Despite TPP, India to progress cautiously: DBS Research Report

India's position on trade agreements is under scrutiny after a group of 12 countries, led by the US, reached a tentative agreement on the Trans-Pacific Part­nership (TPP) earlier this week. While its ratification by the signatories and other processes are expected to delay its implementation by a few more years, none­theless India's patchy track record on free-trade agreements is feared to hurt latter's ambitious goals to double exports to USD 900bn over the next five years.

Of the twelve signatories of the TPP, India has existing free trade / cooperation agreements with three. Negotiations are on-going with the ASEAN member countries on a separate Regional Comprehensive Economic Partnership (RCEP), which includes China but not the US. India had expressed plans earlier in the year to join the APEC (Asia Pacific Economic Cooperation), but there has been lit­tle material progress since then. The TPP is a sub-set of the APEC bloc. Focus has also been on pushing forth with other key pacts, especially with the European Union, however progress has been slow.

The government has taken active interest in forging deeper international ties since assuming office last year, especially to attract foreign investments for in­frastructure and manufacturing facilities. But progress on bilateral/ multilateral trade pacts particularly has been tricky, given the tough choice between main­taining controls on certain strategic aspects (including agriculture, pharma, in­tellectual property rights, services etc.) or provide a seamless/ low barriers' access to domestic sectors. Authorities have leaned towards the former in recent nego­tiations, suggesting that the push to conclude more trade pacts will evolve at a cautious pace.

Close to a quarter of India's merchandise exports headed to the US and ASEAN countries last year, with another 4% to key Latin American markets. Concern is whether improved market access, tariff reductions and diversion of service tradebetween the TPP members (as and when it becomes effective) might erode India's market share. A think-tank estimates that India's exports, especially tex­tiles and leather products might face threats, as countries such as Vietnam and Malaysia get cheaper access to the US and other markets covered by the deal, as cited by the press. An international study group has pegged the near-term damage to exports at ~USD 50bn, however the real impact is likely to smaller in our view as the TPP is likely to take years to implement. Overall, given the weak global demand backdrop, collapse in commodity earnings, domestic bottlenecks and cautious stance on trading pacts, meeting the government's ambitious tar­get to raise India's share in global trade to 3.5% by 2020 (from 2% presently) will be an uphill task.

Source : Equity Bulls

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