Left behind

India missing out in shaping 21st-century trading norms

These are difficult times for world trade. It appears to be going through something of an inflection point. The broad globalising tendency that began in the late 1990s and accelerated with the expansion of the World Trade Organization in the early 2000s to include the People’s Republic of China in particular is being called into question. Two major trends are fighting for control of the future: First, the efficiency and stickiness of large global trade networks, which have allowed for unprecedentedly low prices of tradable goods and have also raised quality and availability; and, second, the pressure of voters on domestic politicians to alter trade policy in order to preserve, protect and create jobs. Meanwhile, major regional trade blocs are being negotiated and re-negotiated, perhaps at the price of political capital that could otherwise have been spent on reforming and reviving the WTO. It is far from certain what the outcome of these trends will be.

What is unfortunate, however, is that there appears to be very little attempt by India to engage in the shaping of the future architecture of world trade. Its performance at the WTO in past years has been disappointing — it has sought above all to preserve the integrity of its inefficient agricultural procurement system, even at the cost of WTO rules and cohesiveness. It should instead have been moving to a more modern form of income support for farmers, one that is also WTO-compliant. The costs of this limited approach are increasingly clear. India stands isolated in world trade. The vast majority of world trade flows through free trade agreements and regional associations — the European Union, the North Atlantic Free Trade Agreement, the Association of Southeast Asian Nations — of which India is not a part. The consequences of India’s inability to engage with the new trading system are readily apparent. In spite of a recent and relatively fragile uptick in exports, Indian exports to the world as a proportion of gross domestic product have been largely static since 2014. This is a most unusual occurrence. Not for decades has the growth rate of Indian exports stood still in this manner. The rupee has indeed been overvalued for much of this time — but that cannot be the only reason for this stagnation.

 
There are deeper problems that have been made visible, most importantly an unwillingness on the part of both the Indian state and the private sector to open up and engage with new markets and trading systems. Why, for example, is India not moving to shape the new trading order that will emerge from the increasing isolation of China in world trade negotiations? In late September, the trade ministers of the European Union, the United States and Japan met in New York and developed a common agenda to control trade distortions caused by over-capacity and anti-market state policies. They also announced their intention to focus on digital protectionism and on forced technology transfers. What is India’s position on these issues, which will determine the trade flows of the future? How does the government intend to promote and protect Indians’ interests? The Union commerce ministry must answer.