India needs to take "dramatic" steps to open up trade: IMF

WASHINGTON, Wednesday (AFP) India needs to swiftly knock down trade barriers to open up its giant economy and drive growth, says an IMF staff report which the Indian government agreed to make public for the first time.

International Monetary Fund Managing Director Rodrigo de Rato also conveyed to government leaders during a visit to India this month the need for more "dramatic action" to free up its "relatively closed economy" and integrate with the globalized economy.

While India has reduced non-agricultural tariffs, new forms of non-transparent protection have emerged through the widespread use of anti-dumping, sanitary rules, and technical standards, trade experts say.

The average agricultural tariff of 40 percent is higher than those of all but four of 134 developing countries, according to the experts.

The IMF report said India had "considerable scope for trade liberalization" and that Fund staff "encouraged the authorities to take advantage of the favorable external position to reduce both tariff and nontariff barriers."

Trade together with labour market reform and privatization are seen as key to attracting foreign direct investments in the vital manufacturing sector and create jobs for Indias growing work force.

An estimated 110 million new jobs need to be created over the next decade just to keep India's relatively high unemployment rate from rising further.

The report noted that "India's trade regime remains restrictive" with average tariff at 22 percent in 2004, though authorities want to double the country's share in world trade and were committed to reducing tariffs to Southeast Asian levels in four years.

The IMF's "Article IV" report is based on frank discussions between Fund staff and member economies held usually every year. Some economies prefer it to be classified.

"This is the first time the (Indian) authorities have agreed to publish the Article IV Consultation report," IMF spokeswoman Gita Bhatt told AFP. "This is a very welcome step."

She said "greater openness" by member countries encouraged "more widespread discussion and examination of members' policies by the public" and enhanced "accountability of policymakers and credibility of policies."

India's move comes on the heels of China's decision to make public an IMF staff report on its economy.

The world's two most populous economies are also among the fastest-growing. Rato told Indian central bank officials during his recent visit that while exports had been growing robustly in recent years, India still accounted for less than one percent of total global exports.

"With the debate about India's emergence as a global leader in service exports dominating the news, it may sometimes be overlooked that India remains a relatively closed economy," he said.

India's comfortable external position - with reserves increasing steadily in recent years - presents a good opportunity to speed up trade reforms, the IMF staff report said.

It suggested that trade liberalization be accelerated by lowering tariffs, introducing a more uniform duty structure, and eliminating administrative barriers.

"This would also unleash a potentially powerful engine of growth for India," it said.

Indias increasing regional integration was also highlighted in the report, which said trade between India and the rest of Asia had surged and that India had the potential to become an important export destination for the region.

"Asia has been the major beneficiary of rising Indian imports and is becoming an important destination for Indian exports," it said.

In the first half of 2004, India's goods imports from Asia grew by 45 percent, more than double the prior year rate, buoyed by strong demand for capital goods, electronics, and chemicals.

Almost a third of Indian exports are now sold in Asia, up from just over a quarter in 2000.