India should negotiate a trade agreement with the US on its own terms, keeping in view the national interest, Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S Mahendra Dev has said. Dev expressed hope that India will have an advantage over other countries on tariffs once the Free Trade Agreements (FTAs) are signed, and it would boost exports. "The overall approach of India is negotiating trade agreements with countries on its own terms and keeping in view the national interests. The negotiations are going on and the ultimate decision depends on the mutual interests of both countries," he told PTI. US President Donald Trump has said the proposed trade deal with India would be on the lines of what America has finalised with Indonesia on Tuesday. Under the US-Indonesia trade pact, the Southeast Asian nation will provide complete access to its market to US products, while Indonesian goods would attract a 19 per cent duty in America. In addition, Indonesia has committed to purchasing USD 15 billion in US energy, USD 4.5 billion in American Agricultural Products, and 50 Boeing jets.
The Indian team is in Washington for the fifth round of negotiations for the proposed Bilateral Trade Agreement (BTA). India has hardened its position on the US demand for duty concessions on agri and dairy products. New Delhi has, so far, not given any duty concessions to any of its trading partners in a free trade agreement in the dairy sector. India is seeking the removal of this additional tariff (26 per cent). It is also seeking the easing of tariffs on steel and aluminium (50 per cent) and the auto (25 per cent) sectors. Against these, India has reserved its right under the WTO (World Trade Organisation) norms to impose retaliatory duties. Asked should India has a slightly higher inflation target rate for a growth economy, Dev said, "There is no need to increase inflation target when the present framework is doing well on both inflation and growth objectives."
He noted that there are some suggestions that RBI should use core inflation, excluding food for inflation targeting (IT). "We will have better inflation data from CPI after the revision of base year to 2024," the EAC-PM Chairman said. Dev said the experience of (IT) in the last 10 years shows that Inflation stayed within the band of 2 per cent-6 per cent with some exceptions and inflation declined significantly under IT framework. "It may be noted that higher inflation hurts the poor and middle class mostly. Low inflation is also important for sustainable growth," he said. Since 2016, India has adopted a flexible inflation targeting (IT) framework where the RBI aims to maintain a specific inflation rate, currently 4 per cent, with a tolerance band of +/- 2 per cent (i.e., between 2 per cent and 6 per cent).
Similarly, Dev said the Fiscal Responsibility and Budget Management (FRBM) targets should be continued for sound fiscal management. "It may be noted that a higher fiscal deficit will increase inflation and hurt growth," he said, adding that Interest payments will be higher and lower funds will be left for development expenditure. While noting that the government has done well to reduce fiscal deficit from 9.2 per cent in FY21 to 4.8 per cent in FY25 and budgeted 4.4 per cent in FY26, he said the government has been sticking to its fiscal consolidation roadmap despite competing demands for expenditures. On Production Linked Incentive (PLI), he said one should not look at only the direct effect of PLI-linked sectors, as there is significant interlinkage between PLI and non-PLI sectors. "PLI incentives, along with FTAs with other countries, should attract FDI and enhance exports," Dev said. He pointed out that studies indicate that the share of Direct Value Addition (DVA) declined for electronics while the share of indirect DVA increased, suggesting linkages with upstream industries. "Government is working on increasing gross value added, reducing import content and increasing employment for PLI sectors by encouraging local manufacturing capability," Dev said.
The government launched the PLI scheme for 14 sectors to incentivise domestic manufacturing, increase production, create new jobs and boost exports. The thrust of PLI is to make domestic manufacturing globally competitive and reduce imports by increasing domestic value addition.
The PLI scheme adopts a sector-specific approach, avoiding a "one size fits all" methodology. In the electronics sector, PLI aims to scale up assembly processes to encourage the existing domestic manufacturing ecosystem. India is one of the biggest assemblers and exporters of mobile handsets. In FY15, mobile phone imports accounted for 78 per cent of the market in value terms, whereas by FY23 this figure had dropped to just 4 per cent. "A similar story can be heard for exports. The electronics and renewable energy sectors have attracted higher FDI inflows," Dev said.