Indian trade is stuck in non-alignment

Till now, there is no detailed study available indicating the degree of ‘damage’ in terms of loss of jobs and income if imports increase

trade, economy
Countries trade for economic benefits including higher national and household incomes.

Modern international trade is not just economics. Trade has implications for foreign policy and relations that countries have with the rest of the world. Countries that fail to understand the connection between trade and global political economy end up with huge divergences between their foreign and trade policies. India is a typical case in point. India aspires to figure in the global high table of major powers. On several issues, ranging from nuclear security to climate change, it has secured its position at the high table. For a country, dismissed by many in the developed world as the ‘largest unimportant’ country in the 1970s and 1980s, India has come a long way on multiple global issues. In order to continue to be taken seriously, it must contribute constructively to the agenda for global trade. But India does not appear to be inclined to do so. Indeed, talking about free trade in today’s India encounters resistance.

Countries trade for economic benefits including higher national and household incomes. They trade for exchanging goods and services being produced competitively across the world so that local consumers benefit, as do producers, by accessing cheaper inputs and competing for better quality. At no stage are benefits from trade the same for all groups involved. Appropriate domestic policies must ensure that unequal distribution benefits don’t disadvantage others. Resisting opening up on the ground that it would ‘kill’ local jobs and produce is depriving both domestic consumers and producers from opportunities that would have made them better off. For a country like India, these actions also send a contradictory signal that India aspires to be a global player without letting others trade with it.

Prime minister Rao’s efforts to integrate India globally with the economically robust Asia-Pacific was later deepened and expanded by prime ministers Vajpayee and Singh through institutional partnerships. This led to India becoming a firm part of the regional architecture. Trade cynics fail to realise the greater importance of India’s FTAs with south-east Asia—a part of India’s neighbourhood wherein the country was hardly discussed even fifteen years ago. Today, India commands a significant space in the region’s conversation enabling it to pursue significant business opportunities through key industries like hospitality, aviation, entertainment, education, lifestyle, healthcare and artificial intelligence. India’s FTAs with ASEAN, Singapore and Malaysia have been great enablers in this regard as well as in people-to-people exchanges. But, strategic and economic engagement being persisted through the current ‘Act East’ policy encounters suffers serious credibility issues when India is anointed the chief ‘spoiler’ for RCEP.

India’s trade policy must note that no one expects India to sacrifice national interests in trade negotiations. But, it is important to note the counterpoints too. Arguments for retaining tariffs point to damages for local industries from imports. Till now, there is no detailed study made available in the public domain by individual industries indicating the degree of ‘damage’ in terms of loss of jobs and income—at the lowest disaggregated level of 8-digit item lines—if imports increase. Furthermore, there is no explanation of why—if consumers benefit from better and cheaper imported products—can’t domestic producers upgrade their stuff. Becoming anti-trade due to a lack of competitiveness inflicted by domestic conditions is a bizarre position to take. The position conveniently overlooks instances where tariffs on raw materials, imposed on protective and revenue fetching grounds, make Indian products costlier than imports. Nowhere is this more visible than Indian finished steel, which wouldn’t have to had to run for cover from higher imports from Korea, Japan and China, if it could have access to cheaper imported inputs.

The core problem appears to be that while Indian foreign policy and the world view has become practical and pragmatic over time, Indian trade view hasn’t. It remains confined to the era of ‘non-alignment’ where policy success was judged by plaudits earned by blocking trade. Trade in times of non-alignment was looked at as an opportunity for bigger powers to dominate the rest. The mentality remains. How else does one explain the fact that, despite evidence pointing to the limited use of FTAs, these continue to be maligned as conduits for high imports? And why do academic studies on FTAs in India focus steadfastly on the damage they will create, instead of ever focusing on the benefits they might generate in the medium and longer terms. The answer is clearly in the refusal to change. A complete misalignment between India’s world vision on foreign policy and trade has led to a situation where both are being treated as mutual exclusives by their domestic managers. A third world perspective on trade is not consistent with the foreign policy vision that India has. If the visions were to get even remotely close to each other, India would not have run away from FTAs. On the contrary, it would have pondered to think why most of the world is pursuing FTAs, including its allies.

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