Rakesh Mohan, member of the Economic Advisory Council to the Prime Minister (EAC-PM), on Thursday said India has room to reduce import duties and should aim to bring them down to ASEAN levels to enhance competitiveness and global trade integration.
He said the world trading system is increasingly governed by large regional trading blocs such as the European Union, the USMCA in North America, RCEP in Asia, and the CPTPP spanning Asia and the Pacific. This shift, he said, makes it important for India to recalibrate its trade strategy.
“I do believe there is room for reducing a lot of our tariffs and bringing them down at least to the ASEAN levels. And that will be very good for us. Now, one implication of that is that the exchange rate will need to then move to compensate for the reduction of those tariffs,” Mohan told PTI Videos.
Mohan stressed that India must not remain isolated from global trade and should consider joining major trade blocs. “Given its geographical location, India should reconsider joining the Regional Comprehensive Economic Partnership (RCEP), while making appropriate safeguards for our interests, and also apply to join CPTPP,” he added.
Reflecting on India’s trade policy since economic reforms began in the early 1990s, Mohan said, “From the early 1990s till around 2012, India was continuously reducing its tariffs gradually.
{{/usCountry}}Reflecting on India’s trade policy since economic reforms began in the early 1990s, Mohan said, “From the early 1990s till around 2012, India was continuously reducing its tariffs gradually.
{{/usCountry}}After 2012, that process stopped, and from 2017 onwards, tariffs increased somewhat on average.”
He also highlighted that a key reason the 1990s reforms succeeded without much pain was the ex-ante devaluation of the rupee, which effectively protected industries.
“As we reduce tariffs to become more competitive and integrate further into the global supply chain, the real exchange rate will need to move in favour of exporters and manufacturing,” Mohan added.
ASEAN comprises Singapore, Malaysia, Thailand, Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, and Vietnam. India had negotiated RCEP from 2013 but pulled out in 2019.
The RCEP bloc includes the 10 ASEAN members along with six FTA partners: China, Japan, South Korea, Australia, and New Zealand.
On easing restrictions on Chinese investment, Mohan said India should welcome investment across labour-intensive sectors, given the rising per capita income in China.
“Indian entrepreneurs should be encouraged to form joint ventures with Chinese investors so that many industries come here,” he said, noting that China is also one of the world’s largest importers, with a trade volume exceeding USD 2.4 trillion, while India’s presence in that market remains minimal.
He suggested the government can help exporters identify products China imports and incentivise industry bodies to actively explore these opportunities. Currently, FDI from countries sharing land borders, including China, requires mandatory government approval in all sectors, a policy issued in April 2020.