News Excerpt:
This article provides an overview of India's Trade policy which is attempting to strike a balance between liberalization and protectionist trends.
Conflicting policy:
- More than thirty years after liberalization, India still exhibits protectionist tendencies.
- As the nation aims to become a key player in global geopolitics, its hesitation to integrate into global value chains is counterproductive.
- India faces a dual challenge. Promoting its vision of Atmanirbhar Bharat, which emphasizes self-reliance and prioritizing domestic goods over imports, while achieving the target of $1 trillion in exports is not an easy task.
- India's path to free trade and multilateralism has been challenging. The country pursued aggressive import substitution in the 1980s but found it contradictory to export promotion.
- Without boosting trade, India cannot replicate the successes of its East Asian counterparts, nor can it compete effectively without enhancing its competitiveness.
Emergence of Protectionist Trends:
- The Global Financial Crisis of 2008, the Euro Zone struggles of 2010, and the recent economic downturn due to the COVID-19 pandemic have led many governments to reevaluate their global engagements.
- The pandemic underscored the impact of import disruptions. While diversifying GVCs is a long-term goal, it incurs short-term costs.
- India is relying on initiatives like production-linked incentives (PLIs), which offers financial rewards for local production.
- As of November 2023, PLIs have resulted in production/sales of Rs 8.61 lakh crore and created over 6.78 lakh jobs.
Free Trade Agreement and India:
- Previously, India withdrew from the Regional Comprehensive Economic Partnership (RCEP) negotiations due to its trade deficit with China, unmet demands on professional cross-border movement, and concerns from its farm and dairy sectors about competition from countries like New Zealand and Australia.
India’s Stance on liberal trade policy:
- Post the 1991 crisis, India adopted a liberal trade policy but hesitated on further trade reforms due to trade deficits with countries it had agreements with. This cautious approach slowed its liberalization and participation in GVCs.
- However, India's strategy has improved. It has signed several Free Trade Agreements (FTAs), including four since 2021 after a nine-year hiatus. These include agreements with Mauritius, the UAE, Australia, and the EFTA countries.
- Despite this progress, India remains ambivalent about regional trade agreements like the Regional Comprehensive Economic Partnership Agreement (RCEP) and The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), preferring multilateralism through the WTO.
- Geopolitically, India seeks to position itself as an alternative manufacturing hub to China, competing with countries like Vietnam, Cambodia, and Bangladesh.
Way Forward:
- Despite positive economic indicators, India needs open global markets more than ever to boost exports and foster domestic market efficiency.
- Digital public infrastructure (DPI) is gaining attention as a transformative tool using digital technologies to connect people and devices in India. It has attracted global interest, enhancing its soft power.
- However, India must balance this approach carefully. To become a "rule-shaper" rather than a "rule-taker," India must fully embrace global markets.
- For a labor-abundant economy, subsidizing job creation is preferable to subsidizing industries. Now is the time to shed inhibitions and repeat the bold reforms of 1991 without waiting for a crisis to prompt action.
