Photo by Naveed Ahmed on Unsplash
Photo by Naveed Ahmed on Unsplash

At this point, India may be one of the few large economies able to provide leadership in international trade. The US under President Trump seems to have all but kissed goodbye to multilateralism. The EU at the moment seems too pre-occupied with issues like BREXIT etc., while China although has been waxing eloquent about multilateralism questions. Besides, it is presently caught up in a trade war-like situation with the US.

Why India?

With a GDP (PPP) of $2.597 trillion, India is the  6th largest economy in the world today and has emerged as the fastest growing economy among the major economies of the world.

  • India is expected to be the third largest consumer economy in the world tripling consumption to US$ 4 trillion by 2025, due to shifting consumer behavior and expenditure patterns, according to a Boston Consulting Group (BCG) report.

But, India is also aggressively pursuing expansive foreign trade policies with a target of increasing the country’s share of world exports from 2% to 3.5% by 2020. In absolute terms, that’s US$ 900 billion. The World Bank in its recent report has ranked India at no. 77 for ‘Ease of Doing Business’ (a marked improvement by 23 positions over the last year’s ranking)’. Private investments are expected to grow by 8.8 per cent in FY 2018-19 while private consumption grows only 7.4 per cent.

Already India’s overall exports (Merchandise and Services combined) in the April-November 2018-19* time period are estimated at USD 351.99 Billion, more than 15.48 percent higher than last year. Overall imports in the same time period are estimated to be USD428.18 Billion, more than 16.86 percent higher and the overall trade deficit, according to the Department of Commerce, is estimated at US $76.19 Billion (as compared to US $61.58 Billion.) Foreign Direct Investment (FDI) equity inflows meanwhile reached US$ 389.60 billion between April 2000 and June 2018.

The Core Principles of India’s Foreign Trade Policy (FTP)

The Foreign Trade Policy (FTP) of India today traces its evolution back from the post-economic liberalization of the early nineties. The two core areas identified then were:

  • Import liberalization – eliminating quantitative restrictions including tariff reductions
  • Export Promotion or Orientation of Trade which among other things entailed diversification of markets as well as commodities.

The FTP for 2015-20 seeks: to provide a stable and sustainable policy environment for foreign trade linking rules, procedures and incentives for exports and imports with domestic initiatives like Make in India, Digital Indiaand Skill India. The FTP also seeks to enhance the country’s exports and use trade expansion as an instrument of economic growth and employment generation. The Policy further seeks to create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions. (The carry forward of the ongoing negotiations on Regional Comprehensive Economic Partnership (RCEP) and other FTAs maybe viewed in this context.)

Dilemmas and Challenges for achieving India’s foreign trade priorities

India’s continued growth depends on Government of India’s ability to help entrepreneurs match increased manufacturing with increased exports. The mid-term Review of the FTP (2015-2020) has stated its commitment to address issues of infrastructure bottlenecks, high transaction costs, complex procedures, manufacturing issues and inadequate diversification in services. India needs to make its goods and services more competitive so that they are better aligned to international standards and technical barriers on sanitary and phytosanitary restrictions. The sticking points of the Agreements being negotiated – on Agriculture, or Mode-4 of the General Agreement on Trade in Services (GATS) viz. free movement of ‘natural persons’ , or on Services, or TRIPS, or even on elimination or reduction of tariffs on specific goods, or on being declared a ‘data secure’ country need to be looked at with an open mind. FTAs with EU and also the ongoing negotiations on RCEP need to be concluded at an early date.
Agriculture which contributes to almost 17% of the GDP and employs more than 50% of the country’s working population, continues to pose challenges. With reports of an agrarian crisis looming large, issues like loan waivers, subsidies, Minimum Support Price (MSP) etc. will continue to engage the mindspace of politicians. The clarion calls of ‘America First’ from across the Atlantic, the continuing sabre rattling by the US and China, the increasing cases of protectionism, the attempts at weakening or disabling the judicial process in WTO, are all matters of concern.

Reinforcing the confidence of foreign institutional investors should continue to be a priority for India. While there are encouraging signs (e.g. the Foreign Direct Investment (FDI) Policy allowing FDI through the Automatic Approved Route in a large number of sectors) to even better integrate Indian economy to the global economy, more needs to be done on some of the other sectors mentioned above including reforms in the WTO. How India negotiates its foreign trade policy while not jettisoning its domestic priorities (addressing issues of unemployment, increase manufacturing and also exports) and also making a pitch for multilateralism as opposed to protectionism would be closely watched with great interest.

India on the World Stage

There is a general perception that the great powers and countries aspiring to be prefer bilateralism to multilateralism and consider the latter to be a privilege of the weak. President Trump’s America appears to be determined to embody that perception. India has often been seen as adopting a maximalist position in international negotiations on various topics and themes ranging from climate change, international trade, agriculture, public health to services etc. It is to be remembered that any forward movement on multilateral negotiations by its very nature involves considerable negotiations and any progress at best is incremental. To see India as a spoiler in international trade negotiations may not really be fair or accurate. India’s stance on issues like agriculture which contributes more than 17% of India’s GDP and which employs more than 50% of India’s workforce should be seen and understood in that light.

There have been reports of hundreds and thousands of farmers spread across rural areas of India committing suicide either owing to sheer unviability of their occupation or the inability to pay off their farm loans. The cries for farm loan waivers, and increased subsidies in the form of ‘Minimum Support Price’ (MSP) etc. has become shriller and engaged the mindspace of successive political establishments. Similarly India’s strength and benefits accruing from that in the services sector has often been articulated with vehemence in trade negotiations. India has always advocated a strengthening of institutions like the WTO. In fact, India has taken the lead in drawing up an agenda incorporating the views and concerns of the developed, as well as, developing countries for the discussions on the sidelines at the recent WEF Summit in Davos.

At the G-20 Summit in Buenos Aires, top leaders of India, Russia and China underscored the benefits of a multilateral trading system and an open world economy for global growth and prosperity. No country can be expected to surrender its national interests at the altar or for the sake of ‘global interests’. They can or should however be expected to strike a balance so that a more equitable world order based on clear cut rules and practices emerges and this is true of international trade as well. The ‘pitch’ for multi-lateralism which India has espoused and been espousing in international forums should be seen and understood in the above context.

This is a guest post by Shri S. K. Ashok Warrier, former Ambassador of India to the Democratic Republic of Congo. Watch for more posts from Ambassador Warrier in the coming months.

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