To become a developed country, India has to expand international engagement: Piyush Goyal
Soon after the first Indo-Pacific Economic Framework (IPEF) ministerial concluded, commerce minister Piyush Goyal spoke to HT about the framework, China, semiconductors, India’s trade figures, and free trade agreements (FTAs) in an interview.
In the middle of his packed visit to the West Coast, while driving from meetings at the Los Angeles port to the Sony headquarters, commerce minister Piyush Goyal spoke to HT about the Indo-Pacific Economic Framework (IPEF), China, India’s recent trade figures, and the thinking behind New Delhi’s energy on free trade pacts.
How should one understand IPEF, conceptually and practically? It is an unusual arrangement. It is not a free trade pact. This has led to skepticism that it is more symbolic than substantive.
Traditionally, trade was always part of free trade agreements and robust trade arrangements meant trade and duty concessions. The world is changing now. The impact of duties is gradually reducing. On almost all imports into countries, particularly of critical items where you want free trade, import duties have reduced quite significantly. Of course, free trade agreements (FTAs) will continue to have their importance and we will see lot of those in the future. But strategic partnerships and relationships are going to define engagement in the future. The fact that you are an ally, a friend, a trusted partner is going to become increasingly important to drive investments from one country into another. So if, say, we are trying to invite high-tech industries from the United States (US) to India, when they see us as a part of the grouping with the US on an important initiative like IPEF, when they see the kind of commitments that countries within IPEF are making to each other, there will be more comfort in working with these countries.
The important element of countries which have become members of these is that we believe in free trade, we believe in transparent government, in rules-based business and trading arrangements. That is what truly differentiates IPEF and its member countries from the rest of the countries in the region. And that all of us are working to strengthen each other’s economies, create jobs, and drive investments in each other’s countries. It is a very exciting future we are looking at.
If we are talking about trust, strategic partnerships, and rules-based order, why don’t we name China?
We don’t have to name one country or the other. Those who have become part of the grouping are all countries which believe in and trust each other. We all have very transparent trading arrangements. All those who agree and work within those principles are part of this agreement.
But many of these countries are also economically very integrated with China. Do you think there is a degree of diffidence in naming China to cater to this sensitivity?
Countries which are part of this have come consciously of their own free will. They all want to engage more with others like us and America who are very strongly wanting to establish rules of trade which are transparent, fair and provide equal opportunities for all. And those who have come into IPEF, who may also have strong trading relations with other countries, recognise the strength of this grouping and want to be a part of it.
India joined three pillars and stayed out of trade. Why?
At this stage, we have not yet made up our mind about the first pillar of trade because there is a possibility that it may involve certain binding commitments, it may involve elements on environment and labour which have traditionally not been a part of our agreements. We have recently started engaging with countries on environment, gender, digital trade and such areas in FTAs. Digital and data policy is currently being finalised. On environment, we are on very strong footing and are very committed to getting climate change sorted out. But we are also conscious that the developed world should contribute in terms of low-cost long-term financing and technology, on which we have been clear right from Paris. We also believe in sustainable lifestyles to reduce waste. We have a certain set of thoughts that we would like to see if this grouping is comfortable with and are willing to work around those principles. At that stage, we can consider joining that pillar also. At this stage, there was very little time, we were finalising statements of the ministerial. We were engaged in the drafting of the statements but we wished to have more discussions before we finalised our mind on it.
So the door is not closed.
Absolutely not. Going forward, our officials will be a part of the negotiations and discussions on the first pillar also. All the member countries are really deep friends. The US and India are closer than ever before. We are strategically engaged with each other in many areas. Two Quads – something that has never been thought of before. We are working closely through the Trade Policy Forum on which many of the issues that are a part of IPEF’s trade pillar are already a part of our negotiations at TPF. We have a very vibrant commercial dialogue which (US Secretary of Commerce) Gina (Raimondo) leads. In any case, we are engaged on all these subjects. So I don’t see any great difficulty going forward and becoming a part of the trade pillar also. We would like to take domestic sensitivities into consideration before we take a decision.
To turn to the first leg of your trip here, you spent time in the Bay Area and engaged with semiconductor companies. What was your takeaway?
One thing is clear. They are all very excited about the India opportunity. Another thing that came out clearly is that elements of that industry are already present in India in big measure and growing. Companies have their R&D (research and development) centres, design centres. They have actively been ramping up their hiring in India. Jobs are being created in the semiconductor space on R&D and design. The logical next step would be if we can get packaging and testing into the ecosystem in India and simultaneously look at creating a dedicated talent pool which understands semiconductors, which is already happening due to the R&D centres. Coupled with that, I realised that there is a huge presence of Indians in the semiconductor industry locally in California. One of the companies that manufactures equipment and also does a lot of research told me that 60% of their revenue is driven by Indians. I believe that India will very naturally and seamlessly be a partner of choice going forward. But it also means there is a process. It doesn’t mean that there is a building block you bring in and establish. One will have to evolve the ecosystem and with that get the semiconductor industry.
So India’s success in this sphere should not be judged on whether we get a fab or not but whether we can strengthen the ecosystem.
What’s important is certainly not the fab as I have understood it from my engagements. Fab can be there, it may take time to come. What is important is that you are a part of the supply chain, part of the whole ecosystem where countries are trading among trusted partners. And that’s where frameworks like IPEF matter. If they are comfortable with design coming in from India, R&D happening in India, it means you are part of that supply chain. So going forward, whether the fab is in India or Japan or America, all of us will be working as one team.
Did this come up in the bilateral discussions too with your US counterparts?
We discussed many issues. Of course, Gina Raimondo has been instrumental in getting the CHIPS Act passed, which is probably one of the first pieces of legislation where bipartisan support was visible. They are putting in $40 billion to support the semiconductor industry. India already has a programme where we are providing $76 billion to support the industry. In a way, our thinking is quite aligned.
You also engaged with the start-up investor community here. India has had some notable successes in recent years. Do you see the momentum sustaining or is it plateauing now?
On the contrary. It's not about sustaining the momentum. From what I hear and what I have understood from local investors and the venture capital funds, they are very excited about the India opportunity and see huge potential going forward. They have shared with me their plans in many cases for India. Almost every fund has an India presence currently. And we in India are working towards creating a bridge between California and India because we believe that there is a lot more opportunities there, which, if presented to Californian investors, will actually help us increase the investment appetite from here.
What needs to be done on the domestic front to enable this?
We have received some ideas on certain policy initiatives that we could take in India. We will certainly examine them once I get back. We are also looking at mentorship programmes between India and California, which will a) help our startups align their thinking with the thinking of investors here, b) upgrade their knowledge and c) make them future-ready, make them ready to engage with the rest of the world. Some of the senior leaders of the industry, particularly from TIE or Indispora or USIBC and other such groupings, have indicated their serious interest to also work with Indian companies, particularly startups, to give back the knowledge that they have acquired here. There is a 200,000 IIT alumni across the world, including in India. We are now looking at ways and means to tap that alumni network, which is worth its weight in gold or platinum or diamond, and all of them put together. And they are very committed. They are very conscious that they got their basic education out of the wonderful systems in India. And they want to give back, they want to participate in the emerging India story.
I want to switch gears and ask you about India's recent trade figures. Why are exports down and imports up?
Exports aren’t down. Exports are up about 15 to 17% in the first five months compared to last year. So the export momentum is continuing. By the way, 15% increase in export is not a small number. It's pretty high in the normal terms. If you look at world trade also, it's not growing at this pace.
In terms of imports, it's a very logical story. I have been assessing the numbers. Our petroleum imports, and we are pretty much dependent on imports for petroleum products in India, are almost double of what it was last year. Prices are high and economic activity is quite high in India, which clearly means good things are happening. If petroleum products are needed in volume, much more than what they were last year, it is indicative of the bounce back in the economy.
I also see a lot of imports on cooking coal and raw materials like copper, which is also indicative of significant economic activity. There has been an increase in machinery and inputs coming into the electronic industry also, which augurs well for the future, particularly when we are trying to create an electronics ecosystem or manufacturing base in India. So I am not very concerned about the increasing imports.
International trade has both elements, import and export. There are many issues where imports are very essential to the economy. We have a huge surplus in the services side, particularly with IT exports doing very well. Tourism, hospitality, travel having come back, we expect service exports to also show a significant bump up this year, beyond the norm. And therefore, at an aggregate, we will not be very bad off in terms of the trade deficit.
Why are imports from China still increasing?
Number of items where there are essential imports also from China, like rubber, pharma APIs or KSMs. A number of products where, in the past, the demand was not seemingly very large and people continued to import, now with the increased imports, I think investors will also see an opportunity in India. The PLI schemes have just started kicking in. In fact, I believe yesterday or day before the first cheque on the PLI schemes of the ministry of electronics and information technology was written out. I think PLI is going to be crafting a new economic future for manufacturing in India. And, this increased import gives a clear signal to investors that there is a market, there is demand, and that will obviously encourage investments.
So you think that as investments grow, manufacturing increases and we find alternative supply chains, our dependence on China will reduce?
We have to let this play out. The government doesn't drive imports from one geography or the other. Of course, through our FTAs, we will be encouraging through duty-free imports high quality products coming in from our trading partners, where we are doing FTAs.
Personally, and as a government, we are focusing a lot on quality consciousness. The prime minister has brought the attention of the nation to the fact that Indian consumers should get quality products and India should be recognised the world over as a quality manufacturer of goods and services, supplier of services, as well as a country which is a demander of quality, not just which is looking at very low-cost products. I think once that consciousness comes in and we get out of that old-age theory, where we had a set of products for export and a set of products for the domestic market, we are gradually getting that out of the minds of the people and in our trading system. Every product and every service from India should be high quality. That’s our aim.
You mentioned FTAs. When the Atmanirbhar campaign was launched, there was increase in some import tariffs, and we stayed out of our RCEP, there was this criticism that India is turning protectionist. But you have, in the last year, signed two FTAs and negotiations are ongoing with many others. So how do you strike this balance between strengthening our domestic ecosystem while not being protectionist and embracing the world?
First of all, Atmanirbhar Bharat does not mean that we are anti-imports. I am on record more than once to say that we are actually opening the doors wider for international trade. And when we talk of international trade, it is imports and exports. Every country has its competitive strength in certain areas. India will have its competitive strength, let's say in textiles and footwear and pharmaceuticals, and many other products. But there may be other countries who have their strengths in certain areas, which are needed in India.
I think we should exploit the world's capabilities, get the best in our country, continue to support domestic business and industry to see what more we can do in India competitively because ultimately we also have to satisfy our consumer and the customer. So protectionism cannot be at the cost of consumer satisfaction.
Atmanirbhar Bharat has two elements. One is, of course, promoting domestic business and industry from a perspective of ensuring that they get an opportunity for fair competition, particularly with certain countries that don't have very transparent trading systems. But it also has an element where we are appealing to the Indian consumer, Indian business community, people of India to give a preference to Indian products as do many other countries.
Today you see after prime minister launched the Atmanirbhar mission, every other country in the post-Covid world has realised that what he spoke about five years, seven years ago was the right way. And now everybody is changing track, not necessarily becoming protectionist, but ensuring resilient supply chains, ensuring that their dependence is not such that it can cripple their economies. And our approach is the same. We want to be self-sufficient wherever we can, but wherever we depend on imported goods, we want that to be through our partners who will not let us down at the time of need.
So what has driven this new energy on FTAs over the last year?
Our understanding that as the country today aspires to be a developed nation – and the PM has given a clarion call from the ramparts of the Red Fort as we celebrated 75 years of independence that India is now ready set to go; the next 25 years, Amrit Kaal, is going to define our future, it's going to be a golden period taking us to a developed nation. In this period where the country is engaging with the rest of the world, from a position of strength, our understanding is that unless we expand international engagement, we will not become a developed country. If you look at the history of nations, all those who expanded their international operations on trade are the ones which today are developed nations. All those who looked inward only have remained relatively less developed or didn't get the fruits of development as much as they could have.
What's been the most interesting and challenging thing for you personally while negotiating these free trade pacts?
I think FTAs are not for the short term. When you're finalising a FTA, you have to actually crystal-gaze into the future, many, many, many decades ahead. And you have to look at the wide span of possibilities. So if I am doing an agreement with country X, I have to also look at all their other FTAs to assess what could be the impact of what can come from a third country via the country with whom we are working. I have to look at what India will need 20 years, 30 years, 50 years ahead; any decision taken now, what it could mean in terms of good or bad for the country, many, many, many years into the future. So it's a very fascinating exercise, both of the mind and also very often, somewhat modeling and crystal gazing into what can happen, what could be the possibilities. So it's a stimulating exercise. I have some wonderful teams working in commerce particularly, but along with that, engaging with all the other ministries who are all quite aligned with this thinking that is the prime minister's vision for India. So it's a tremendous satisfying role and great learning experience.
How do you convince domestic stakeholders, many of whom are traditional BJP supporters, whose economic interests will get affected one way or the other, to get on board with this thinking?
Prime Minister Modi has always believed in extensive stakeholder consultation before taking any decision on international trade. So RCEP (Regional Comprehensive Economic Partnership) was something about which the entire Indian business community was extremely disturbed and worried. And we saw that when we did the stakeholder consultations across the country. The PM had tasked me to go across to different sectors and understand what does the business community and the people need. And the messaging all across was that since we already had an FTA with Japan, Korea and the ten ASEAN countries, effectively, this agreement would have given China a big foothold into India. And, China, with its current trading policies, was really not somebody with whom we wanted to do an FTA. Keeping that in mind, we decided not to join RCEP. And that came from the sensibilities of the domestic industry that were reflected in our stakeholder consultation.
Subsequently, we have done agreements with UAE and Australia. And again I had very, very extensive stakeholder consideration. So I dare say you will not find a single article or an editorial, which criticised the India-UAE or India-Australia pact because the entire industry was on board so much – so that we had industry segments telling us they want this agreement, rather than industry normally being hesitant to open up trade. We had industry segments telling us we are fine with zero duty on imports of our products and we can compete with the best in the world, with a caveat that the other party should believe in honest trade and should not be undercutting or should not be giving subsidies without transparency. As long as it's honest, free trade Indian industry can compete with anybody in the world.
And, even for the UK, Canada and the EU FTAs, which are currently under negotiation, we have had huge amount of consultations. It starts with the officials consulting line ministries; officials of line ministries and commerce consulting private sector and industry participants; then, at secretary level, we have a lot of consultations, both inter-ministerial and with the associations and sector-specific companies or organisations. And finally, I also engage with a number of industry associations and sectoral groups to be clear in my mind that nobody is against the FTA or if they have any sensibilities or any suggestions, we take that on board while finalising it.