Towards Developed Country Status

Updated: Nov 4 2003, 05:30am hrs
Reading Indian newspapers conveys the impression that the India-Thailand Free Trade Agreement (FTA) is a big deal. Thats possibly because we only have an FTA with Sri Lanka. SAFTA is going nowhere and Bangladesh is a long way off. Reading Thai newspapers, especially at the time of the APEC Summit, conveys the impression that FTAs are a dime a dozen. Other than China and India, Thailand is likely to have FTAs with US, Canada, Taiwan and New Zealand. In Singapores list, we have Japan, Mexico, New Zealand, Australia, Canada, EFTA and US. That apart, there is Korea-Japan. And lets not forget Chile with US, Canada, Mexico, EU and South Korea.

Rather expectedly, you find Thai civic groups opposing FTAs. Free trade is not fair trade. TRIPs and investment should be excluded. There is no transparency and accountability. Only big local business and MNCs will benefit. There will be dumping of sub-standard products. Regulatory systems are missing. Prices of goods and services will increase (presumably after dumping has ousted domestic competition). In any case, signing such FTAs is possibly against the Thai Constitution. Fertile ground for civil society in India and Thailand to collaborate on.

The 21-member APEC is a mixed bag, with the US, Canada, China, Australia, South Korea and the 10-member ASEAN thrown in. Ipso facto, a CEOs description of APEC meetings isnt far wrong. Unless progress is made, people will go around thinking APEC is just leaders going around in funny shirts once a year, traveling in cavalcades in tight security and attending huge banquets. True, trade liberalisation has been part of APECs agenda through economic and technical cooperation and trade and investment liberalisation and facilitation. But beyond ASEAN and ASEAN plus 3, the agenda hasnt got very far.

Perhaps because Cancun isnt distant history, this years APEC Summit was slightly different. Despite being in Bangkok, Supachai wasnt invited to the APEC Summit. But the Bangkok declaration pushes quite hard for resumption of Doha Devel-opment Agenda negotiations, based on the Derbez Text of 13th September. Since there is such explicit mention of agriculture, there should be pressure on EU, for what it is worth. There should be pressure for speedy accession of Russia and Vietnam into WTO, again for what it is worth. Other than Burma, the Korean nuclear stand-off and the Chinese exchange rate, terrorism has become part of the agenda. Hence, the US attempt to sell e-sealed smart containers and advance passenger information systems. The sooner WTO discusses trade facilitation (as opposed to unilateral action), the better.

It is easy for India to feel isolated, but for a new acronym doing the rounds, courtesy a new Goldman Sachs report doing the rounds. In case you havent read it, it is titled, Dreaming with Brics: The Path to 2050. BRIC stands for Brazil, Russia, India and China. The hypothesis is simple. Within 40 years, BRIC will overtake G-6 (US, Japan, Britain, Germany, France, Italy), measured in PPP GDP or PPP consumption expenditure. Of the G-6, only US and Japan wont be side-lined. By 2009, incremental consumption expenditure in BRIC will be more than in G-6. By 2041, China will overtake US and become the largest economy in the world. Economic growth in BRIC will come from three sources productivity growth through catching up, demographic transition and real exchange rate appreciation consequent to increased capital inflows. Hold your breath, Indias per capita income in todays dollars will be 17,366 in 2050. You dont get that through GDP growth or per capita GDP growth. But you hadnt thought of exchange rate appreciation. Hold your breath again, at an average of 2.5 per cent a year. There may not be too many takers for such optimistic scenarios for Brazil and Russia. But the Indian and Chinese explosion is accepted unquestioningly. But everyone has India growing at between 6 and 6.5 per cent. Wait till we show 7.5 per cent (or will it be 8 per cent) in 2003-04.

We do have a lot of catching up to do. Consider Indias non-PPP per capita income of $ 500. We know that India is a large economy. The Doha Ministerial Declaration mentioned a small economy, without attempting to define the expression. But conventionally, a small economy is one with a population of less than 1.5 million. There are 46 of these in the world and 30 are islands or archipelagos. Of these 30, 25 are developing or LDCs. Given a map, most of us will not even be able to pinpoint where these are located. Consider the 11 in the Pacific. The per capita income ranges from 627 dollars (Kiribati) to 6,722 (Palou). For the eight in the Caribbean, the per capita income ranges from $3018 (Saint Vincent and the Grenadines) to $ 9,979 (Antigua and Barbuda). For the four in the Indian Ocean, the per capita income ranges from $ 281 (Comoros) to $ 7,804 (Seychelles). And for the two in West Africa, the per capita income ranges from $257 (Sao Tome and Principe) to $1,400 (Cape Verde). There is certainly a moot point about whether many of these economies should be classified as LDCs. Should the Maldives, Bangladesh or Botswana be LDCs Anti-liberalisers will argue that no LDC has ever graduated out of LDC country status. True. But is there any incentive to graduate out of LDC country status For instance, LDCs obtain preferential market access treatment. The value of this preferential market access is indeed declining, but it hasnt been eliminated. More pertinently, there isnt any disincentive associated with LDC country status, such as higher risk premiums on borrowing.

To get back to point, notwithstanding BRIC euphoria, the rate at which India will grow is anyones guess. However, by 2020, if not by 2015, we ought to have a per capita income of $1,000. A little bit of exchange rate appreciation will obviously help. There does seem to be a block about that $1,000 figure though. Ascribe it to the East Asian currency crisis if you will. But both Indonesia and the Philippines touched it and then fell back. China has just about touched it now. Government documents keep telling us India will become a developed economy by 2020. A thousand dollars doesnt make us developed. By any meaningful definition, you require a per capita income of $10,000. Thats a long way off.