Remove contradictions

FDI clarity is welcome but messaging on trade isn't

In the context of the Covid-19 pandemic, countries across the world are revisiting their trade and industrial strategies, and India has been no exception. The problem is that its approach has been, so far, rhetorically and practically somewhat contradictory. On the one hand, the very name of the “aatma nirbharta”, or self-reliance relief package, seems to suggest a turn away from the benefits of globalisation. On the other hand, individual statements by senior officials, including the finance minister, and various promises about raising India’s profile as an investment destination, seem to suggest a renewed commitment to globalisation.

This newspaper has reported, for example, that senior officials in the government have expressed concern that a report from the World Trade Organization has indicated that one-fifth of manufacturing imports into India are not levied customs duty, presumably since they come from countries with which India has a free trade agreement (FTA). This is not inherently surprising — indeed, what is surprising is that the level is not higher. What is worrying, however, is that the officials have been reported as interpreting this study to mean that a revision in India’s approach to trade is required, including re-examining FTAs. This should instead be seen as a sign of successful deal-making and as a call to action. That only a fifth are not being levied duties suggests that so far any attempts to misuse FTAs to wrongly state the place of origin of Indian imports have not been successful at scale.

What reveals the contradictory nature of thinking at the highest level is the simultaneous news that India is seeking to upgrade itself as a destination for foreign direct investment (FDI), and it hopes to become a hub for the manufacturing and exports of mobile handsets. The production target in the electronics sector for 2025 is $190 billion, with a 30 per cent share in global value creation, as distinct from the current figures of $29 billion and 5 per cent, respectively. This is massively ambitious, and can only be achieved through export promotion. But export promotion, while simultaneously disengaging from imports, is a no-go in today’s world. India clearly needs more trade agreements and not less if it is to pep up electronics and other manufacturing exports.
 

The Union minister for commerce and industry also said recently foreign direct investment norms would be further relaxed and some additional clarity would be brought in. This is welcome. Yet, in the end, there needs to be overall clarity in the messaging. Investment in India is a function of the country’s growth prospects, which are, in turn, a function of its chances of leapfrogging slow domestic demand and tapping global markets. India’s prospects will be harmed most therefore by shutting itself off from global trade. It is any strategy based around import restrictions that will most damage the prospects of investment, growth, and job creation. Instead of expressing concern about trade and trade agreements, the government needs to re-commit to export promotion and ensure that Indian exporters make the fullest use of existing agreements in their attempts to join the global supply chain.