India under pressure, as China, US ink trade pact

Govt says Information Technology Agreement will be beneficial to India only when domestic manufacturing is robust

The Narendra Modi government will have to intensify its efforts to promote local manufacturing of electronics to counter the possible fallout from the US-China trade pact that removes import tariffs on a host of new electronic items.

In the wake of the pact, which was signed last month, India is facing renewed pressure to sign the extended Information Technology Agreement (ITA).

India has been reluctant to sign the pact, saying the ITA will only be beneficial to the country when domestic manufacturing is robust.

Signing the agreement will also go against Prime Minister Modi’s Make in India push as it will make importing goods cheaper than manufacturing them locally. A government official said although India has lost China’s support in opposing the extended ITA, it will not sign it as yet.

“From the perspective of promotion of electronics manufacturing, it is not in our interest to sign,” the official said.

The first ITA was signed in 1997 and has not been reviewed since despite massive technological innovations and additions in the past 17 years. The official said even last time, all the countries did not sign the agreement in one go. The countries that are supporting the agreement are the first ones to sign, gradually building pressure on others to come on board.

“Only if we expand exports and local manufacturing is the ITA in our interest”, said the official, adding “So, it puts pressure (on us) in the sense that in the next two years we have to develop manufacturing.” There are signs of local production picking up, he noted.

Under the first phase of ITA, almost all prominent electronic items were covered and import duties on them were removed by all member countries so the import costs go down. However, the decision to sign the agreement is often considered to be one of the reasons for India’s lacklustre domestic electronics manufacturing ecosystem.

The official said despite the past debacle, India would like to sign the agreement, as it would give local firms access to a huge market.

The agreement covers 200 new tariff categories covering $1 trillion in global sales trade, according to the US government. It is also expected to create as many as 60,000 jobs in the US and increase global annual gross domestic product by $190 billion, according to a White House fact sheet.

In a recent interview to Business Standard, Arun Kumar, assistant secretary of commerce for global markets and director-general of the US and Foreign Commercial Service, had said: “We want to have low tariffs on information technology projects all over the world, it is all about being competitive and having choices.”