As trade talks progress with various partners, India faces a range of expectations. on Monday, Peppermint In the latest round of bilateral discussions on a comprehensive free trade agreement (FTA), the European Union reported a strange proposal. It appears that EU negotiators want India to allow full rupee convertibility on capital account, so that money can move freely in and out of the country for trade and investment. While this has been an objective of India’s long-term reform agenda after major capital controls were relaxed in the 1990s, we retain some restrictions for macro-prudential reasons. As the implications of such a move go beyond the sphere of trade, it is a broader policy matter that cannot be reduced to a negotiating chip that can help us bargain better. It is also unimaginable for India to loosen rules, especially for trade relations with the European Union, which would be neither fair nor feasible. In fact, this is an issue that needs to be independently investigated.
The foreign trade-linked money flows that the FTA seeks to promote are covered under the current account, which India liberalized long ago, and the current provisions enable settlement adequately. There is no doubt that the country’s investment regime needs to be kept as open as possible, but is best judged for economic stability. As the Asian currency crisis of 1997 showed, large-scale panic outflows can shake the economy. To mitigate the risk, the Tarapore Committee laid down a path of convertibility with pre-conditions to be met for security. The panel called for fiscal consolidation, a mandatory inflation target and strengthening of our financial system. Our fiscal deficit still remains wide, even if it is largely attributed to Covid, and progress on the other two fronts is unsatisfactory. While we have formally adopted inflation-targeting, the framework has yet to prove itself, given last year’s failure to keep our general cost of living under control. As far as the domestic financial sector is concerned, we really didn’t need the Adani episode, or even the earlier bank fragility cases, to remind us of the scope for better financial intermediation. Securing the region has so far been an endeavor with uneven results. To be sure, we must try to believe without reason that capital flees. But this momentum cannot be carried forward by FTAs. As India strikes its own balance of partial convertibility with managed currency flows and reasonably autonomous monetary policy, we do not face pressure from the ‘impossible trinity’ to abandon some of our past capital restrictions.
Right now we are under pressure to sign FTAs and expand our export prospects, at least partially for refusing to join the Regional Comprehensive Economic Partnership, an emerging free-trade area led by China that is part of Asia. Covers most of the. Our trade policy is instead focused on bilateral agreements. Talks are on not only with the EU but also with the UK, for which India overtook France last year to become the largest market for Scotch whiskey by volume. Its Indian import is reportedly set to increase by 60% to 219 million bottles of 700 ml in 2022. London has been pressing New Delhi to reduce harsh import tariffs of 150%. Tariff reduction will deprive us of some revenue, but our wine businesses do not need any protection and we can easily see this issue as a bargaining chip for a deal that will allow Indian access to UK markets. makes it comprehensive. We must put some things on the table for the transaction to take place. Our comprehensive policy on global integration is not among them.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.