Industry chamber Assocham today urged the government to exercise caution while signing any free trade accords, particularly with China as it could affect domestic industry.
In a report, titled India's FTAs and the Indian Industry, Assocham said India Inc should be taken into confidence before the government went ahead with an FTA with China.
"Since India's tariff levels are much higher than China, any reduction in tariff will open the floodgate of cheaper imports from China,'' said Venugopal Dhoot, Assocham president,while releasing the report in New Delhi. He also said that a large share of Singapore's exports were in form of re-exports of products from ''other countries" implying China.
"Preferential Trade Agreement (PTA) should first be concluded before FTAs are finalised to protect interests of Indian Inc. Trade and comprehensive economic agreements have been signed in the past with various countries and regional blocks that have resulted into a few fallacies and hurt economic interest of domestic industry."
He urged the government not to repeat the mistake with China on the signing of the proposed FTA with China.
"The high tariff regime in India at about 12.5 per cent and low tariff regime of China of less than 6 per cent, and FTA between India and China might affect the economic efficiency between these countries as they would exclude and discriminate other counties," Dhoot said.
This discrimination would work against India because of high tariff barriers. He said when India gives duty free access to China, tariff revenue previously collected on import from China turn into export revenues for export firms in China. As a result, Chinese exporters would gain more compared to their Indian counterparts as they have less to gain from the tariff free access in China.
Also with China devaluing its currency, allowing free imports from there would lead to dumping of goods which would hurt the domestic industry, Dhoot said.
The report prescribed a minimum period of five year time frame for India and China to finalise their FTA.
"The ultimate goal should be an FTA with free flow of products and capital but in view of comparative disadvantage of India's manufacturing sector, a much lower tariff structure in China and its higher degree of openness, India-China FTA trade cooperation should start with a PTA with reduced tariff in a phased manner," he said.
In view of the comparative disadvantage of India's manufacturing sector, a much lower tariff structure in China and its higher degree of openness, a India-China FTA trade cooperation should start with a PTA with reduced tariffs in a phased manner, the report pointed out.
The report, however, said that India - China trade had been growing rapidly with indian exports to China having grown from $254.3 million in 1994-95to $5,344.88 million in 2004-05 and imports from China going up to $6,768.92 million in 2004-05 from $761.04 million. Total trade between India and China was $18 billion in 2005 and was expected to reach $50 billion by 2010.
However, The chamber pointed out that the problem for India was that the trade deficit with China has been growing from $506.74 million in 1994-95 to $1,424.04 million in 2004-05.
India's export to China consists of iron ore, primary and semi-finished iron and steel, plastic and linoleum products and processed minerals among others.
India's imports from China have been generally electronic goods, coal, coke and lubricants as well as organic chemicals.