The trade agreement pitch is flawed

#GS3 #ECONOMY

Citing trade agreements for India’s below-potential growth appears to be a way to deflect blame for policy errors

  • The economic growth that has accrued from globalisation is not a good enough outcome for India. 
  • An “honest” self-assessment of this trade and economic performance is necessary to show what costs India has paid for its economic success: That if globalisation, especially trade, is assessed in the broader context of its overall impact on society, the costs could be shown to have set off the gains considerably. 
  • That one such cost is “de-industrialisation”. That “employment challenge” was created by trade. That trade agreements have made India “over-dependent on imports”. 

 

Export-led growth

  • India’s record of export-led growth cannot be dismissed. Between 1995 and 2018, India’s overall export growth averaged 13.4% (in dollars) annually. 
  • This is the third best performance in the world among the top 50 exporters. 
  • It is nearly twice the world average growth and not far behind China’s growth of just over 15%
  • It is true that despite the evident success, India is not a big exporter on the global scale; its share of global manufacturing exports is only 1.7%, marginally less than Vietnam’s, at 1.75%.

On manufacturing

  • Between 1995 and 2018, India’s manufacturing exports (in dollars) grew on average by 12.1%, nearly twice the world average. 
  • Even during the years of slowing global trade post-2012, when world exports were virtually flat, India continued to gain global market share, its exports growing by about 3%. 
  • During this period, India’s manufacturing export growth ranked within the top 10 among the 50 major exporters. 
  • If India’s manufacturing sector finds itself in crisis since 2012, it is in large part because of policy errors inflicted first by the Manmohan Singh-led government and then the one headed by Mr. Modi.
  • Between fiscal years 2006 to 2012, manufacturing-sector GDP grew by an average of 9.5% per year. 
  • India’s trade openness was at its peak during these years of high growth that also overlaps with the period when the highest number of Indians in recorded history exited poverty. 
  • Then, over the next six years, manufacturing-sector GDP growth declined to 7.4%, coinciding with the phase of corruption scandals, a severe banking crisis, demonetisation and a badly designed Goods and Services Tax(GST) — none of which were consequences of trade agreements.

 

MEA in lead role

  • The openness to trade is in fact one of the few channels available to India for generating employment in the post-COVID-19 world, given that the financial positions of households, government and banks are too weak to support the economy. 
  • They calculate that after the 2008 global financial crisis, China vacated about $140 billion in exports in unskilled-labour intensive sectors, including apparel, clothing, leather and footwear. 
  • But India did not take advantage of the opportunity. India is exporting about $60 billion of low-skill exports annually less than it can if the underlying problems are addressed.
  • The weakest case the Minister makes is on the employment challenge. Probably because economic arguments are playing an ever-shrinking role in formulation of trade negotiating positions and growth strategies.
  • Trade openness versus import substitution is the one policy debate where policymakers need to look no further than India’s own pre-1991 experience of inferior, low-quality products on the one hand and low growth rates on the other. Great examples of how responsible globalisation can solve problems are the multiple COVID-19 vaccines being readied across the world. 
  • They are in fact India’s only hope of safeguarding the population. To denounce trade openness and globalisation at this point is also poor timing.

 

India’s switch to a “strong rupee” policy, in line with the Prime Minister’s pre-2014 election campaign, led to the surge in imports of goods and services preferred by non-rich Indians, and a measurable loss of competitiveness in labour-intensive exports. At the same time, the disadvantages Indian exporters have long struggled against — the substantially higher logistics and other costs — remain as burdensome. The speech is a purely political one.

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