Par Panel Cites US Example to Ask India to Explore Renegotiation or Exit from IT Agreement Under WTO

A parliamentary committee has said India should look at the US coming out unilaterally from WTO obligations and resorting to tariffs to protect its domestic industry as an opportunity to negotiate favourable clauses under the plurilateral Information Technology Agreement (ITA) or even explore an exit, sources said.

The Standing Committee on Communications and Information Technology has, in a report, blamed the agreement India signed in 1997 for a host of ills plaguing the IT and electronics sector, including a wide trade deficit and making Indian manufacturers uncompetitive to the benefit of more advanced economies, they said.

The Committee, the sources said, has observed that India's experience with the ITA has been "most discouraging", which "almost wiped out the IT/Electronics industry" from India, while acknowledging its benefits to consumers in terms of reduced costs and access to technology.

While the Ministry of Electronics and Information Technology told the Committee that India, as a participating member of the ITA under the WTO, cannot unilaterally withdraw, the panel has cited the example of the US to suggest that it seems "quite plausible" in the current scenario.

The Committee headed by BJP MP Nishikant Dubey called for free trade agreements at bilateral and multilateral levels between member countries in their mutual national interest.

"The trade scenario created by the unilateral announcement of 50 per cent tariffs on India and different increased tariffs on other countries of the world by the US present both a challenge and an opportunity for India. The world trading order is changing fast and, therefore, India needs to undertake a proactive and well calibrated approach towards ITA," the report said, according to a source.

The committee adopted its report last week and submitted it to the Lok Sabha Speaker. Parliament is expected to adopt it in the next session.

Seeking an in-depth examination of the ITA's impact on the electronics manufacturing ecosystem in India and its ramifications and challenges, the key parliamentary body has recommended a high-level empowered inter-ministerial committee consisting of all ministries, departments and organisations concerned with the agreement.

This will include, it said, ministries of Electronics & Information Technology, External Affairs, Commerce and Industry and Finance, besides other stakeholders, to holistically examine ITA 1.0 and ITA 2.0, their possible future implications and suggest the way forward in the country's economic and strategic interests, keeping in view the changing world economic order and shifting global alliances.

While ITA 1.0 is the 1997 agreement, ITA 2.0 is a reference to the talks for broadening the original agreement.

The Ministry of Electronics and Information Technology, however, told the Committee that in light of the learnings from India's experience with the ITA 1.0, it has been decided not to participate in the agreement's expansion.

"The Committee strongly feel that if the USA can come out unilaterally from WTO obligations, India should also see it as an opportunity to further negotiate at WTO for favourable clauses under ITA and may also weigh in the options for an exit," the draft report said, according to sources.

The ministry told the Committee that at the time of joining the ITA, India’s electronics sector was underdeveloped, and the removal of tariffs prematurely exposed it to global competition, stifling growth.

The Committee strongly feels that by signing the ITA in 1997, India agreed to eliminate tariffs on a wide range of IT and electronics products, including semiconductors, computers, telecom equipment, and components without "ample prudence or following the steps of caution".

India's ITA commitments at the WTO for a legally binding zero tariff policy on ICT products has severely imposed restrictions and limitations on the country's functional autonomy in regulatory and policy matters, the Committee in its draft report said.

"Even more glaring and astonishing part is that there is no exit clause for the signatory member countries under ITA 1.0. The ITA did not provide any clear mechanism for renegotiating or withdrawing from specific tariff commitments, making it difficult for India to formally revise its obligations." The Committee observed that India lacks a robust electronics manufacturing ecosystem due to high import dependence for components, limited R&D and innovation, inadequate supply chains, infrastructure bottlenecks and skilled labour shortages.

"Despite the government initiatives like Make in India and PLI schemes, the sector still struggles to compete globally owing to cost disadvantages and low value-added production.

"Much of the electronics manufacturing that did occur in India was limited to the assembly of imported components rather than full-fledged production, resulting in low domestic value addition," it said.

While lauding Production Linked Incentive Schemes and Make in India as steps in the right direction, the Committee batted for sustained policy support, infrastructure development push, and proper investment in R&D and innovation, along with financial incentives such as tax concessions and subsidies for Start Ups and MSMEs for catalysing and strengthening the electronics manufacturing in India.