India eyes FTAs with Latin America to boost EV manufacturing

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SME Times News Bureau | 21 Jul, 2020
India proposes a major shift in its foreign trade policy, that will explore free trade agreements (FTAs) only with countries that can support its 'Aatmanirbhar Bharat' mission and provide it necessary raw materials, critical components and equipment required to support manufacturing activities.

As a first step in this direction, the Department for Promotion of Industry and Internal Trade (DPIIT) of the Commerce Ministry has proposed entering into FTAs and mining agreements with resource-rich countries in Latin America and Africa.

In an internal presentation made by the department on augmenting industrial growth in India, it has said that such focused FTA arrangements will help the country to boost electric vehicle penetration as countries such as Bolivia, Argentina, Chile, Congo, and South Africa are rich in mineral resources, particularly lithium and cobalt. These minerals go into making the batteries that are critical to any EV plan.

A free trade agreement is a preferential arrangement in which members reduce tariffs on trade among themselves while maintaining their own tariff rates for trade with non-members.

With India looking to shift a third of its mobility on to the electric mode over the next few years, such strategic trade agreements are expected to boost domestic manufacturing of batteries and give a push to development of an EV ecosystem in the country.

"This is very good idea that should also be looked for other sectors where the country faces shortages of domestic support systems. However, such FTAs can work only when identified goods are secured and are cost-effective.... that gives necessary advantages to the domestic industry," said a trade analyst asking not to be named.

According to official estimate, in fact, as of now, India has close to 50 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed. Most of India's existing FTAs are with Asian countries which are quite different from each other in terms of the level of their economic development. In Latin America, India only has a trade agreement with Chile.

However, India's FTAs have provided the country only limited benefits, therefore voices of concern have been raised both by the industry and within the government to review existing trade arrangements and negotiate changes that work to the advantage of Indian industry and does not work to destroy it through cheaper imports of competing products.

The DPIIT presentation has also suggested the need for incentivising consumer purchases of electric vehicles including subsidies on pricing, credit support, lower taxation, toll subsidies etc. it had also called for a phased plan that is worked for next 10 years to set up charging stations for EVs across the country.