'Economic openness is best reflected in a country's trade'

Throughout our long history, we have been a trading people. Evidence of this is to be found in archaeological remains and recorded history pertaining to west, central and east Asia.

In the last 30 years, world trade in merchandise and commercial services have increased by about seven per cent per year on average, reaching a peak of $18 trillion and $4 trillion, respectively. In the same period, developing economies raised their share in world exports from 34 per cent to 47 per cent and their share in world imports from 29 per cent to 42 per cent.

Despite the recent global economic slowdown, this trend is likely to get strengthened in the future. We will, therefore, find ourselves living in a more interconnected and interdependent global market place with higher levels of trade and capital flows.

Experience shows that development depends largely on a fast pace of economic growth and measured pace of economic openness. While economic growth has its own determinants, economic openness is best reflected in a country's trade and investment flows with the rest of the world.

Trade remains the most reliable and productive way of integrating into the global economy. It does so in six ways. It:

• Helps boost development and reduce poverty by generating growth through increased commercial opportunities and investment, and broadening the productive base.
   
• Creates employment opportunities, generates stable jobs and usually higher incomes, thus improving livelihoods.
   
• Allows developing countries to access new markets and new materials, which open up new production possibilities.
   
• Enhances competitiveness by helping reduce the cost of inputs, acquire finance through investments, increase the value added of their products and move up the global value chain.
   
• Encourages innovation by facilitating exchange of know-how, technology and investment in research and development. It expands choice and lowers prices for consumers by broadening supply sources.
   
• Strengthens relations between nations by bringing people together in peaceful and mutually beneficial exchanges and as such contributes to peace and stability. This aspect could be most relevant in our own south Asian region.

Since the beginning of economic reforms and liberalisation of our trade policies in the early 1990s, India's integration with the rest of the world has grown steadily, compared to the first four decades after independence.

In the last decade, India's share in global exports and imports increased from 0.7 per cent and 0.8 per cent respectively in 2000 to 1.7 per cent and 2.5 per cent in 2011. Our ranking among leading exporters and importers improved from 31 to 19 and 26 to 12 between 2000 and 2011. Despite this, our share of global trade is disproportionately small, given the size of our economy and population and in comparison to other large emerging economies such as Brazil and China.

The global economic slowdown in 2008 has thrown up new challenges for us with export growth being continuously negative since May 2012 primarily due to reduced demand from the developed world. With the Doha Round of multilateral trade negotiations stalled, regional trade arrangements are on the rise in most parts of the world. This has led to some trade diversion in favour of intra-regional trade.

Some other challenges, with longer-term implications, are mentioned in the World Trade Report 2013. These relate to:

• The emergence of international value chains, the rise of new forms of regionalism, the growth of trade in services, the greater incidence of non-tariff measures, higher and more volatile commodity prices, the rise of emerging economies, and evolving perceptions about the link between trade, jobs and the environment.
   
• Apprehension that globalisation brings about rising inequality in incomes. This could result in social pressures and demand for political changes thereby nullifying the gains.
   
• There would thus be a need for long-term policies for education and training and short-term policies for managing these transitions to ensure future growth, stability and social harmony.

Some other factors relating to availability and pricing of energy, natural resources and primary commodities would be critical, as would be the challenge of availability of water resources for agricultural products so essential for international trade. Equally relevant would be a stable financial and monetary system and policy decisions with regard to trade facilitation, competition and the environment.

Fiscal consolidation, managing inflation, and calibrated liberalisation of capital inflows would help create an environment conducive to greater trade and investment flows. So would diversification of exports along the product space, especially technology-intensive products, and across markets.

Expediting ongoing negotiations for our own FTAs/RTAs/PTAs in Asia, Europe, Africa and Latin America will be essential to counter protectionist tendencies in other parts of the world. Tapping the potential of the service sector, such as tourism, including health tourism, would help mitigate fall in other service exports. On the import side, reducing our dependence on oil imports will remain a perennial challenge.

With limited fiscal space available for the government and with protectionist measures of trading partners showing signs of rising, the policy options left with us are more at the micro level. These relate to improvement in the poor state of our physical infrastructure, especially ports, airports and highways. Our fiscal regime, including taxes and customs duties, needs to be more efficient.

Today, India is ranked 132nd in the "ease of doing business" and 127th on "trading across borders". Addressing these issues could exponentially promote India's export growth and make our external sector an engine for rapid growth.

Edited excerpts from a convocation address by M Hamid Ansari, Vice-President of India at the Golden Jubilee and 48th Convocation of the Indian Institute of Foreign Trade, April 17, 2014 at New Delhi