NITI Aayog CEO Amitabh Kant does have a point when he says India’s manufacturers tend to promote protectionism; as recently as in 2018, India’s industrialists were clamouring for a rollback of trade reforms that helped the country integrate with the world. Now, telecom-equipment-makers have complained that, with South-East Asian countries allowed to export components to India—duty free—they don’t need to set up a plant here. They want changes in the agreement. It is possible there is an anomaly in this particular agreement, but India needs to plug into global supply-chains rather than build tariff walls around itself. As Kant says, in the globalised economy, multi-lateral trade agreements and FTAs are a reality, and bilateral trade relations will co-exist. And businessmen must not take the easy way out, that of producing largely for the domestic market by keeping out imports.
At the same time, the government must send out the right signals and must convince industry that it is serious about boosting exports. There is no doubt that industrialists, including exporters, in India are handicapped; the infrastructure is terrible, credit is hard to access and expensive, while the labour laws are rigid, inhibiting manufacturers from scaling up production. If countries like Bangladesh have stolen a march over India, it is because of friendlier labour laws and also a more competitive currency rate. So, even as it exhorts businessmen to scale up their operations and sell to the world, the government must do its bit to address their concerns; the RODTEP is taking its own sweet time while refunds from earlier schemes remain unpaid.
An analysis of 14 trade agreements in the Economic Survey for 2019-20 showed that manufactured products benefitted from eight of them, including agreements with ASEAN and Singapore. It also showed the bilateral trade agreements with Korea and Japan had exerted a negative impact. However, when overall merchandise exports were considered, only four trade agreements—MERCOSUR, Nepal, Singapore, and Chile—had helped. This was not really surprising since several primary products are typically included in the negative or sensitive lists of the trade agreements. But exports, as economists including Arvind Panagariya and Arvind Subramanian have pointed out, are key to India’s growth. This is even more true today when consumption, investments and government expenditure are all constrained. But, exports can’t be boosted if import duties are raised, which is what the Atmanirbhar plan suggests. India needs to sign FTAs and regional pacts, too; instead, it has opted out of global trade pacts, most recently, the 15-nation RCEP. New Delhi was unwilling to budge on its demands for an “auto-trigger” mechanism to protect the local market from dumping and also for strict rules of origins of imported products to check the abuse of tariff concessions. Some trade experts argue India has trade deficits with 11 of the 15 RCEP nations and has been unable to leverage existing bilateral trade pacts with some. If that is so, India should probably negotiate harder to become a member of RCEP since the latter now accounts for about a third of GDP, and this share is expected to go up to 50% by the end of the decade. It is understandable India’s businessmen want to work within their comfort zone and cater for the large home market. But, if India is to become a big exporter, it is going to take a change in mindset, and that change must start with the government; it must stop protecting industry.