PM urgently needs to focus on trade policy

Both the UPA and the present Indian government have had the luxury of neglecting trade policy since falling oil prices put no strain on the Balance of Payments (BoP). Exports were totally neglected. I have written several pieces on that. Since the last decade India  took a reactive trade negotiations stance. Being “at the table” is not a choice for an aspiring major global player in a global economy, but a necessity. Inactivity is not a strategy; it is just a disguise for institutions that do not know how to defend their interests in difficult negotiations, and its institutions should be more than up to the challenge. At WTO, India is pleading for special and differential treatment citing it has the largest population below the poverty line, yet boasting that it is the fifth-ranked GDP country with the highest rate of growth! It has also shied away from any plurilateral agreements. It has a very poor record in regional agreements. Well before United States President Donald Trump initiated the trade war, India has been raising tariffs steadily on steel and other products. We have not yet met the promise we made in the Trade Policy Statement of 1991 that we shall bring down our average tariff to Asean levels in 10 years. We have a dismal ranking of 146 in Trading Across Borders, and 100 in the Ease of Doing Business in the World Bank Doing Business Report. In this setting, maintaining a high sustainable growth with jobs is not possible.

 

India now faces very severe global headwinds that can create a major strain on the BoP. Anti-globalisation and anti-immigration drives in the United States and parts of Europe may result in reduced market access for exports of goods and services. This coupled with a likely rise in US interest rates may negatively impact the flow of remittances and foreign institutional investments. Continuation of rising oil prices as a result of tensions in West Asia may increase our import bill.

 

Nationalist policies in advanced countries may limit the flow of foreign direct investment and dampen our “Make in India” initiative. Our information technology giants are already affected by the impending H-1B visa reforms. Barriers related to the emerging issues in data privacy and data restrictions are now the areas of maximum concern for the future growth of off-shore professional and technical services models (such as business process outsourcing or knowledge process outsourcing).

 

Given the complexity of the current global landscape, trade reforms must be designed and implemented in a timely manner by a competent wing of the government. India urgently needs better management of its international economic relationship. The current institutional arrangement that disperses strategic decisions to the Ministry of Commerce and Industry and the Ministry of External Affairs lacks the necessary depth. We definitely need to create an independent Trade Policy Council outside the line ministries, reporting directly to the PM. We need an experienced chief trade negotiator and an internationally-reputed chief economist in that Council.

 

India has a dismal record in regionalism. We don’t have a single successful FTA, nor are we an important player in any regional agreement. Saarc is non-functional. India is at a conflict with Singapore in the Regional Comprehensive Economic Partnership (RCEP) over its insistence of temporary relocation of labour when it does not allow that to any country! India never started preparing for the Trans-Pacific Partnership (TPP) initiated by the then US President Barack Obama. Our trade experts were thrilled when President Trump moved the US out of it. But the remaining 11 original members of TPP led by Japan have resurrected the TPP, calling it the Comprehensive and Progressive Agreement for Trans-Pacific Agreement (CPTPP). They are: Japan, Australia, New Zealand, Brunei, Singapore, Vietnam, Malaysia, Canada, Peru, Chile, and Mexico. The Philippines, Indonesia, South Korea, Sri Lanka, and Thailand are preparing to join in the next round. But India is nowhere in the picture. Given that TPP was the largest global value chain in the world, there will be pressure from the US MNCs for the US to join the CPTPP. India cannot be left out of it. But membership will require meeting WTO-plus standards in trade policy instruments, which we will need to start preparing right now. Even if the CPTPP fails, the improvement of our trade policy standards will stand us in good stead in our unilateral trade liberalisation efforts.

 

Simultaneously, we should strengthen our FTA with the EU, and with Asean. An FTA with the US is at present too premature, nor should we rely too much on the RCEP, which will be totally dominated by China which is more interested in its Belt and Road Initiative.

 

It is high time that our prime minister focuses on regaining our export momentum which alone will help sustain a high growth and create jobs.

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The writer is a former economic advisor in the Union commerce ministry