Commerce and industry ministries differ over free trade agreements.

NEW DELHI: Serious differences seem to have emerged between the two departments of Nirmala Sitharaman's commerce and industry ministry over the issue of India's free trade agreements (FTAs).

Amitabh Kant, secretary at the department of industrial policy & promotion (DIPP), citing studies, said free trade pacts have impacted the country's manufacturing sector. But his counterpart in the commerce department, Rajeev Kher, dispelled the concern, calling it a myth.

"As far as the myth is concerned that FTAs have impacted manufacturing and caused damage ... we are in the process of doing an impact analysis of the pacts that we have signed," Kher said at the CII National Council Meeting on Tuesday.

India's FTA partners have not been able to even utilise the pacts fully, he said. Japan has been able to utilise only 22 per cent

of the FTA, Malaysia 3.47 per cent, Asean 17 per cent and South Korea 20 per cent, he said. "Looking at the utilisation of pacts, it doesn't seem like it would have caused a terrible worry to the country's manufacturing."

Speaking soon after, DIPP secretary Kant, however, said the FTAs have indeed impacted the manufacturing sector in India and that the government was looking at measures such as deemed export status to compensate or promote domestic manufacturing.

India's manufacturing output shrank 0.7 per cent in fiscal 2014, the first contraction since 1991-92, pulling economic growth to sub-5 per cent for the second straight year. Experts widely attribute larger imports from many countries with which India has signed trade pacts as one of the reasons for this.

"I have told the commerce secretary that FTAs have impacted manufacturing and you have to set it right," said Kant. He added that DIPP has got Tariff Commissions' study showing inverted duty structures on account of the FTAs.

An inverted duty structure emerges when import duties on finished products are lower than those on parts, affecting the competitiveness of local manufacturers.

In such cases, it makes better sense to import the finished goods than import inputs and manufacture the goods here. The finance ministry has also earlier raised concerns over FTAs.

In last week's budget, the government has taken steps to correct the anomaly, by cutting duties on raw materials and intermediate goods including TV panels, fatty acids and crude oil to manufacture soaps, etc. "The government is committed to correct the inverted duty structure and a few steps have been taken in this budget which are likely to provide positive impetus," Kant said.

Source : economictimes.indiatimes.com