Exports not just meant to pay for imports; they indicate degree of integration with the global economy and levels of competitiveness: Montek Singh Ahluwalia

November 17, 2022

Exports are not just meant to pay for imports, but indicate levels of integration with the global economy and demonstrate competitiveness”, said Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission of India, in his opening remarks at the second roundtable organised by CUTS International to discuss the trade policy India needs.

Ahluwalia outlined three broad determinants of trade policy which affect levels of India’s export competitiveness – how open the economy is, indicated by the prevailing levels of tariffs, the extent to which India is willing to be drawn in to Free Trade Agreements (FTAs), and its approach to Global Value Chains (GVCs). He also highlighted that good physical infrastructure and logistics is not just essential for exports, but for a well-functioning economy overall.

A number of distinguished experts and trade policy practitioners attended the two-hour long roundtable to deliberate on the direction in which India’s trade policy should move. “India needs a trade policy which can increase its share of world trade, propel economic growth at home, and promote GVC integration. Our task is to provide concrete policy recommendations which can help achieve these objectives”, said Pradeep S Mehta, Secretary General, CUTS, who moderated the session.

There was a general consensus on the need for India to be more open to entering into mega-regional FTAs, particularly those in the Asian region, in order to better integrate into regional and global value chains. The slow progress of multilateral trade negotiations, geopolitical fractures, the need to be located within FTA territories in order to attract investment, projection of India as an engaged Asian power, and the brighter economic outlook of the Asian region were some of the reasons mentioned in support of this view.

Many speakers rued the missed opportunities by India not signing on to the Regional Comprehensive Economic Partnership (RCEP) agreement. Ajit Ranade, Vice Chancellor, Gokhale Institute of Politics and Economics, said that, “We must seriously reconsider our participation in Asian treaties like the RCEP. If we remain outside, we deter potential investors who would want to relocate entire value chains.”  

In a similar vein, Raju V. Kanoria, Chairman and Managing Director, Kanoria Chemicals and Industries Ltd., mentioned that, “Our economic thinking is being driven by political rhetoric. We are not an integral part of supply chains because we have ignored large agreements like the RCEP which dominate global trade.”

However, some, while recognising the need for greater trade liberalisation, cautioned about the depth and timing of it, emphasising that domestic constraints make it imperative that efforts are first directed at making India’s domestic industry more competitive, before opening it up to global competition. Gopal Krishna Agarwal, National Spokesperson, Economic Affairs, BJP, observed that, “We have no choice – we have to open up. But at the same time, we need to meet domestic challenges.

Interestingly, it was pointed out that historically, India’s trade with countries with which it does not have any FTA (including the US and China, two of India’s largest trading partners), has done better than trade with FTA countries.

Manish Tewari, MP, Lok Sabha and former Union Minister, in his intervention, touched upon the currently limited role of Parliament in trade policymaking, observing that, “If you try and involve Parliament more proactively, explaining to MPs the importance of trade policy with regard to India’s economic prospects, it will only dovetail and add to the discussion to get India’s trade policy right.

On tariffs, while there were some differing views on details, there was a general sense that India needed to reduce its currently high average tariff levels, preferably to levels prevailing in other developing countries, and particularly matching those in the ASEAN region. Further, regarding tariffs as a method to protect domestic industry, there was a recognition that this often becomes counter-productive, as MSMEs’ access to imported inputs and intermediates becomes more expensive, harming their cost competitiveness.

The relationship between trade, tariffs and exchange rate fluctuations was also discussed. In this regard, Veena Jha, CEO, IKDHVAJ Advisers LLP pointed out that, “Over time, tariff policy mitigates the effects of currency depreciation. Our trade policy must consider the effects of both.

Many attendees emphasised that improving competitiveness and achieving scale were the key factors in export performance, observing that any economy which is not competitive domestically cannot expect to be competitive globally and integrate with GVCs. Anup Wadhawan, former Commerce Secretary, Government of India, remarked that, “A prerequisite for competitiveness is being an open economy.

Further, pointing out that trade prescriptions were by themselves inadequate to address issues relating to competitiveness, Dhiraj Nayyar, Chief Economist, Vedanta Resources Limited, mentioned that, “Policy induced costs on domestic competitiveness must be resolved before looking at purely trade concerns like tariffs.”

The need for a GVC-oriented trade policy, which looks at issues from a supply chain-wide perspective, and better logistics were identified as key factors which could help improve competitiveness for GVC integration. The recent National Logistics Policy was welcomed by many in the group as a positive development, and they called for its effective implementation.

Harsha Vardhana Singh, former Deputy Director General, WTO, stated that, “the government needs to act as a partner and not an overseer when it comes to enabling Indian companies in integrating with GVCs”, noting that policy stability and regulatory certainty were important elements of this. The focus must also be to encourage firms to expand, particularly from micro to small and medium categories.  

The related aspect of standards also came up for discussion. It was underlined that unless efforts towards harmonisation of standards (such as SPS and TBT), and entering into mutual recognition agreements were prioritised, market access commitments made by trading partners will remain unrealised, as Indian MSME exports will be denied entry on grounds of standards. 

Many speakers pointed out that Indian industry and its associations need to take a greater interest in trade negotiations and commercial diplomacy, articulating their voice and positions on trade issues clearly. In the context of trade negotiations and regulatory/institutional capacity, while it was noted that the capacity of Indian trade negotiators has improved tremendously over the years, experts felt that further capacity enhancement should remain at the heart of any restructuring initiatives in the trade policy administration.

M. Chandrasekhar, former Cabinet Secretary, Government of India, stated that, “We need to fully leverage our strengths – the resilience and size of our domestic market, and prioritise the needs of our economy while negotiating preferential trade arrangements.”

The important role of India’s foreign Missions in economic diplomacy as two-way channels of information between their host countries and headquarters was also highlighted prominently. In this context, Lakshmi M. Puri, former Assistant Secretary General, United Nations, emphasised that, “Dedicated personnel should be put in relevant missions for leveraging geopolitical developments with policy prescriptions for trade.

The discussion raised various other important aspects, such as the need for greater conversations between the industry and trade experts to ensure frank exchange of views and positions on trade policy matters. 

Many former Indian trade negotiators, former Commerce Ministry mandarins, eminent economists and other top trade policy experts participated in the roundtable.  

For more information, please contact:
Advaiyot Sharma, +91-88901-11007, adm@cuts.org
Vijay Singh, +91-80766-19084, vs1@cuts.org