India is gearing up for Free Trade Agreements (FTAs) with many countries and regions to boost its share in international trade. However, competitiveness of Indian industries remains a critical issue before any FTAs are signed.
Even after becoming a WTO mem-ber, India has not gained much in international trade. India's share is still at the 0.82% of world trade with the $180 bn in the year 2004. WTO has not yielded the desired results and is not able to generate consensus among the trading partners to increase global trade. As a result, India is looking at Free Trade Agreements (FTAs) rather than multilateral trade agreements as a prospect for improving exports and FDI into the country. FTA is not a new concept in the trading circles; many countries have already entered into FTAs. FTAs among European Union (EU) members have played a crucial role in the economic integration of the EU. Manoranjan Dutta, Professor of Economics, Rutgers University says, "FTAs are a good trade promotional program if and only if they follow the EU paradigm. An economic integration of the economies is the core of the EU- FTA." The rest of the world is talking about strategic FTAs. India has examining studying various factors to sign FTA with the countries like Thailand, Bangladesh, South Africa and Myanmar, the ASEAN and Mercosur (Argentina, Brazil, Paraguay and Uruguay) in the coming years. One of the first FTAs India signed was with Sri Lanka in 1998, but it took about a year and a half to finalize the list of items and make the FTA operational in 2000. Often it takes years to finalize an FTA.
However, before signing any FTA, India must look at the state of its economy and the competitiveness of its industries and see whether they are ready to compete in global markets. Exports should consist of manufactured products. India is not yet considered as an industrialized country, but more as an agricultural country. Export of rice, even of improved quality, has proved to be too competitive. However, rice-based processed food products can help India make a mark in the international market. The most critical aspect in this zero tariff game is competitiveness and productivity of Indian manufacturing sector. Though Indian manufacturing has revived in recent times by achieving the quality standards and cost competitiveness, many sectors may still not be able to withstand competition from imports. India lacks adequate foreign investments in many sectors and this is becoming a hurdle to improving productivity and technology transfer. Dutta says, "India must be able to gain competitiveness in manufacturing. Given India's enormous endowment of human capital, the missing factor is capital investment. Indeed, the missing factor is industrial leadership." Joint ventures with foreign companies have not been successful because it has been difficult to decide who will have the minority statusthe indigenous industrial leaders or the foreign investors. FDI is obvious choice for the improving the productivity, quality and competitiveness among its industries. China's turnaround is a case in point. FDI adds competition to the indigenous industrial leadership and helps develop products quality and cost competitive. In India itself, a joint venture, with a foreign investor having majority shares, has made one of India's failing auto-industry competitive. On the other hand, SSI units are still protected by the reservation policy of the government to avoid competition with the MNCs. De-reservation of SSI sectors is now rapidly taking place and this can improve competitiveness in the industry. Many Indian companies have already demonstrated their quality and competitiveness with their exports to other countries and with their investments abroad.
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