By Pradeep S Mehta
Until the advent of the British Raj, India had a healthy trade surplus with the rest of the world. Its trade openness was commensurate with its share in global trade.
Today, India is witnessing a revival of this phenomenon, as shown by the huge growth from a less than 1 per cent share of international trade in the early 1990s to more than 3 per cent.
During British rule, although India had significant trade openness, its share of global trade fell. After independence in 1947 until the 1980s, trade policy was tilted toward import substitution, without much thought about developing export competitiveness.
In the mid-1980s, a liberalisation policy was initiated by Rajiv Gandhi, then prime minister. In the early 1990s, Manmohan Singh, then finance minister, now prime minister, gave it a push.
Policies aside, in practice Indian politicians also preach that exports are good and imports are bad. This was ingrained in foreign trade policies for a long time when consumer welfare was almost absent. Only in the past 25 years has India practised a considered policy of trade-led growth without being shy about a trade deficit.
It is a myth that trade and investment liberalisation policies were adopted by default – it was a well-designed shift without which India could not have achieved the kind of growth it has enjoyed for the past two decades.
Even after taking into account the fact India is still less open to trade than other countries, the impact of its current openness on growth in general, and poverty reduction in particular, is much more significant.
Numerous studies on links between trade, development and poverty have shown this.
So, why do politicians not show more interest in domestic trade liberalisation in general and trade multilateralism in particular?
Rather than the politics of aspiration, Indians excel in the politics of grievance. Three state governments were thrown out recently because of a vegetable price rise, particularly for onions. Consumers gave their verdict: onions could not be imported because of government insouciance and rent-seeking by politically influential traders.
Agricultural trade policy provides an illustration of the political economy of India’s trade liberalisation. There is no policy as such. A recent example is Bangladesh’s decision not to import wheat from India as it had entered into forward contracts with Russia, as India was late in making an offer because of bureaucratic inertia.
While the trade ministry deals with international trade issues, it is mainly bothered about revenue generation from trade, not domestic commodity prices.
Price control is the job of agriculture and consumer affairs ministries – they receive political flak from consumers or producers whenever commodity prices rise or fall. Coalition government makes things more muddled. The end result is a lack of coherence.
This political economy of domestic trade liberalisation is reflected at the multilateral level too.
India’s average tariffs on agricultural and industrial goods have fallen to 40 and 20 per cent respectively (a decrease of more than five times). It is an irony that instead of turning this into an advantage, our trade ministers are consistently playing the politics of grievance at the WTO.
India’s position in the Doha round of the WTO has not changed since its launch in 2001. The only difference between the positions of the present trade minister and his predecessor is that, while the predecessor was more concerned with backward links (in rural hinterlands in particular), the present minister is more interested in future ones.
Given India’s role in the new quad of WTO talks (the old quad of Australia, EU, Japan and US was replaced by the EU, Brazil, India and US in 2003), and its role in highlighting the development discourse with the G20, it should invest its political capital in concluding the Doha round.
If India wishes to raise her demographic dividend this is a must. Otherwise, there will be a huge socio-political backlash, as youth is more interested in the politics of aspiration.
This was seen in last year’s election in Bihar, the most impoverished state, where the young supported continuation of the existing regime, which appeared to be progressive in creating more jobs.
It is more or less clear the Doha round of trade negotiations is mortgaged to the US demand on emerging economies to reduce industrial tariffs on specific sectors and products. Fortunately India, with Brazil and China, is showing some flexibility.
In a continuing debate at the Consumer Unity & Trust Society (Cuts) trade forum, it was hinted these countries should work together to reach a meaningful deal. The time has come for India to show her leadership quality.
(The author is the Secretary General of CUTS International and can be reached at psm@cuts.org. With additional contributions by Bipul Chatterjee, deputy executive director of Cuts International)