Subject: International Relations

The Information Technology Agreement (ITA), a plurilateral agreement under the World Trade Organization (WTO), has significant implications for India's technological and economic interests in an increasingly digitalized global economy.

Impact on India's Economic Interests

Positive Implications

• Export Growth Opportunities: India's electronics exports reached US$22.68 billion in FY23 with projections of US$120 billion by 2025-26, indicating strong growth potential through ITA participation.
• Global Market Access: Elimination of tariffs facilitates easier access to international markets, evident from 23.6% year-on-year export growth in FY24.
• Integration into Global Value Chains: Zero-tariff regime enables Indian IT companies to participate more effectively in global supply chains and technology partnerships.
• Consumer Benefits: Reduced costs of IT products benefit domestic consumers and businesses, promoting digital adoption.

Challenges and Concerns

• Domestic Industry Protection: India's current 17% MFN applied tariff rate (highest among major economies) helps protect local manufacturers.
• Revenue Impact: Elimination of import duties could lead to significant revenue losses for the government.
• Competition Pressure: Local manufacturers might face intense competition from global players with established economies of scale.
• Trade Deficit Risk: Reduced tariffs might increase imports, potentially widening the trade deficit in IT products.

Policy Response and Mitigation Strategies

Government Initiatives

• Production Linked Incentive (PLI) Scheme: Promotes domestic manufacturing in electronics and IT hardware sectors.
• National Capital Goods Policy: Aims to increase sector's contribution to manufacturing from 12% to 20% by 2025.
• Digital India Initiative: Focuses on building domestic technological capabilities and digital infrastructure.

Way Forward

• Strategic Implementation: Phased reduction of tariffs allowing domestic industry adaptation time.
• Capacity Building: Investment in R&D, skill development, and technology upgradation.
• Export Promotion: Leveraging competitive advantages in software services to balance hardware imports.

India's strategic approach to ITAs must balance the opportunities for global integration with the need to protect domestic interests and ensure sustainable industrial growth. The success of initiatives like "Make in India" and "Digital India" will be crucial in maximizing benefits while minimizing risks from such agreements.