IT appears that the high risk of sovereign debt crisis in Europe and the consequent threat to the Euro Zone along with the twin scourge of poor industrial growth and rising unemployment in US have some unpredictable adverse implications for India.
GDP has risen by 7.7% in the first quarter and available projections have put it at a lower level in 2nd quarter. ADB lowered its GDP forecast from 8.2 to 7.9%.
Industrial output in the first four months has fallen to 3.3 % against 9.9% in last year. RBI has hiked the repo rate to 8.25% to rein in inflation, although industry feels that any further rise in interest rate would hamper growth. Prices of raw materials and finished products are under pressure and global steel market is showing signs of flatness.
Under such a depressing scenario, the natural urge is to opt for a protectionist policy. Though it violates the tenets of free trade of WTO, many of its members are not unduly concerned. Announcing the stimulus packages in 2008 and 2009 for its troubled economy, US announced ?Buy American? policy in government procurement, strongly objected to by Canada and Mexico. The same policy is kept in the stimulus package of $447 bn announced recently. Only a few months back, Dispute Settlement Body of WTO on the basis of complaints from US and EU has sought explanations from China on imposing restriction on export of 9 major raw materials including coke, bauxite and zinc.
Meanwhile news have come that Indonesia is planning to raise taxes on export of raw materials which include nickel and copper ores and in another 3 years? time, it may impose complete ban on export of raw materials to encourage value addition within the country.
It appears that economic downturn is likely to strengthen the propensity to conserve indigenous resources by all the member countries of WTO which may still continue to examine the complaints of embargo and other restrictions on free flow of raw materials across the countries. Considering the threat of recession spreading deep into the economy including rising unemployment and falling growth of GDP, restriction on outsourcing and thereby preserving jobs for the sons of the soil are indications of similar perceived characteristics.
If these are considered natural and not violative of globalisation principles, what is wrong for a developing country to seek value addition for the finished products and not for the raw materials? WTO needs to give due consideration to these changed perceptions of global transactions, if Doha round is to be taken forward.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal