1. Brexit impact on India: Nirmala Sitharaman explains key features

Brexit impact on India: Nirmala Sitharaman explains key features

Commerce and industry minister Nirmala Sitharaman says Britain wants informal talks on a likely trade pact with India to continue until its exit process with the EU is over.

By: and | New Delhi | Updated: July 18, 2016 6:44 AM
both India and the UK should start talks informally; so, as and when Britain completes the process with the EU and has the authority to forge bilateral treaties, both the parties should be ready for it, said Nirmala Sitharaman. (PTI) both India and the UK should start talks informally; so, as and when Britain completes the process with the EU and has the authority to forge bilateral treaties, both the parties should be ready for it, said Nirmala Sitharaman. (PTI)

Commerce and industry minister Nirmala Sitharaman says Britain wants informal talks on a likely trade pact with India to continue until its exit process with the EU is over. In an interview with Banikinkar Pattanayak and Shobhana Subramanian, Sitharaman says the export slowdown has bottomed out, and her ministry is in regular talks with the finance ministry to offer relief to struggling SEZs.

How will you approach trade talks with the UK after Brexit?

I am happy the UK’s business minister (Sajid Javid has now become communities secretary) came and said they would like to start talks informally on a trade pact. The minister said although the time frame to complete (Britain’s exit process with the EU) is two years, they expect to complete it sooner than that. So, both India and the UK should start talks informally; so, as and when Britain completes the process with the EU and has the authority to forge bilateral treaties, both the parties should be ready for it.

What will be the key features of the likely pact with the UK?

Goods will be a key pillar of the talks with Britain. Also, we will be talking as much about services as about goods. The advantage that India has in goods (most nations want greater access to the massive Indian market in goods) will have to be leveraged to get a good bargain in services. Therefore, reciprocity being the guiding principle, I would want a good deal for us in the services domain as much as they would want us to yield on the goods domain (Britain made up for 3.4% of India’s goods exports in FY16 and 12% of software services exports in FY15.

Does Brexit change anything to India’s advantage?

The fact that the (UK) minister came and said “let’s get things going” suggests a sense of urgency and a desire for quick decision-making, as opposed to the EU, which negotiates on behalf of the 27-28 nations it represents (The EU FTA talks have been going on since 2007). The pact with the UK will be a bilateral one (so that decision-making can be quick).

You say India will recalibrate the FTA strategy with the EU. What specific things are you looking at in talks with the EU?

Even with the EU, our FTA negotiations got to be getting into the details. The FTA shouldn’t be worse for us (compared with its scope, pre-Brexit). But our offers have to be tempered in view of the fact that Britain is out of the bloc now. The EU wants greater access in wines and spirits and automobiles, on which our industry has its own views. We want greater access for our generic drugs and more liberalisation in the services sector. Data security is another issue.

Last week, two US lawmakers introduced in the House of Representatives a piece of legislation which, if approved by the Congress, would prevent Indian companies from recruiting IT professionals on H1B and L1 work visas. Earlier, the US had also raised visa fees, which was estimated to drive up the Indian IT industry’s annual visa cost by four times. Are you holding any government-to-government talks to address these issues?

Certainly. Earlier, we had already taken it (visa fee hike) up with the US trade representative. When we (India and the US) hold the strategic commercial dialogue in New Delhi, maybe in September, we will raise all these issues with them. Also, we are mentally ready to challenge the visa issues at the World Trade Organization (dispute settlement appellate body).

Exports contracted in each of the past 18 months (before June). How do you plan to turn the corner?

We want this overriding narrative of export contraction to change. In fact, if you see non-oil and non-bullion export data for 2015-16, it points at underlying robustness. Also, between 2013-14 and 2015-16, the share of manufacturing goods in our export basket has increased. From around 60% in 2013-14, it rose to 63-64% in 2014-15 and it touched 69% in 2015-16. So, this trend needs to be highlighted as well. Also, the rigid exchange rate in all these months dented our competitiveness in the export market. We have already taken up this issue with the Prime Minister’s Office and the finance ministry. I believe the exports slowdown has bottomed out.

Has Apple approached you to set up its own stores in India after the government relaxed local sourcing norms for those selling “cutting-edge” technological products?

We have informed Apple about the relaxation. As of now, they have not approached me personally.

How would you ensure a revival of investor interest in special economic zones (SEZs)? Are you still taking up the issues of tax relief with the finance ministry?

The UPA came up with the (18.5%) minimum alternate tax (MAT) and the dividend distribution tax (DDT), seriously denting the spirit of SEZ policy. We have been trying to give relief from such taxes. But you have to understand that once the revenue (department) gets the taste of money coming in, it’s difficult for them to recalibrate their strategy quickly. Also, we think the non-processing area rule also needs to be changed to help SEZs. We are in regular talks with the finance ministry to see how best we can do it to revive and boost SEZs.

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