India faces significant challenges in the area of trade policy— the global economic slowdown, increasing protectionism, the stalled mega-trade deals that could in time be revived, and perhaps more importantly, its own domestic preoccupations. For India to achieve its policy objectives, the government and industry, particularly the manufacturing sector, must prepare for opportunities and greater engagement in an evolving multilateral trade arena. India’s priorities should include taking policy measures to conform to global standards and supporting the World Trade Organization (WTO) to relaunch multilateral negotiations.
The objective of this report is to understand the short and long term economic goals of India, how the current Midi government is going to take on the growing clout of China in world, its very optimistic ‘One Belt, One Road‘ initiative, Modi’s competition with Xi, Will he surpass Xi?, and how India will overcome its economic challenge?
India’s Foreign Trade Policy aims to (1) increase the country’s share of global trade from the current 2.1 percent to 3.5 percent and (2) double its exports to $900 billion by 2020.
However, India faces a myriad of obstacles: lack of full understanding of trade policy and its potential benefits, a poorly developed manufacturing sector, unsatisfactory results from regional trade agreements, and constrained relationships, including with its main trading partners.
India has been a democratic country since it’s freedom in 1947. Her first Prime Minister Jawaharlal Nehru had a long lasting trust in China and a famous slogan was given in those days as Hindi, Chini (Chinese) are Bhai Bhai (Brothers), but in 1962 Indian political and defense experts believed that China betrayed India by an intrusion in Indian borders that led to a war with them. Since then a lot of water has flown in the river Ganges and India has emerged from the status of a poor nation to an emerging economy and now competes with many countries. India’s IT and Software power is at number one. It was a major hub for traditional mining resources and still is. Its service industry is though suffering but still retains value.
The short term goals are to overcome certain monetary fraud cases of billions of dollars which occurred in the Indian banking industry. The Digital Security breach with Cambridge Analytica is one major concern which claims to have given access to the public profiles of millions of Indians to the company for various purposes. The issue of Indian farmers is another concern, as they are not happy with the pricing of food grain given to them. In addition, boosting GDP, reducing Petrol and Diesel prices, and overcoming the after effects of demonetisation and improving the financial sector where the Modi government is currently focusing on short term economic goals.
There is a need also to create an enduring global partnership with India’s major trading partners, particularly the United States. The two countries, along with other countries, must work to break down barriers with regard to the movement of goods and services and support deeper integration into global supply chains.
India must actively and enthusiastically participate in the Regional Comprehensive Economic Partnership and seek to join the Asia-Pacific Economic Cooperation. Given that India is not party to any mega-trade deals (and may never be), this would be an important part of a positive trade policy agenda.
The country must also immediately adjust to global standards on technical barriers to trade and sanitary and phytosanitary measures. With some trade deals currently on hold or not moving forward in their current form, India, particularly industry, has valuable time to conform to these standards.
India needs also to revive the primacy of the multilateral trading system. This revival is in India’s national interest since the country is best served by the most-favored-nation treatment, largely provided by the multilateral trading systems anchored in the WTO. Unlike outside plurilateral arrangements, the WTO offers the best possible setting for pursuing a development-based trade agenda.
The greatest challenge to the development of a strong trade policy in India is its poorly developed manufacturing sector. Although it grew after India embarked on focused economic liberalization in 1991, the manufacturing share of the gross domestic product (GDP) has since fallen to 16.2 percent in 2015–2016—about what it was in 1989–1990 (16.4 percent). The question of how to substantially augment the share of manufacturing is a tough one with no easy answers. Constraints include the limited availability of power and land, lack of access to technology, low productivity, the rising cost of labor, and difficulties doing business. Progress has been made, but it has been insufficient. By far the most serious impediment to the revival of the manufacturing sector is the scarcity of land.
India’s biggest trade rival is China and Indian trade experts believe that China throws it’s dumping goods to its backyard neighborhood India which are though not reliable but cheap. These billions of goods which are imported in India by small shopkeepers illegally are responsible for posing a threat to Indian economy in the long run. India needs to overcome it.
The second major goal of India is to sustain and retain its speed in various sectors which it has over China like agriculture, mining, energy, software and hardware, services, etc.
The third major goal for Modi’s government is to bring stability to the economic sector which somehow it has succeeded to do.
The new phrase in India’s industry sector is that bigger is better. The bigger industries are in a much better position while the Indian retail industry is facing much difficulty.
The fourth goal the Modi government has focused on is rapid growth in infrastructure. Thousands of kilometers of road from inner parts to border areas have been built. Hundreds of thousands of kilometers of railway track have been installed and new trains have been started including a plan for the Bullet Train.
Modi’s government is going to give a big boost to Indian industries while expecting FDI only from abroad. It’s clear the Modi government is not MNC friendly. The Modi government’s focus is to use domestic resources but the real challenge in India is the lack of full understanding of the benefits of trade liberalization, policy paralysis, and consequently the lack of political will.
Crafting a successful trade policy requires an understanding of geopolitics and global economic trends and the ability to negotiate to advantage. Effective negotiating is possible only if decision makers have the confidence and capacity to execute the necessary corresponding domestic reforms—some of which require painful adjustments.
The question of Modi surpassing Xi is irrelevant as both countries have different political systems. Xi is now the lifetime head in China while in Modi’s case it simply cannot happen due to the democratic setup of India.
The 84th Congress Plenary approved a resolution on the economic situation in India. The resolution was moved by P Chidambaram, former finance minister. Here is the text of Congress’ Resolution on Economic Situation In India:
The Indian National Congress places on record its firm belief that the tenure of the NDA government led by Shri Narendra Modi is replete with governance and management misadventures and mistakes. The most colossal failure has been its mismanagement of the economy.
The Modi government was presented with a golden opportunity to catapult India’s economic growth to a new high through a near perfect alignment of stars – an upswing in the economy, macro-economic stability after the upheaval of the 2008 global financial crisis, low oil prices (from over USD 100 to under USD 40 per barrel), robust global economic growth and an absolute majority in the Lok Sabha. Sadly, the government has squandered a golden opportunity.
The Indian National Congress stands for a much simpler GST framework with a moderate and reasonable standard rate of tax, abolition of cesses outside the GST structure, a transparent mechanism for revenue sharing with the States, and a robust system of refunds.
I also sought the opinion of a very senior Congress Leader who has been Minister in UPA-1 and 2 and is still a Member of Parliament representing Congress Party-K V Thomas – and he stated that the government has not been able to come to the terms and promises it made:
Ratnesh Dwivedi: Is your analysis of the short-term economic situation in India taking into consideration the various economic sectors in India? What is the stance of the Indian National Congress?
K V Thomas: First I am not currently Spokesperson of Congress hence all answers are my personal views and as a Member of Parliament of the Congress Party.
The country is in turmoil. The Government does not appear to have any original plans. Many of the current government’s schemes were started in UPA-1 and UPA-2 (Congress led) era like MNREGA and other. Demonetization has put the country on the verge of economic collapse. It has not benefitted businesses and has made an adverse impact.
RD: What is your opinion of the analysis of China’s short-term economic situation from India’s point of view?
K.V. Thomas: China’s has a different political set up while India is different. The Government has failed on various fronts to talk to its Chinese counterparts and diplomacy has not worked. China’s One Belt One Road initiative is a very ambitious project which passes through many countries including India. The Government should take a firm stand on it.
RD: What is the position of Indian National Congress on Modi’s Economic Policy?
K V Thomas: The Government claims to have built thousands of kilometers of road but all mega infrastructure projects were started in the UPA-1 or 2 era. The country’s economy is in bad shape. Global significance does not matter when there are issues on the home front. Look at the farmer’s situation, poor class, education. The Government has not been able to fulfil its promises.
RD: Can the Modi government solve the problem of India’s economic development? How?
K V Thomas: The country needs strong vision and a leader which the current government does not have.
RD: What is your and the Indian National Congress’ opinion on India’s economic sector in the long run?
K V Thomas: The country needs long term goals and plans. Demonetization has left the country paralyzed and small businesses are jeopardized.
RD: Will Modi’s 10-15 years of surpassing China be achieved? How?
K V Thomas: When there are so many issues to deal with you cannot predict anything.The Government does not have any vision.
RD: What is your opinion on the general strategic planning and policy framework of the Government of India?
K V Thomas: Farmer’s issues, Education, dealing with neighbours ….look, the Government has failed to deal with both its conflicting neighbour effectively-Pakistan and China.