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Dr Arpita Mukherjee is Professor at the Indian Council For Research on International Economic Relations (ICRIER). She has over 75 publications to her name and has worked on economic policy with governments and multilateral organisations. Dr Mukherjee’s areas of research are sustainable trade and investment; retail, logistics and food supply chains; nutrition; trade infrastructure including economic corridors and SEZs; services; start-ups and entrepreneurs; e-commerce.

  1. How do you think countries should regulate the GSP selection of countries, and on what basis should the prioritization occur?

High tariffs in developed countries adversely affect exports from developing countries and, in turn, their growth and employment. Realising this, some countries/regions such as the European Union and the United States (US) came up with the Generalised Scheme of Preferences (GSP). They, however, reserve the right to determine whom to give the benefit to. The EU’s goal for the GSP is to allow vulnerable developing countries to pay lower or no tariffs on exports to the EU. The EU has different types of GSP. For example, the general arrangement (Standard GSP) grants duty reductions for around 66 per cent of all EU tariff lines to low-income or lower-middle income countries, which do not benefit from other preferential trade access to the EU market. India is under this list. In return, beneficiary countries must ratify and effectively implement 27 core international conventions, as listed in the GSP Regulation, which cover human and labour rights, environmental protection and good governance. The US GSP is designed to promote economic growth in developing countries by providing preferential duty-free entry. While the aims look similar, the US and the EU operate on different terms and conditions for GSP, which has implications for their trading partners. Thus, while the prioritisation of GSP is clear, it is a tool in the hand of the country that gives it rather than the one which receives it.

After India imposed certain restrictions on foreign e-commerce companies after the Walmart-Flipkart merger, the US withdrew the GSP. In trade, retaliation is common. Therefore, a developing country, which gets GSP, has to carefully plan its trade policies. Many developing countries (for example, Vietnam, Mexico, Chile) have trade agreement with developed countries, which is leading to tariff reduction. Unilateral tariff reduction or tariff reduction through FTAs are better than GSP. As India aspires to become a US 5 trillion-dollar economy by 2024, I don’t think we can rely much on GSP. GSP should be given to least developed countries.

2. In India, is a government-sponsored shift of some part of the agro-based population to the manufacturing sector viable?

Any country must balance its workforce in agriculture, manufacturing, and services sectors according to their contribution to the economy. If majority of the population is in agriculture, it will lead to disguised unemployment and poverty. Thus, the focus on manufacturing is correct. We should not only focus on manufacturing but also try to be a part of the global value chain and enhance our manufacturing exports. Let us take the example of agro products. Our processing is low, but we have a positive trade balance in this sector. If we increase processing and improve quality standards, we will not only be self-sufficient in the domestic market, but earnings form exports will increase. Processing to lead to reduction in wastages. Thus, there should be a focus on value addition in agriculture through manufacturing and supply chain developments which can enhance exports, create employment, and bring in investment.

3. Should India get into agreements with countries to facilitate export of work, thus creating opportunities for labourers in India, and a greater exposure and standard of living?

We can export skilled workforce, semi-skilled workforce, or highly skilled workforce. The export markets are different for different skill levels. Allowing entry to foreign workforce can be permanent or temporary. If we enter into trade agreements with our key export markets it will be beneficial. Many countries give preferences to foreign workforce (in terms of work permits, visas, etc.) through their trade agreements. However, with technology, the demand for labour/workforce is reducing. COVID-19 will fast-track the adoption of technology and work from home in many cases will continue to be a norm. Hence, we should not over-emphasise on labour mobility in trade agreements. We need to seek market access, non-discriminatory treatment, and regulatory certainty in all areas of our export interest.

4. Should India allow US dairy products in the Indian market?

India has not agreed to open up its dairy market for US products sourced from blood meal-fed cattle due to cultural and religious sentiments. Article 20 (a) of the General Agreement on Tariffs and Trade (GATT), allows countries to adopt measures necessary to protect public morality. It also allows countries to define public morality and protect its cultural sensitivities. Thus, the measures taken by India are within the provision of this agreement. Further, the US has also imposed certain restrictions on diary imports from India. Thus, this is a sensitive area of trade which both countries need to solve bilaterally.

5. Should India’s past experiences with Free Trade Agreements continue to prevent it from engaging in future FTAs?

We need to be clear on what do we mean by our experience in FTAs and what type of FTAs (agreements in goods versus comprehensive agreements). For example, if we look at India-ASEAN trade agreement, both exports and imports have increased, but often the focus is on the negative trade balance. India has one of the highest tariffs in the world and in any trade agreement the country with higher tariffs must take more tariff reduction, which can adversely impact trade balance. Second, if we are defensive about opening up our market our trading partners will give us less than what they give to their other trading partners. In such cases, our firm will be at a disadvantage in the export markets vis-a-vis firms from other countries with which that country has trade agreements. Thus, if trade agreements are not comprehensive the gains are less. Trade agreements require substantial research, industry consultation, and planning, which is lacking in India. It requires extensive knowledge about regulations and sector expertise. It requires significant coordination across ministries and departments and buy-in and knowledge sharing with the states in a quasi-federal governance set up. Once that is done, good negotiations will lead to good outcomes. We can learn from our past experiences and make our negotiating strategies and options more robust. Shying away from trade agreements does not seem to be an option in a globalised world. Today, agreements are not only signed for economic reasons but also for geo-political reasons.

6. Is economic nationalism really important? And are we progressing in the right manner with it?

We have allowed FDI in many sectors and we continue to attract foreign investment. We want to export and reduce import dependence. We would like to be a part of the global value chain. All of these are right steps. Several countries become protectionists during slowdown or when national security is threatened. Hence, one must look at the long-term policy that India takes before commenting on this issue.

The Interview was conducted via email.


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