part of the first stimulus package. The government, in an effort to resolve all problems related to non-availability of credit, initiated steps to address all procedural problems plaguing exporters while obtaining pre-shipment and post-shipment credit in rupees or dollars at competitive rates. Exporters were provided with adequate finances in dollars with the purpose of cutting down transaction costs for exporters. These measures came as a major relief to Indian manufacturers and exporters faced with a slump in demand and the credit crunch.
In an effort to diversify exports and move beyond the crisis-hit traditional markets like the EU and the US, the government targeted emerging markets of Africa, Latin America, Oceania and CIS countries under various export promotion schemes like the Focus Market Scheme and the Market Linked Focus Product Scheme. The government also proposed to constitute a specialist body, the Directorate of Trade Remedy Measures, to support Indian industry and exporters - especially medium and small scale enterprises - in availing of their rights through trade remedy instruments under the WTO framework. The proposed Directorate of Trade Remedy Measures outlined in the FTP is not just an adjunct for extending trade defence measures but is an omnibus body to address the concerns of small and medium exporters on dumping, import surge and countervailing actions of overseas competitors.
The use of trade remedial measures such as anti-dumping, safeguard and countervailing (anti-subsidy) duties has seen a measured increase globally during this recession. India imposed 15 anti-dumping duties in the first 11 months of the year 2009-2010, with the maximum of 11 duties on Chinese goods. Anti-dumping duty has also been imposed on imports from other countries, including Taiwan, Korea, Thailand, Malaysia, the US and the UK.
Section 9A of the Customs Tariff Act, 1975 contains provisions for the levy of anti-dumping duties. The Ministry of Finance imposes anti-dumping duties on the recommendation of the Directorate General of Anti-dumping & Allied Duties (DGAD). The DGAD constituted under the Ministry of Commerce and Industry initiates necessary action for investigations and subsequent imposition of anti-dumping duties when there is sufficient evidence that dumped imports are causing or are threatening to cause material injury to the Indian industry producing like articles or are materially retarding the establishment of industry.
Section 8B of the Customs Tariff Act, 1975 empowers the central government to impose safeguard duty on goods which enter in increased quantities and cause or threaten to cause serious injury to domestic industry producing like or directly competitive goods. Pursuant to such powers and in compliance with the commitments made under article XIX of GATT, the Indian government initiated around 17 cases of safeguards in the year 2009. However, safeguard duties were imposed only on seven items during that period.
India appears to have attracted attention worldwide for the widespread use of these trade remedy instruments. Emerging economies like India and Argentina have initiated most of these trade remedy investigations during the global economic crisis in spite of commitments made as members of G-20 to refrain from imposing new protectionist measures. Such measures by India seem to have come under greater scrutiny in light of its growing economic clout in global trade as one of the fastest growing economies of the world and its position in other multilateral negotiations, such as at the Copenhagen Climate Change Conference and the Doha Development Round.
India and the Doha Development Round
India has recognised the importance of concluding the Doha Development Round as a way out of the economic crisis by further liberalising the multilateral trading system. In the World Economic Forum held in Davos in early 2009, the commerce minister of India asserted the importance of all countries understanding each other's sensitivities to arrive at a successful conclusion to the Doha Round. India's core concerns relate to protecting the interests of the marginal farmers from developing countries and insulating them from the sudden decline in international prices or a surge in import volumes of agricultural commodities. India has consistently sought the inclusion of a special safeguard mechanism in the agricultural sector as a prerequisite for further liberalisation under the Doha Rounds.
India's other engagements at the WTO
India has emerged as a key participant and user of the WTO system. Recently, the WTO approved India's request to join the committee on government procurement with special 'observer status'. Government procurement is an important aspect of international trade as it accounts for around 12 to 15 per cent of the GDP in most developing economies.
At the WTO Dispute Settlement System, India is involved in 20 cases as respondent, 18 cases as complainant and 51 cases as third party. During the past year, India has not made any new complaints under the WTO Dispute Settlement System. However, the European Community (EC) has requested consultations with India regarding discriminatory taxes applied on imported bottled wines and spirits by two Indian states - Maharashtra, Goa and Delhi, as well as restrictions on retail sale applied by the Indian state of Tamil Nadu and Andhra Pradesh. The EC has complained that it considers that these measures adversely affect exports of wines and spirits from the EC to India. The latest rounds of WTO supplementary consultations on this issue were held in February 2010.
Bilateral trade agreements
Consistent with its commitment to liberalise trade, India signed one of the most important FTAs, the India-ASEAN FTA with the 10-member nation group Association of South East Asian Nations (ASEAN), on 13 August 2009. It is estimated that this much-awaited FTA will benefit 1.7 billion people who live in this economic zone, which generates a total GDP of more than US$6 trillion. It would enable member countries to reduce tariffs for more than 4,700 categories from 1 January 2010 onwards. Trade between India and ASEAN stands at around US$40 billion, and under the FTA trade is expected to reach US$50 billion by end of 2010. The agreement will eliminate duties on 80 per cent of goods traded between the two trading partners over the next eight years. About 75 per cent of tariffs in the trade of agricultural and industrial products will be gradually reduced to zero by 2012, while tariffs for another 10 per cent will be eliminated by 2015. Tariffs on the rest of the products will be renegotiated as they consist of sensitive trade items.
India's FTA with South Korea is another notable achievement. The bilateral agreement has the potential to significantly improve trade between the countries in several key sectors, including automobile, components, heavy engineering, electronics and electrical appliances. As per the India-Korea FTA, South Korea will do away with duties on 93 per cent of its industrial and agricultural products and India will reciprocate by eliminating duties on 85 per cent of its goods.
These two FTAs with the major Asian economies that have rebounded from recession much faster than the developed world have come as a major relief to Indian exporters reeling from the shrinking of their main markets in the United States and Europe.
Overall in 2009, India saw some significant developments in the areas of trade policy and trade remedies as the world prepares to recover from one of the greatest economic crises. In the 2010, India along with other fast-emerging economies like China and Brazil are forecast to assume greater responsibilities in the WTO and other multilateral and regional platforms and play a significant role in global trade.