World Bank's India Development Update unlikely to be taken seriously

The researchers at the World Bank (WB) have summarised recent developments in India’s economy and evaluated them in a medium-term and global context, in the India Development Update (IDU) released last week. They have devoted an entire chapter on India’s trade opportunities in a changing global context and made certain recommendations, some of which may find no favour with our government.
 

The WB researchers say that over the past decades, despite rapid overall economic growth, India's trade in goods and services has decreased as a percentage of GDP, and India’s participation in global value chains (GVCs) has fallen. Exports are also relatively concentrated in goods and services that tend not to be labor-intensive. As a result, trade-jobs linkages are not fully exploited. An important factor behind this decline is the increase in import tariffs on key intermediary inputs, which has raised production costs and made producers less competitive in international markets. Besides, India does not participate in mega trade blocs, such as the Regional Comprehensive Economic Partnership (RCEP), despite potential benefits from broader trade cooperation. India can do much more to reduce trade costs and improve trade facilitation, by simplifying and increasing the transparency of customs procedures and reducing red tape. India could continue pursuing free trade agreements (FTAs) with a focus on assessing their impact and adjusting the overall strategy as needed. India will need to diversify its export basket even further and enter new markets as that would bring added benefits in terms of risk diversification, by reducing reliance on traditional markets, which may face slower growth or protectionist measures, as well as opportunities for innovation and productivity growth. Deeper integration with GVCs and additional focus on exports of environmental goods and services could further boost trade diversification and upgrading.  By integrating into GVCs, India can expand the variety of what it produces (by participating in the production of higher-added value goods), enhance its competitiveness (by gaining access to advanced technologies and global markets), and increase flows of foreign direct investment by multinationals seeking to produce in India, says the IDU.
 

At home, there is general irritation with reports from any agencies based outside the country, especially if the report is unflattering and preachy. Secondly, the government is so busy and obsessive with drum beating about its achievements that there is little patience with reports pointing out any deficiencies and how to overcome them. Third, many of the IDU prescriptions such as tariff reductions are already known and applied selectively. Fourth, the government has taken a conscious decision to stay out of RCEP trade negotiations, considering the threat of imports from China. Fifth, the government is committed to protecting domestic producers from imports, as the Commerce Minister’s suggestion of imposing border adjustment tax on imports shows. So, there is very little to suggest that the recommendations of IDU will be taken seriously.  

The government needs to first recognise that our performance in exports of merchandise is poor and that the principal reason is the erosion of competitiveness over a period of time, especially in the last decade. Without such a recognition and admission of the existence of the problem of competitiveness, very little progress can be made in identifying the factors that contribute to such poor competitiveness. Merely trumpeting achievements is unlikely to help us much.

Email : tncrajagopalan@gmail.com