India’s Trade Gloom


 

Not many years have ended with gloomier prospects for Indian trade. The gloom is not just because of the contraction in exports for 12 months in a row. It is also because India’s role and participation in global trade is becoming increasingly insignificant.

The insignificance was evident from the approach to the Nairobi Ministerial. India looked forward to playing a major role at the latest WTO Ministerial. The expectation was primarily on defensive grounds: Taking the lead in protecting interests of the developing countries at a forum that, over the years, has become a pitched battle turf between developed and developing countries in world trade. And at the same time, ensuring its own domestic interests on public stockholding of food grain necessary for implementing the domestic food security programme does not get stalled by global trade rules.

It is notable that like almost all other occasions in the past, this time too, India hardly had a ‘forward-looking’ agenda at the WTO. This, however, is not surprising since most countries of the world—particularly the major players in global trade—have stopped proposing forward-looking agendas at the WTO, realising the difficulty of achieving consensus on such proposals. They too have been looking at the WTO as a forum for preserving their defensive spaces in global trade. Unlike India, these countries were mostly going through the motions at the WTO.

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One of the main reasons for the attitudinal difference between these countries and India on the WTO is that the former have located alternative forums for articulating forward-looking interests in global trade. These are the various regional trade agreements (RTAs) being worked out across the world involving developed countries and emerging markets. While not absent from RTAs, India has not been able to formulate a clear strategy for participating in these. As a result, it has ended up playing a defensive role in most of these RTAs, almost by default, given its historically defensive stand in trade talks.

India suffers from a variety of cross-cutting opinions and interests leading to an odd posturing in RTAs and FTAs. An important element among these is India’s inability to rationalise RTAs exclusive of the WTO. The onus of providing leadership to the developing country club at the WTO, particularly since the articulation of the Doha Development Agenda (DDA), has bound India hard to ‘leadership’. The leadership role in a multilateral trade forum has partly blunted the ability to objectively assess benefits of entering into RTAs, particularly with developed countries. Indian industry has also been opposed to RTAs and FTAs and has successfully lobbied with the government on several occasions for preserving defensive interests. Not all segments of the industry have been reluctant towards FTAs, though, with garments and IT being more receptive towards these than many other industries that fight shy of regional agreements for fear of being swamped by imports.

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The sad reality in global trade is the predominance of RTAs, particularly mega-RTAs. Many analysts in India are upset over the lukewarm outcome of the Nairobi Ministerial and are apprehensive of world trade rules getting to be dominated by TPP-style mega-RTAs. The TPP is a reality and so are mega-regionals. They create enormous challenges for the multilateral trading system. Nairobi was the first Ministerial of the WTO after the conclusion of the TPP. Till the TPP was concluded, many, including in India were sceptical about the conclusion of the TPP, and, even if concluded, the significance of its impact on Indian trade. The likely impact on market access of Indian textile and apparel exports in major TPP markets—the US, Canada, Australia and Japan—is now being widely discussed with legitimate fears of these being displaced by exports from Vietnam. The TPP-sceptics need to not only note the short and long-term impacts of the agreement on prospects of Indian trade, but also the fact that more countries from across the world are lining up for joining the TPP or similar mega-regionals. The WTO cannot match up to mega-regionals in scope and ambition unless and until it undergoes radical changes in its agenda and structure.

Two issues are important in the larger perspective of the prospects for Indian trade. First, domestic improvements, particularly in doing business conditions remain essential for improving exporter competitiveness. India has been taking some strides in this regard. However, on many occasions, quicker improvements can arise from signing FTAs and RTAs. Expeditious trade facilitation can be precipitated by these agreements, as has been the experience from across the world. Necessary domestic regulatory reforms can also get a leg-up from signing FTAs. The second, and specifically important point is engaging in RTAs with a constructive vision. India’s RTAs have not produced the desired results since many of these have been shallow with limited market depth and have not been taken to domestic industry as meaningfully as they should have been. Rather than being reluctant participators in RTAs burdened by the legacy of championing the cause of developing countries inherited from the WTO, India should engage in these agreements on the basis of specific constructive interests and look at them as opportunities for improving domestic business conditions and its own space in global trade governance.

The author is senior research fellow and research lead (Trade and Economic Policy) at the Institute of South Asian Studies, National University of Singapore.

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