India’s Lacklustre Approach Towards International Trade is Hurting its Foreign and Economic Interests

The Wire, August 13, 2017

By Pradeep S Mehta

From alarming agricultural imports to losing Africa, India needs to aggressively protect its trade interests and explicitly link it to our foreign and domestic goals.

Recently, during a round of ‘candid’ talks with the Chinese, commerce and industry minister Nirmala Sitharaman sought greater market access and a level playing field for Indian information technology, pharmaceutical and agricultural products in China. China, on its part, was ready with its complaints of India abusing trade remedy measures and launching anti-dumping investigations against imports of photovoltaic products from China.

China further pointed out that such actions could dampen economic and trade cooperation between the two countries, hamper the sector’s long term development globally, and would be detrimental to the Indian industry.

The difference in the approach of both the countries while advancing their respective trade interests is stark. China is ready to go to any extent to protect its trade interests and seems to understand its linkages with foreign and domestic economic policy. On the other hand, our lacklustre approach signals that we still consider trade, in particular exports, as a residual activity. Also, as evident from the treatment that trade receives at the political level, it is clear that we are yet to understand strategic and development aspects of trade and its relationship with foreign and domestic policies.

Clusters and agriculture

For instance, it has been reported that the government is preparing a national plan for manufacturing clusters to bring about convergence in the development of industrial areas by the central and state governments. However, one hopes that this policy will be convergent with the Niti Aayog’s recommendation to create coastal manufacturing zones which recognises linking our trade strategy to participating actively in fostering value chains. Nearly two third of international trade is now through value chains. A national plan for manufacturing clusters might not bear fruit without a complementary plan of linking manufacturing clusters to ports and targeting external markets for the manufactured products or intermediates.

Unfortunately, the absence of such linkages has been a perennial shortcoming in most of India’s domestic policies focused on economic growth and development. As a result, despite the objective of boosting export-linked manufacturing, as articulated in our trade policy, the needle hasn’t moved much. It was recently reported that during the last two years, our agriculture exports decreased by more than 20% while imports increased by more than 65%. We desperately need a strategy with clear and certain linkages between trade and foreign as well as domestic policies.

Our trade policy must be aligned with national priorities of job creation, enhancing competitiveness and addressing the challenges of the middle income trap. This can be achieved through regular product and market-specific assessments of our manufacturing and export potentials and comparing them with prevailing capabilities and external environment. Manufacturing and export scenarios under different assumptions will need to be developed through discourse mapping and involving relevant stakeholders and interest groups including state governments, businesses, consumers and workers.

Such a systemic analysis will help us in recognising challenges in boosting manufacturing of specific products and pushing exports to target markets. Similar analysis will be needed on imported products from relevant markets, and they have to be compared with specific export assessment to see how successful we are in penetrating the existing and emerging value chains. This should be supplemented with regular analysis of our trade agreements, their impact on trade with relevant countries and on our product and market-specific competitiveness.

Strategically important products and markets will need to be prioritised and related reforms in terms of enabling regulatory architecture, ensuring availability of land and infrastructure, capital, skilled labour, will need to mapped and carried out in time bound manner in consultation with relevant stakeholders.

Such understanding of a relationship between trade and domestic policy will bode well for our foreign policy as well. We will be in a position to realistically ascertain our existing and potential strengths and limitations vis-à-vis our trade with strategic and priority countries. This information can form a basis for making assumptions about the existence or lack of support from different countries at multilateral negotiations.

Africa strategy

A strategically crafted foreign policy can not only benefit from trade and other domestic policies but can also provide critical inputs for them. For instance, India has been trying to regain its diminishing space as a supporter of developing and least developed countries at the multilateral trading system, which is primarily based on our trade and investment relations with Africa. Currently, mineral fuels, pharmaceutical products, non-railway related vehicles, boilers and related products are our key exports to Africa, and collectively comprise close to half of our exports to this region. A decline of around 11% was registered in the last fiscal. An in-depth diagnostic of reasons with a clear action agenda for boosting exports is needed. Without significant trade interests, we might not be in a position to forge a strong partnership with African countries, denying us an opportunity to act assertively in multilateral negotiations.

(Pradeep S. Mehta is Secretary General, CUTS International. Bipul Chatterjee and Amol Kulkarni of CUTS also contributed to this article.)

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