Reforms must accompany FTA tariff cuts: CII chief

CII president and ITC chairman and MD Sanjiv Puri says lowering tariffs through trade agreements must be accompanied with domestic reforms to boost competitiveness. He also argues that GST rationalisation and further rate cuts will stimulate demand. Excerpts:

What will be your key ask from govt in the trade pact with the US? How is the uncertainty from Trump's actions affecting Indian industry?

The proposed Bilateral Trade Agreement (BTA) between India and US, which is currently in the negotiating phase, may draw upon the contours of the recently-concluded FTA between India and the UK. This FTA represents India's most comprehensive trade deal to date, encompassing more than just goods and services. The BTA discussions have been well received by the industry. These FTAs are anticipated to facilitate the integration of the Indian industry into the global value chains, which have become increasingly vital, given that more than 70% of trade now occurs through these channels. The proposed BTA could address industry concerns about rules of origin definitions, non-tariff barriers, and include mutual recognition agreements (MRAs) to streamline quality control orders and standards between the two countries. It would also enable India and the US to work towards long-term economic resilience, fostering innovation, sustainability, and competitiveness in key global markets.

What reforms would you suggest to govt to help industry deal better with lower tariffs following multiple FTAs that India is signing?

The recent tariff reductions, which are been negotiated with the potential FTA partner countries, have followed careful deliberation with active industry participation. However, lowering tariffs must be accompanied by furthering domestic reforms that enhance the overall competitiveness of Indian industry. Further streamlining of regulatory procedures, bringing in factor market reforms, reducing cost of doing business, and improving ease of doing business will be critical in maximising the benefits of such trade strategies. Govt has begun the process to effectively address these factors which will enable Indian enterprises to effectively capitalise on emerging opportunities, though more work needs to be done. Actions based on the Union Budget and govt policies, including the proposed High-Level Committee for Regulatory Reforms, will also boost the competitiveness of Indian industry.

What will be your suggestions to boost urban demand?

The reduction in personal income tax rates, announced in the Budget, along with the moderation in inflation is expected to support discretionary consumption. Further, the anticipated implementation of the 8th Pay Commission would provide a structural boost to consumption. Continued easing of policy rate by the RBI would boost consumption. In the medium term, govt could consider rationalising the GST structure to boost consumption demand. Moving towards a simplified three-tier regime - 5% for essentials, 28% for luxury and sin goods, and a unified mid-tier rate (12-18%) would not only enhance consumption but also boost tax compliance.

Do you expect the RBI to continue with its rate cutting policy?

We expect RBI to continue with monetary easing this fiscal year due to softening inflation and increasing downside risks to growth, primarily emanating from the uncertain global scenario. Although RBI has reduced the key repo rate by 50 basis points since Feb, nominal interest rates remain high at 6%, which have affected investment demand. We believe rate cuts by RBI will offset some impact of global volatility on domestic growth.

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