Strategies to meet regional trade challenges should be worked out at the earliest
Currency volatility and drastic stock market declines are not the only troubles facing Indian business in the coming 12 months. The bigger challenges will come from major changes in the regional and world trade environments that do not seem to be fully on the government and private sector radars.
Finance minister Arun Jaitley and RBI chief Raghuram Rajan might successfully talk down some parts of currency and equity market risks but the trade issues are systemic and require strategic decisions in advance. Key and potentially disruptive issues for exporters, especially from the service sectors, are likely to arise from the Trans-Pacific Partnership (TPP) negotiations, which are a central part of the legacy that US President Barack Obama wants to build before he leaves the White House in January 2017.
The TPP has heavy focus on the services sectors, which are the channels of future prosperity in the knowledge-based global economy. Our bilateral trade accords with some likely TPP members may not help much once its trade liberalisation mechanisms swing into action after conclusion. Members of new clubs tend to hang together, even if each separately respects India’s attractions as a growing market.
The Obama team is working hard to clinch a TPP deal by this year-end, but failure to reach preliminary accords at a meeting in Hawaii in late July may cause another 12 months of slippage. That gives Indian experts more time to come to grips with its implications and provide strategic advice to both the government and clients on how to minimise harm and exploit opportunities.
The World Trade Organization’s separate efforts to revive the moribund Doha Round of trade negotiations provides less worrisome challenges, but is not without teeth for India. It is supposed to focus on a Development Agenda for weaker countries but the US, Europe and other rich countries are fighting hard to use it for deeper access to mouth-watering Indian markets.
Talks in July failed to agree on an agenda for a WTO ministerial meeting slated for December. That might push the effort back for another year but Indian companies cannot yet put it on the back burner of their concerns because Roberto Azevedo, Director General, WTO, is working feverishly to put something concrete on the table. A December failure would be another severe blow
to his already weakened organisation.
Allowing more access to Indian markets would sharpen competition and could be helpful for local companies, if our policy deciders take a systemic view and provide other pro-business support. Current invitees to TPP are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. India is not included, because the standards of commitment are too high, particularly in areas like supply chain management, coherence of trade and customs regulations, investment and intellectual property protections and environmental and labour norms. Member countries would lower non-tariff and technical barriers for market access, investment, banking and insurance, while ensuring strong labour standards and environmental commitments similar to their partners.
The Narendra Modi government has entered separate bilateral trade deals with Japan, Malaysia and Singapore, while negotiations are underway with Australia, Canada and New Zealand. The bilateral accords use much lower standards and seem limited to specific sectors of interest to our partners rather than turning India into a manufacturing and services powerhouse.
Delhi is joining Beijing’s broader Regional Comprehensive Economic Partnership (RCEP), which is an Asian trade pact. But it is dominated by China and too narrow to build India into a successful competitor in global trade.
Similar issues are holding up the separate WTO negotiations and it may be wise to de-construct beliefs among Indian policy makers and industry consultants as to why we should not raise our standards to be part of inevitable new frameworks of regional and global trade. India’s economic growth and social development may benefit from fundamental rethinking about whether the current slow and quarrelsome pace of changes will leave India too far behind others within five years.
Of course, India has a huge potential market that everybody wants to enter but becoming a competitive and powerful economy may require the kind of upgrade that the TPP demands. Otherwise, our trade partners will eat more of India’s cake than we will theirs.
More trade is an essential pathway to domestic economic growth, so there is urgent need to grapple with productive strategies towards emerging regional trade challenges.