Former railway minister Suresh Prabhu on Monday took over the reins of the commerce and industry ministry after Nirmala Sitharaman’s elevation as the defence minister in the latest shuffle on Sunday.
Prabhu takes charge months ahead of the crucial ministerial of the World Trade Organization (WTO) in Argentina in December where India will have a Herculean task of ensuring concrete actions on issues agreed upon in previous ministerials, including a permanent solution to the issue of public stock holding.
The country has to drum up support from other developing nations to extract a credible assurance from developed countries to trim their massive trade-distorting farm subsidies. At the same time, India has to resist pressure from developed countries for going beyond TRIPS (Trade-Related Aspects of Intellectual Property Rights) and IT agreement, and including e-commerce on the WTO agenda. These will be the most challenging task for Prabhu in the short term.
At RCEP too, talks on further liberalisation in goods trade are moving at a much faster pace than those on services, as Sitharaman admitted in an interview with FE last week. While most nations, especially Asean and China, seem to be more interested in extracting greater concessions from India in goods trade, they are reluctant to offer anything significant in return in services trade, which is of immense interest to India.
Exports growth slowing While a protracted phase of export contraction is behind us, a consistent slowdown in its growth since April stokes concern. The rupee remains strong (According to the real effective exchange rate based on a basket of currencies of 36 export partners, tracked by RBI, the rupee was over-valued by almost 20% in July) and logistics costs are among the highest in the world, substantially eroding India’s export competitiveness. Trade deficit with China remains too large for comfort ($46 billion in 2016) and investments from the world’s second-largest economy still remain too small to offset any damaging impact of trade imbalance.
Handling an unpredictable Trump administration
Prabhu has to deal with an unpredictable Trump administration and prevent it from tightening the H-1B visa policy further. He has also to try and push the US to ink a totalisation agreement to exempt the Indian industry, especially IT, from mandatory payments for social security of their Indian employees in the US. The IT companies are paying around $1 billion a year to comply with social security norms for their Indian employees in the US, despite the fact that they don’t live there long enough to be eligible for such benefits. The US has also retained India in its priority watch list in IPR, despite India’s assertion that its IPR regime is fully WTO-compliant.
Sustaining high FDI levels
Inflows of foreign direct investments (FDI) hit a record ($60 billion in FY18 and $161 billion in 3 years) under Sitharaman’s watch, and it would be a challenge to maintain the pace of growth. As Sitharaman said last week, the government would focus a lot more in sectors, including defence, where the inflows so far are below potential, apart from continuing with reforms across sectors.
Ease of doing business needs improvement
While the Modi government has targeted to break into the list of top 50 nations in the World Bank’s ease of doing business index, its current ranking of 130th of 190 nations won’t improve unless it fixes key parameters, especially “construction permits”, “enforcing contracts” and “paying taxes”.
In construction permits, India is ranked 185th, while in “enforcing contracts” and “paying taxes” it stands at 172nd. While with the launch of the landmark goods and services tax (GST) regime, India’s rank in “paying taxes” may improve significantly from next year, in other parameters, the government has to slog it out. Here is a catch though: the work to ensure ease of doing business cuts across several departments and the DIPP has to persist with them to shed inertia and actually implement serious reforms. Also, the World Bank ranks nations based on stakeholders’ actual perception, and doesn’t take into account reforms done only on papers. So the government has to sensitise stakeholders about reform measures, too.
Push for start-ups
The Prime Minister’s ambitious programme — Start-Up India — needs a sustained push with unhindered support through the Rs 10,000-crore “Fund of Funds” and easing of various regulations.