Rising imports are a concern, but imposing curbs is not the solution: BVR Subrahmanyam

Rising imports are a concern, but there should be no brakes to control the soaring trade deficit, said BVR Subrahmanyam, who retired as commerce secretary on Friday (September 30). He will assume the role of Chairman and Managing Director of the India Trade Promotion Organization (ITPO).

While higher tariffs seem like a good short-term solution, in the long run they make industries uncompetitive, he said in an interview with ET.

“The tariff as a trade policy tool is an outdated ideology,” he said, adding that India is on track to reach $470 billion in merchandise exports this fiscal year. although there are headwinds from the disruption caused by the Russian-Ukrainian war, China’s negligible growth, high inflation in the UK and US and the effects of Covid.

India’s goods exports slowed to 1.62% in August and the trade deficit more than doubled to $27.98 billion from a year earlier. Imports increased by 37.28% to $61.9 billion in August this year.

“Imports are a concern,” he said, adding that many imports such as fuel, fertilizer, coking coal, edible oil and pulses are inelastic.

“If you remove them, then 70% of imports are capital, raw materials and intermediate products… A lot of manufacturing strength depends on imports, which is a sign of a healthy economy.”

When asked if discussions were ongoing between different ministries to restrict imports, he replied: “There are constant discussions but at the moment I don’t think there is cause for concern. Services will massively bail out the country.”

To bridge the trade deficit, he said either exports can be increased or imports can be reduced through restrictions or tariffs which are helpful in the case of gold but add to inflation in other cases. .

“The second-order effects of tariff protection in the medium to long term are not beneficial as industries become uncompetitive. Moreover, 70% of trade is done on global value chains which want the free movement of goods,” he said.

Despite export restrictions on rice, wheat and sugar, he said India will record $60 billion in agricultural exports this year, up from around $50 billion in FY22.

“It will be made up of coffee and seafood,” he said.

Trade pacts

Subrahmanyam said India and the UK were exchanging tariff deals for a trade pact which is 80-90% complete and on track to be signed around Diwali. The pact will have 27 chapters including goods, services, environment and labour. “We are engaging with our whiskey industry and are close to making an offer within a week.”

While the UK makes 800,000 cars, India makes 3.5 million. However, the UK exports 80% of its cars, with the bulk of shipments going to Europe, while India exports 15%. Subrahmanyam said India is also of the view that European products are not treated as British products. India is also in talks with the EU for a trade pact and the next round will take place next week. On issues such as environment and labor entering FTAs, he said India should not worry as the country will retain its freedom and political space.

IPEF, G20

On India not joining the trade pillar of the Indo-Pacific economic framework, he said India was in wait-and-see mode. Subrahmanyam said India was not obsessed with the WTO being the only mechanism and would come up with new ideas such as how trade can help MSMEs during its G20 presidency.

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