Trade reforms, global value chains key to India's export strategy

Export promotion requires consistent and open trade policy

It has been reported in this newspaper that the Union commerce ministry is in the process of having a meeting that will examine how six particular product categories can have their export value increased, in particular to 20 focus markets — most of which are advanced Western nations, and also Russia, China, and Indonesia. The energy and interest being displayed by policymakers and administrators on increasing Indian exports is welcome. It is also good news that diplomats in this country, including ambassadors, have been invited to discuss this strategy — too often, the senior-most members of the Indian diplomatic corps think that trade promotion must take a back seat to other aspects of their duties. The context for this effort, it is assumed, is the recent cratering of India’s merchandise exports, which reached their lowest point in more than two years last month. Thus, a targeted export strategy is being considered necessary.

 

It is already amply clear what is needed to increase Indian exports; the government has to move forward on this reform agenda and take cognisance of the nature of modern trade. Several of the countries on this list of 20 are, for example, members of the European Union. The appropriate way to increase exports to that region is obvious: An early conclusion of the free-trade agreement (FTA) that has been long in negotiation. The idea that exports can be increased without a tradeoff in terms of domestic-market access for potential trading partners is completely outdated. Other regions, such as the United States, are unlikely to sign FTAs, particularly under the impending administration of Donald Trump. Given that, increasing exports to such regions becomes a question of efficiency, competitiveness, and cost reduction. To increase competitiveness, India must become part of global value chains. That requires, in turn, stable trade and tax policy. Variability in India’s approach to taxes and tariffs and the implementation of arbitrary quality-control orders to check imports have hindered India’s entry into global value chains and thus its ability to increase exports to high-end markets like the US.

 

Of course, on-the-ground reforms to business friendliness — from administrative to judicial reforms — are also important. But, for trade specifically, the government’s policy towards new agreements and even to international arbitration has to be clear. It is the basics that need to be fixed, not any detailed new strategy. It is thus to be hoped that the meeting, when it occurs, will also provide this feedback to the government. Reform of trade policy has been long in the making. Too much recent work in this direction has simply set targets, or focused on wooing particular companies such as Apple Inc. This may or may not pay off in a sustainable manner. The only way to persistently increase export value is by ensuring that any company, large or small, has access to global inputs and global markets with the minimum of regulatory and administrative intervention. This understanding would change the foundations of India’s trade policy, and increase exports to a permanently higher level.