'India must be cautious on FTAs'

India should not follow a protectionist path in terms of expanding bilateral trade agreements even as the Reserve Bank of India (RBI) feels that signing more bilateral agreements could harm the domestic financial sector as well as come in the way of multilateral liberalisation.K Rangarajan, head of the Kolkata centre of the International Institute of Foreign Trade (IIFT) and also responsible for strategic formulation of FTAs (free trade agreements), told FE that adopting a protectionist measure would tantamount to restricting the country's industrial growth.
"We have to tread the path of bilateral trade agreements carefully and cautiously calculate the benefit of doing trade with a country. But that does not mean we have to adopt a protectionist policy and become averse to bilateral trade negotiations," Rangarajan said.
The RBI has been holding discussions with finance and commerce ministry officials to explain that more bilateral trade agreements would force the Indian banking sector to compromise with the goal of developing a liberal banking system.
The RBI has argued that under the FTAs, partner countries would be treated more favourably in terms of getting banking licenses and this would nullify the purpose of a multilateral system, under which all countries were supposed to get equal treatment from the Indian banking and financial sector.
According to Rangarajan, a way has to be found to strike a balance between the RBI objectives and trade agreements.
In a meltdown year, says Rangarajan, India should look for trade relations with sub-groups of Asean rather than moving aggressively to implement the FTA with Asean. For example, he says trading with smaller countries like Cambodia and Laos would be beneficial at present rather than trading with Asean as a whole group. "In foreign trade at present there is the risk of currency but Indian rupee is comparatively stronger in the Asean context," Rangarajan said.