Panel in favour of India joining RCEP
A high-level advisory group has batted strongly for India joining the proposed RCEP agreement. The group has said it would not be sensible for India to raise tariffs when the US and China are locked in a trade war.
The suggestion comes days ahead of the pact’s expected conclusion when New Delhi has to take the crucial call on joining or not joining the trade grouping of 10 Asean members and their six free-trade allies.
The high-level advisory group (HLAG) has said that it may not be an option for New Delhi to keep out of the RCEP “because this will exclude India from a large regional market”.
“The rest of the members of RCEP, particularly Japan, Korea and Australia, are prominent members… and some tactical give-and-take should be persuaded to see reason in some of our demands,” the group said in its report.
The HLAG, headed by Surjit Bhalla, a former member of the Prime Minister’s Economic Advisory Council, and formed last year in September, also argued that the rupee is not overvalued and pitched for a broad reduction of customs duties and corporate taxes.
“Our macroeconomy needs strong and severe adjustments… Significant reforms have been done. Businesses in India face the highest costs for capital and labour in the world. Also, it's sad that agricultural and financial exports have not contributed to India's export growth,” Bhalla said at the launch of the report on Wednesday.
Industry lobby CII and the commerce and industry ministry organised the event to launch the report, which proposes ways to double exports to $1 trillion by 2025 from $500 billion in 2018.
The group has said it would not be sensible for India to raise tariffs when the US and China are locked in a trade war.
Both the upper range of tariffs and the number of tariff rates should be reduced over a five-year period, it said. “A hypothetical RCEP like free trade area, when the US and China are fighting a bilateral tariff war, will turn out to be beneficial for all member countries, particularly for India,” the group said, referring to an NCAER paper that was prepared for the HLAG.
The HLAG has proposed introducing a one-time disclosure scheme for declaring foreign income and assets and pay tax at the rate of 15%. The scheme should also provide for locking 40% of the funds in elephant bonds with a coupon rate of 5%. The interest earned from these bonds would be credited to the depositor at the end of 20th year.
The scheme would address the country’s infrastructure requirements. India’s GDP is close to $3 trillion. At an average of 7% over the next 11 years, we will be $6.3 trillion in 2030 and at 8%, it would be $7 trillion, it said.
While the exchange rate has not hurt export competitiveness, the cost of capital and high level of corporate taxes have had a negative impact. The government can better the situation by streamlining regulatory requirements and making policy changes.
“World growth is unlikely to average more than 8% over the next decade. But with an enhanced multiple of 1.25, the export growth target of 10% a year for India, or doubling about every seven years, is realistic,” it said.
The group highlighted that India’s ranking on export performance decreased among 60 major non-oil-producing nations in agriculture, manufacturing goods, goods (merchandise), services and all trade.
India’s ranking is lower now (between 2012 and 2017), attributed to “unreformed mindset; extreme regulatory controls; labour laws in need of urgent reform; high effective corporate tax rates, and the high cost of capital”.
The GST Council has proved its worth and a council for agriculture and a council for labour reforms could be considered, the panel advised.
“We recommend creation of a specialised vehicle empowered to take quick decisions to identify and attract investors based on pre-defined criteria.
This is necessary to enable situation-based decision-making suited for dealing with private enterprises. Further, the vacant land in special economic zones can be used to attract foreign investments,” the group said.
There are two options pertaining to e-commerce – India should participate, but more for information gathering and raising concerns, or it cannot participate but prepare for changes that are going to arise in the regulatory operational context due to FTAs and pluri-laterals, and to stay connected with these markets and developments.