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. Edited excerpts:
How should one understand IPEF? It is not a free trade pact and has prompted scepticism.
Traditionally, trade was always part of FTAs and robust trade arrangements meant trade and duty concessions. The impact of duties is gradually reducing. Of course, FTAs will have their importance. But strategic partnerships 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 hi-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, there will be more comfort. The important element of member countries is that we believe in free trade, transparent government, 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.
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. Is there 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. 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. 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. At that stage, we can consider joining that pillar too.
So the door is not closed.
Absolutely not. Going forward, our officials will be a part of the discussions on the first pillar also. All the member countries are friends. The US and India are closer than ever 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. We have a very vibrant commercial dialogue. 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.
You engaged with semiconductor companies. What was your takeaway?
They are all very excited about the India opportunity. 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. 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, already happening due to the R&D centres.
There is also a huge presence of Indians in the semiconductor industry locally in California.I believe that India will very naturally and seamlessly be a partner of choice. But it also means there is a process. One will have to evolve the ecosystem and with that get the semiconductor industry.
So India’s success should not be judged on whether we get a fab but whether we can strengthen the ecosystem?
Fab can be there, it may take time to come. What is important is that you are a part of the supply chain 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 and 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.
You engaged with the start-up investor community here too.
From what I hear from local investors and the venture capital funds, they are very excited about the India opportunity and see huge potential. They have shared with me their plans in many cases. Almost every fund has an India presence. And we 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.
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. There is a 200,000 IIT alumni across the world, including in India. We are now looking at ways to tap that alumni network, which is worth its weight in gold or platinum or diamond, and all of them put together. They are very conscious that they got their basic education out of the wonderful systems in India. And they want to give back.
On 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.
In terms of imports, it’s a very logical story. Our petroleum imports are almost double of what it was last year. Prices are high and economic activity is quite high in India, indicating a bounce back in the economy. I also see a lot of imports on cooking coal and raw materials like copper, indicative of significant economic activity. There has been an increase in machinery and inputs coming into the electronic industry also, which augurs well when we are trying to create an electronics ecosystem 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. The PLI schemes have just started kicking in. And this increased import gives a clear signal to investors that there is a market, there is demand.
So you think that as investments grow, manufacturing increases and there are alternative supply chains, 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. 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 demanded quality.
With Atmanirbhar Bharat, there was criticism that India is turning protectionist. But you have also signed two FTAs. How do you strike this balance between domestic ecosystem while embracing the world?
Atmanirbhar Bharat does not mean that we are anti-imports. 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. India will have its competitive strength. But there may be other countries who have their strengths. We should exploit the world’s capabilities, get the best in our country, support domestic business and industry to see what more we can do in India competitively because ultimately we also have to satisfy our consumer.
Atmanirbhar Bharat has two elements. One is 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, business community, and people to give a preference to Indian products as do many other countries.
After the PM launched the Atmanirbhar Bharat mission, every other country in the post-Covid world has realised that what he spoke about was the right way. And now everybody is changing track, not necessarily becoming protectionist, but ensuring resilient supply chains and that their dependence is not such that it can cripple their economies. 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.
What has driven the new energy on FTAs?
Our understanding that the country today aspires to be a developed nation – and the PM has given a clarion call from the ramparts of the Red Fort that India is set to go; Amrit Kaal is going to define our future. 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 are developed nations. Those who looked inward only have remained relatively less developed.
How do you convince domestic stakeholders to get on board with this?
PM 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. The PM tasked me to go across different sectors and the message 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.
Subsequently, we have done agreements with UAE and Australia. And again I had very, very extensive stakeholder consideration. The entire industry was on board so much so that 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.
