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No truncated FTA with India: US


No truncated FTA with India: US

February 08, 2005

United States on Tuesday said it was against entering in to a limited Free Trade Agreement with India and any bilateral FTA will have to be comprehensive.

"I am not against Free Trade Agreement between US and India, but it would have to be comprehensive," US Ambassador to India David C Mulford said at an interactive session with the forum of financial writers.

"I do not think it is practical and desirable to have a FTA sector by sector," he said. Mulford’s observation came in the wake of Indo-US Business Council’s proposal for a FTA between the two countries in the services sector.

He said an agreement like North American Free Trade Agreement with India would be hugely ambitious.

Mulford said US was very supportive of India’s goal to be a regional and global power and underlined steps it must take towards this end.

"India has a very aggressive vision for itself that is dependent on producing continuing economic growth at a very significant level. To do that world class infrastructure is needed. Infrastructure has to be put on war footing," he said.

"India has very sophisticated financial markets. They still need liberalisation and development because many of the things that India wants to do, especially infrastructure financing, can only be accomplished if it allows private markets to develop," Mulford said.

The US ambassador said India needs to transform rural economy, reform real estate and retail sector, put in place strong intellectual property protection regime apart from rationalising subsidies.

He said large scale foreign investment in retail would bring efficiencies in the system that would bring down prices of products thereby "empowering the consumer" and increasing standard of living.

"Subsidies in India are significant as compared to gross national product... in many cases these subsidies are not going to those they are targeted at. Reducing subsidies will free up resources for the government to fund the social sector," Mulford said.

He said India still has large barriers to foreign direct investment. Movement in India on reforms is likely to be slower than one would like and may be less direct, Mulford said.

" A coalition (government) makes it more difficult to have a clearly defined programme of reform because you have to modify what you really like to be doing to satisfy other members of the coalition who may not be as willing to support reforms," he said.

"There is, however, siginficant reform going on and some of these reforms look they can be done. If they can be done they will have their own internal dynamics and will create further change," Mulford said.

He said tax reforms like VAT would create a single market all over India and make it a more attractive FDI destination.