Free trade: Ready for takeoff

As more than 26 Indians, led by the Union Commerce Secretary, Dipak Chatterjee, and a Singaporean team headed by their Permanent Secretary for Trade and Industry, Heng Swee Keat, wrestled this week with the eighth round of negotiations on an epoch-making Comprehensive Economic Cooperation Agreement, I was reminded of P V Narasimha Rao's 1994 Singapore Lecture (with Lee Kuan Yew presiding) and the start of India's Look East policy.

Someone asked whether globalisation would not mean foreigners gobbling up India's cake. The prime minister replied that the cake would be so much larger that everyone would have a much bigger slice.

Moreover, Indians would be entitled to bites of other foreign cakes too. That is already happening with 1,500 Indian companies in Singapore.

Ashwin Dani's Asian Paints extended to 11 more countries after acquiring a majority interest in Berger International, and Tata Consultancy services major clients like Singapore Airlines and Standard Chartered Bank. Taking their cue from Arvind Agarwal's modest start with Fact software, IT giants like Wipro and Satyam have opened back-up offices.

CECA will increase such opportunities by strengthening the economic and strategic partnership through a formal framework. It is wider ranging than a conventional Free Trade Agreement and will be Singapore's first with a South Asian country.

For India, emerging from decades of pampered protectionism, with an FTA only with Sri Lanka, it marks an even bolder departure. No wonder the neurotic old fear of being swallowed up that still forces us to pay through the nose for delayed copies of the International Herald Tribune, flown in from Bangkok, finds expression in carping criticism.

The gut objection to zero import duties is reinforced by worries regarding backdoor entry by third countries. Some fear that Singapore will never be a major investor. Others argue that Indian companies prefer Western stock exchanges to Singapore's.

These reservations deserve to be carefully considered so that the new government signs the CECA as soon as the Lok Sabha election is over.

People should know that quotations on the Singapore stock exchange do not preclude quotations in London or New York. They should know, too, of business opportunities in Batam and Bintam, which are Indonesian islands but operationally Singaporean.

Demanding a return to protection is crying over spilt milk. No amount of hand wringing by manufacturers who flourished in the bad old days of no competition and no quality control can alter the rationale of globalisation.

India is committed to reducing import duties by 2005 to the level of the Association of Southeast Asian Nations. Preventing unfair backdoor entry is a matter of negotiation, achievable through certificate of origin rules, insistence on substantial transformation, changes in tariff classification and a mandatory 40 per cent value addition norm.

However, the aim must be pursued with discretion if India wants to expand outsourcing to include, say, contract manufacture of cars. We saw during the Asian Games how cheap imports of television sets and parts gave a fillip to domestic colour television manufacture.

Similarly, Indians who make and assemble cars with foreign names will want to import various components. Subjecting them to stringent bureaucratic or financial controls would kill the goose that lays the golden eggs.

Far more profitable to treat the entire country as a gigantic export-oriented free trade zone, which India pioneered but China developed so lucratively. Since the Singapore-US FTA protects outsourcing, Indians can service the American market from Singapore.

Misgivings about investment are, perhaps, understandable in view of highly publicised failures like the Madras Corridor, a new Bangalore airport and a joint Tata-SIA domestic airline. But those were early days when "foreign" was pregnant with suspicion in India's political lexicon and new ventures were viewed as opportunities to extort massive bribes.

The Bangalore IT Park changed all that. Singapore is the fifth largest investor in India, with assets of about $1.6 billion. The Port of Singapore Authority, Singapore Telecommunications and Temasek Holdings have money in banks, hospitals, pharmaceutical units, educational services and townships.

They can contribute to India's 2005-2006 $50-billion target for infrastructure development. It is Air-India's loss that SIA backed out from buying into India's ailing flagship carrier because it did not feel confident enough to cope with labyrinthine vested interests. Only Indians suffer from the government's dog-in-the-manger attitude to the skies.

Of course, Singapore's interest is not altruistic. Of course, profit is the driving motive. But the proposal to set up a South Asian Institute at the National University of Singapore is not just a gracious flourish.

It is a serious intellectual attempt to understand the dynamics of a society that seems to be bound for the moon in a bullock cart. With the largest number of registered laboratories outside the US and 30 per cent of the world's software engineers, India still accounts for 25 per cent of the global undernourished.

We have the same legal and administrative systems, similar open economies, and human and business connections at many levels.

Singapore is a reliable and responsible party and we can return the compliment by insisting on recognition of our university qualifications, demanding more conveniently timed flights for India's state-owned and private airlines, simpler visa, employment and work pass rules, and by rejecting the reasons now advanced for importing only generic Indian drugs and not patent medicines.

Business is give and take. A properly negotiated CECA would facilitate India's integration with the global economy and allow Singaporeans to benefit from Indian companies using the island as a launching pad for Asia and the world.

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