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"Investment barriers must go"

Sify, India

"Investment barriers must go"

By G. Srinivasan

15 March 2008

The Third Ministerial meeting of the South Asian Association for Regional Cooperation Free Trade Agreement (SAPTA) hosted by India on March 3, 2008 in New Delhi, saw India pruning its "Negative List" from 744 items to around 500, for the Least Developed Countries (LDCs) of the South Asian region such as Bangladesh, Bhutan, Nepal and Maldives. Budget 2008-09

India has been on an overdrive in eliminating duty on a range of items to LDCs under the FTA route in recent years and now maintains just 500 items in the "negative list" where duty concession could not be exchanged.

It is true that regional cooperation is a sure-fire route to consolidating gains of development among contiguous countries as the North Atlantic Free Trade Agreement (NAFTA) had demonstrated in the case of the US, Canada and Mexico. Though SAARC has been in force for over two decades, progress and performance on many fronts remain patchy because of lack of political will.

Business Line spoke to the Minister of State for Commerce, Jairam Ramesh, on a range of issues that have hobbled this grouping from achieving tangible gains. Ramesh had visited Bangladesh, Sri Lanka and Pakistan and is due to visit Nepal, Bhutan, Pakistan and Afghanistan before end-June 2008.

Always outspoken, Ramesh minces no words when he declares that "India’s globalisation is incomplete without closer engagement in South Asia. India cannot do bypass surgery on South Asia-this notion in India that we can be a global player and couple our economy with the American economy bypassing our own neighbours - we can’t couple with America and decouple from South Asia - is not possible. We need to understand that the foundation of our globalisation rests on closer regional cooperation in goods, services and, most importantly, in investments."

Deploring the glacial pace of movement on these matters as well as on border trade, Ramesh says, "I have been trying to get across in the last two years that the notion of border trade to build infrastructure and to promote trade in the border - it is really trade at the border, as I don’t like the epithet border trade - we must move from border trade that is restrictive and list-based, to MFN (most favoured nation) trade at the border. We have to build infrastructure for this". He concedes that India has fast forwarded tariff liberalisation programme (TLP) for LDCs within SAARC - brought it to zero for the LDCs and has only a negative list and this also "we decided to prune substantially".

"In Petrapole (India-Bangladesh border trade area in West Bengal) I can get Grameen mobile phone but not BSNL. In Nathula, I can get China Telecom but not BSNL because of some outdated security regulations which we have to give it up".

Excerpts from the interview with Ramesh: On Non-Tariff Barriers (NTBs): We have conducted a detailed analysis of 50 NTBs that we had asked our trading partners to notify - both non-tariff and para non-tariff barriers. A majority of them had been notified by Pakistan, Bangladesh, Nepal and these countries had notified bulk of the barriers that India imposes. This was shared by all members of SAFTA.

The main thing is that our testing and certification procedures (TCPs) for import of items such as food and textiles have to undergo a major change. This process has already begun. We have accepted the principle of mutual agreement our standards institutions recognising their counterparts in other SAARC members. Once we have this Mutual Recognition Agreements of standards across the border, we accept the TCPs of these countries which are accredited to the Bureau of Indian Standards (BIS), and then much of what is recognised as NTBs will actually go.

There is no doubt that our import procedures are somewhat complicated and non-transparent. We are going to do documentation on that so that exporters in these countries who complain would be satisfied.

We do recognise that we impose NTBs to protect our industry. After all, the fact that we do not allow import of palm oil through Kochi and Beypore port is an NTB. We should not be defensive about NTBs which we impose because of domestic compulsions. We must recognise it and we must be upfront about it.

India, being a dominant power in the region, has the responsibility to address opaqueness and non-transparency because this will, substantially, earn goodwill.

On trade in services and Investment: We have got the Research and Information System (RIS) study on the potential for trade in services, which is the next phase after trade in goods. RIS is going to draft a SAARC Framework Agreement on trade in services by June 30, 2008. We also have a SAARC Framework Agreement on Investment Promotion, which is under discussion.

On investment, we still don’t allow FDI from Pakistan. I have written to the Prime Minister that just as we have removed the ban on FDI from Bangladesh, we must now remove the ban on Pakistan. It does not make sense to talk about a draft SAARC Framework Agreement on Investment Promotion if India imposes barriers on investment. SAFTA has progressed but the more important issue to address is investment. Pakistan and Bangladesh are worried that because of SAFTA if they open up trade, it will work to their detriment.

As it is, Bangladesh’s exports to India are about one-tenth of its imports from India. In the case of Pakistan, its imports from India are about two-times of its exports to India. So there is a very substantial trade deficit both these countries have with India and similar is the case with Nepal.

The only way the trade deficit issue can be addressed is through investment. By aggressively pushing Indian companies into these countries and making investments there and using these countries to buy back from them is the next big thing we can do.

It is not just Indian companies going into these countries for investment. Sri Lankan companies are now investing in India. Brandix Apparel in Visakhapatnam, a Sri Lankan joint venture, is planning to invest $1 billion over the next seven years. MAS, another textile company from Sri Lanka, is planning to invest about $200 to $250 million in the next two to three years. A large number of Bangladeshi firms in pharmaceuticals and textiles want to invest in India and I am sure that Pakistan companies too would be willing to do the same.

When I visited Maldives recently, a number of Maldivian entrepreneurs showed interest to invest in tourism in India. Why can’t we allow them to invest in Lakshadweep, Minicoy and Andaman and Nicobar Islands leveraging their expertise in this brand of tourism?

On border trade: We have an ambitious Rs 950-crore proposal to build infrastructure in 14 land customs stations in the border areas with Bangladesh, Pakistan, Nepal, Myanmar and China to create modern facilities of our international trade at these LCS. We have a number of proposals to open up more LCS in the North-East to improve connectivity with China, Bangladesh, Myanmar and we are pursuing them diplomatically.

We intend to establish a Land Ports Authority. A Bill to this effect is to be introduced in the current session of Parliament to manage all the land ports efficiently through infrastructure improvements. We need to improve rail links in South Asia. We need a multi-modal transport initiative to improve connectivity among neighbours to bring about closer integration.