Soak, Scrub, Rinse – Fresh FTAs are Back!

Layering is a term used in Money Laundering to define the process of hiding the source of illegal money by progressively adding legitimacy to it. Trade is the modern method of war and peace, where it is very likely that a hostile country may use seemingly fair deals to route otherwise not-allowed business and pursue hidden agenda.

In 2016, India served notices to 57 countries seeking termination of bilateral investment treaties (BITs). Further, in 2019, India pulled out of the Regional Comprehensive Economic Partnership (RCEP). The bold move was essential given China’s obvious dominance in the trade agreement and India’s unwillingness to open the gates of its market to Chinese producers who are known for subsidisation issues and dumping practices. Such advances become even more relevant today, as many states across the globe after having hit by the COVID pandemic and having experienced the US-China trade war ripples, are looking for alternatives and new deals and destinations.

Right after Prime Minister Narendra assumed the office in 2014, India began putting efforts to streamline trade relations with the rest of the world by overhauling its FTA strategy. It began with reviewing the existing FTAs with ASEAN (FTA for goods, 2010), Japan (2011), South Korea (2010), Malaysia (2011), Singapore (signed in 2005), Sri Lanka, and others. In 2015, as GoI signed pending agreements with ASEAN, it parallelly set up another committee, headed by the then-chief economic adviser Arvind Subramanian, to review the other existing FTAs, amid fears that unchecked pacts may be resulting in widening trade imbalances.

Reversing a seven-year freeze, Government of India spent the year 2021 in studying & fixing the flaws and flows in its international trade strategies and was able to align India’s trade trajectory by decluttering the issue of free trade agreements (FTAs). Though India had signed an FTA (CECPA) with Mauritius last year but the major move has just begun.

Building on the three pillars of trust, transparency and talent, India has signed ‘India-UAE Comprehensive Economic Partnership Agreement’- the first-ever trade pact with the Gulf Nation, which promises accelerated growth in both nations with goods trade projected to reach $100 billion in 5 years. The comprehensive trade agreement was signed during India-UAE virtual summit on Friday, February 18, 2022, in presence of Prime Minister Narendra Modi and Crown Prince of Abu Dhabi, Sheikh Mohamed bin Zayed Al Nahyan along with Deputy Supreme Commander of the UAE Armed Forces. The Indian side led by Minister for Commerce and Industry Piyush Goyal signed the path-breaking agreement with the UAE side led by Abdulla bin Touq Al Marri, UAE Minister of Economy. The agreement is being hailed for possibilities towards large scale employment generation in both countries.

Signing trade pacts alone cannot augment economic exchanges. Harnessing of true trade benefits has been backed with a chain of measures taken over the last couple of years such as introducing various ease of doing business reforms, incentivisation schemes like PLIs, rationalisation of duties, tightening the Rules of Origin (RoO) norms under FTAs (to keep in check the dumping of imports and re-routing of goods), promoting GI tagged products etc. Enormous efforts have also gone into promoting districts as export hubs by identifying products with export potential in each district. Major steps taken by the government to further boost imports include releasing of more than Rs. 56 crores against pending tax refunds of exporters, notifying Remissions of Duties and Taxes on Exported Products (RoDTEP) rates, Rebate of State and Central Levies and Taxes (RoSCTL) Schemes, and launch of Common Platform for Issuance of Certificates of Origin to facilitate trade and to increase FTA utilization by exporters.

Indeed, India seems to be ready now and is looking at FTAs with nations that have values of democracy, transparency and mutual growth. FTAs that are currently under negotiations are – with UK, Australia, EU, other Gulf Countries, Canada and Israel.

Factors of Production

India is a capital starved country and world is now flushed with cheap capital, thanks to shock absorption measures taken by central banks across the developed world since GFC of 2008. Prime Minister Narendra Modi has laid out an enticing recipe to world investors in world economic forum, Davos.

In this Digital age, India has leaped ahead in creating appropriate “Land”, e.g. a huge, secure and successful digital payments platform, fibre connectivity of gram panchayats and many more fundamental assets are ready. Further, Gati Shakti National Master Plan is strengthening connectivity like never before.

Today India is home to over 5mln software engineers and many more are working across the world. There are multiple public and private sector measures to harness the benefits of demographic dividend by providing appropriate skills to the largest young population of the world.

Today India has the third largest number of Unicorns in the world. More than 10 thousand start-ups have been registered in the last 6 months. India has also deregulated many sectors like Drones, Space, Geo-spatial mapping and made major reforms in the outdated telecom regulations related to IT sector and BPO. The spirit of Entrepreneurship is high and shining bright in the times of Atmanirbhar Bharat.

To solve the problems of Capital availability, one route is taken by DIPAM, “Asset Monetization involves creation of new sources of revenue by unlocking of value of hitherto unutilized or underutilized public assets….The objective of the asset monetization programme of the Government of India (GOI) is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create hitherto unexplored sources of income ….”

Clearly, the global investor is blue to see India as a hub not just for return on Capital but also for a sustainable future. P3(Pro-Planet-People) is a viable slogan from a country which has achieved Paris commitments 9 years ahead of schedule.

Measures like PLIs across 14 sector, improvements in Ease of doing business! reforming retrospective tax, various FTAs, a Competitive corporate tax regime and Gati Shakti National Master Plan are getting noticed by Global investors and investments should spur in the country.

LIC : Most awaited IPO

As we look towards the most important budget of PM Narendra Modi’s second term, target of double digit growth rate is essential for generating sufficient jobs, quickly recovering from pandemic induced slowdown and achieving bigger goal of prosperity for all. One of the most important requirements for this is significant increase in the investment rate as measured by gross fixed capital formation (GFCF). In these COVID times, this increase has to be led from front by the Government in the form of public investment. Government savings have to move into positive territory. This need of sharp increase in investment-to-GDP ratio will require significantly higher resource mobilization efforts.

Even though government’s disinvestment plans for Air India, BPCL and Concor kept on getting pushed ahead due to COVID, for LIC, the recent appointments of Edelweiss Financial Services Limited and Deloitte as pre-IPO advisors, the process has started to pick up some speed. This is one of the most awaited IPOs in 2022. The LIC IPO is likely to cover more than a third of the government’s budgeted disinvestment target of ₹2.10 lakh crores this fiscal year.

With around 70% market share of Life Insurance business in the country, LIC is way ahead to any other of 23 players in the Industry. IRDA has reported significant increase in the premium collection by LIC which is nearing ₹1.8 lakh crores. Presently, government holds 95% stake in LIC whose total assets are worth ₹34 lakh crores. Regarding the IPO, since the DRHP (draft red herring prospectus) hasn’t been filed till now, the price band for the IPO is not known as yet. But the issue price is generally announced around a week before the shares are open for subscription by the public.

PM Modi has talked about wealth creation as the area of focus of sabka prayas and this IPO will help retail investors while bringing transparency in the management of LIC. As sale is of less than 10% stake, which allows control with the government itself, hence allaying any chances of adverse impact of IPO on existing stakeholders in general and especially all policyholders. Further, this will bolster the confidence of BFSI sector in post-covid world, which is essential for capital formation and credit flow in the country.