India needs to bring down tariffs to ASEAN level: EAC-PM member Rakesh Mohan

On whether India should lift curbs on Chinese investment in India, Mohan said India should be welcoming Chinese investment in whole range of labour-intensive industries as per capita income in Beijing is rising significantly.

New Delhi: Economic Advisory Council to the Prime Minister (EAC PM) member Rakesh Mohan on Thursday said there is room for India to reduce import duties and efforts should be made to bring them down to the ASEAN level.

With the withering of WTO, he said the world trading system is being increasingly governed by large regional trading blocs: the European Union, the USMCA in North America, RCEP in Asia, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) spanning Asia and the Pacific.

"I do believe there is room for reducing a lot of our tariffs and bringing down at least to the ASEAN levels. And that will be very good for us.

"Now, one implication of that is that the exchange rate will need to then move to compensate for the reduction of those tariffs," Mohan told PTI Videos in an exclusive interview.

"In order to not get locked out of global trade India must become a member of these large emerging trade blocs. Given its geographical location, India should reconsider joining Regional Comprehensive Economic Partnership (RCEP), while making appropriate safeguards for our interests, and also apply to join CPTPP," he said.

He said right from the early 1990s when the economic reforms started in India till around 2012, India was continuously reducing its tariffs on an overall basis, and pre-announcement on a somewhat gradual basis.

"After 2012 or so, that process stopped, and then they increased somewhat on an average basis, from 2017 onwards," Mohan said.

He pointed out that one of the reasons that many of the 1990s reforms succeeded without much pain in the country, despite the opening of trade imports and the reduction of tariffs on a consistent basis, was that then government did an ex-ante devaluation of the rupee, and therefore industries were effectively protected.

"As we reduce tariffs to make ourselves more competitive and become much more part of the global supply chain, it does mean that the real exchange would need to move enough in favour of exporters, in favour of manufacturing," Mohan noted.

ASEAN countries comprise Singapore, Malaysia, Thailand, Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, and Vietnam.

India pulled out of the RCEP in 2019 after entering negotiations in 2013. The RCEP bloc comprises 10 ASEAN group members (Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and their six FTA partners -- China, Japan, South Korea, Australia and New Zealand.

"I would say that Indian entrepreneurs should be encouraged to have joint ventures with Chinese investors, so that many of these industries come here," he said.

Mohan observed that people always talk about the large exports of China, but forget that China is also one of the largest importers in the world -- worth over USD 2.4 trillion.

In that trade, he said, India's presence is very minimal.

Noting it is not easy to export to China, Mohan said the government can help in terms of analysing what are the kinds of products that China is importing and from where.

"And then, of course industry bodies can be incentivised to look actively, because there is a huge market there in China," he said.

At present, foreign direct investment (FDI) applications from countries sharing land borders, such as China, have to mandatorily seek government approval for all sectors. This policy was issued in April 2020.

The domestic industry is urging the government to ease these FDI norms to attract more investments from China.

In July 2024, the pre-budget Economic Survey made a strong case for seeking FDI from Beijing to boost local manufacturing and tap the export market.

It said increased overseas inflows from the neighbouring countries can help increase India's global supply chain participation and push exports.

China stands at 23rd position with only 0.34 per cent share (USD 2.5 billion) in total FDI equity inflow reported in India from April 2000 to March 2025.

India-China ties nosedived significantly following the fierce clash in the Galwan Valley in June 2020 that marked the most serious military conflict between the two sides in decades.

Responding to a question on the impact of high US tariff on Indian exports, Mohan said India's GDP hit will be there but that will not be as serious as in some concentrated geographical locations.

"But the fiscal numbers may not be so badly hit, except it just depends on what kind of programs the government devises to help these concentrated pockets," he observed.

The US imposed a 25 per cent tariff on India on August 7 and later imposed an additional 25 per cent duties from August 27 as penalty for buying Russian crude oil and military equipment.

"It will be good for the country if we take fiscal measures to help those affected by the US tariff and assist exporters in providing them with some resources so that they can be competitive in exporting to other countries," he said.