Our trade ambitions should make us look across as many seas as we can
In a world recoiling from America's secession from the global economy under US President Donald Trump, India's policymakers have to answer three questions.
One, does international trade remain an instrument of improving efficiency in production and consumption? Two, does US abdication of its traditional leadership of the rules-based global system mean the end of rules for mutual engagement among other nations? And, three, do regional trade blocs make sense for a country like India?
Clarity was provided on these matters by former Planning Commission deputy chairman Montek Singh Ahluwalia in a recent media interaction. As a believer in the benefits of globalized growth, he said he would like India to shed some of the additional layers of protection it has adopted, particularly since 2017. Further, he would like India to join some of the regional trading arrangements India had been invited to but walked away from.
Also Read: India should reconsider its rejection of the RCEP trade bloc
We are in broad agreement with this approach. As the US withdraws behind tariff walls, India's government should go for greater trade openness—not just to counteract its effects, but to foster a more efficient economy on the whole.
In terms of the diversity, sophistication and scale of capabilities that our overall economy and workers represent, ours is the only country that can host the supply chains that much of the rich world would like shifted out of China, at least in part. Not that the West should or can decouple entirely from China. But diversifying factory locations offers insurance cover against calamitous disruptions enabled by any geographic concentration of production.
While Vietnam, Thailand and Malaysia have attracted more nodes in supply networks from China than we have, that does not contradict the proposition of India's potential as the world's next big factory. Rather, it speaks of an opportunity waiting to be exploited. For our production base to turn export oriented, it must be able to rely on easy and predictable imports of inputs and other needs. It also requires our cost base to go down in general; falling tariff protection can do this by slowly exposing domestic players to competition and driving business efficiency.
Also Read: The time is right for a reset of India's trade ties with China
Our tariff rates need to be uniformly in single digits across categories—be it finished goods, components or material inputs—so that import policy does not distort how market forces allot value addition; let sectors with a competitive edge emerge on their own. The big aim should be global competitiveness, for which we must learn to compete globally, not just bilaterally with select partners. Lower barriers to our markets for a wide range of players would let local firms test themselves against the world's best.
Since we lack an edge in several sectors right now, some early-stage protection and state support is justified, but only to be gradually withdrawn. One way to pre-set protective shields on a downslope is for India to join trade blocs that span dynamic parts of the globe.
Also Read: Mint Quick Edit | Is China's mediation game a hegemony play?
In 2019, India gave up on the Regional Comprehensive Economic Partnership in anxiety over Beijing's role in it. China's record on fair trade is scandalous, no doubt, but there is also the Comprehensive and Progressive Trans-Pacific Partnership, which excludes China but includes Japan, the UK, Canada, Australia, New Zealand, Mexico and Chile, besides Vietnam, Brunei, Singapore and Malaysia. As Trump-battered world trade goes into turmoil, let's broaden our global engagement. Bilateral pacts are welcome, of course, but it's best to look across as many seas as we can to meet our trade ambitions.
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