Former Reserve Bank of India (RBI) chief Raghuram Rajan says India will have to deal “carefully and cleverly” while negotiating with the US on a bilateral trade agreement (BTA) to ensure that its agricultural sector and producers remain protected.
“I think where it is much more sort of difficult (trade negotiations) is in areas such as agriculture, where every country subsidises its producers. Our producers may be relatively smaller, may have somewhat lower subsidies...so, unconstrained flow of agricultural products into the country may create problems for them,” he said on Friday, in the backdrop of the Indian team from the department of commerce under the Ministry of Commerce and Industry having returned from Washington, where it was engaged in the fifth round of negotiations for the proposed Bilateral Trade Agreement (BTA).
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Rajan, who is currently a professor of finance at Chicago Booth, said there can be ways to sidestep opening of the agriculture and dairy sectors to the US market, for instance by inviting Foreign Direct Investments (FDIs) or improving the value added in milk products.
“Are there things we can do that don’t constitute welcoming more milk into the country from other countries? For example, can we encourage more FDIs from the developed countries to enhance the value added in some of those sectors. We can improve the value added in our milk products, milk powder, cheese, etc. which could be beneficial to our milk producers,” the eminent economist noted.
However, Rajan warned this may require careful negotiations. “So all this requires very careful, clever negotiation, and I hope that is what our government officials are engaged in,” he said.
US President Donald Trump said last week that the proposed trade deal with India would be on the lines of what America had recently finalised with Indonesia.
But, giving access to its agriculture sector has turned out to be the bone of contention for India in its trade deal talks with the US, especially since India has, so far, not given any duty concessions to any of its trading partners in a free trade agreement in the dairy sector.
While acknowledging that trade tensions would be negative for both nations in terms of exports as well as investment, Rajan said that the silver lining could be in India being preferred as an alternative destination for manufacturing exports if trade tariffs imposed by the US on other countries, such as China, turn out to be higher than the tariffs on India.
While pointing out that Indian manufacturing exports to the United States are “not that big”, Rajan said any kind of tariffs on India will have some modest dampening effect, even if not a lot.
“India’s economic growth settled in the 6-7 per cent range. A fraction of percentage point maybe affected by the global tariff environment. But in the longer term, this would spell opportunity for India,” he said.
Also Read: US rejects India’s retaliatory tariffs claim under WTO rules
Since his April 2 ‘Liberation Day’ tariff announcement, Trump has postponed the imposition of the additional 26 per cent tariffs on India to July 9, and now, to August 1.
India, meanwhile, is seeking the removal of these additional 26 per cent tariffs, along with the easing of 50 per cent tariffs on steel and aluminium and 25 per cent tariffs on auto sectors.
Rajan also underscored the need for India to drop its “protectionist” attitude to an extent.
“India has been historically protectionist and wanting to bring down the level of tariffs; we can certainly reverse that protectionism. For example, in car manufacturing, we may have some advantages. We produce certain kinds of cars very well, and bringing competition in the automobile sector can actually be quite beneficial,” Rajan observed.
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