Some recent decisions are another case in point, highlighting India’s reluctance to sign up for full-blast free trade. First, in May, the government abruptly announced a ban on the export of wheat. This was barely six weeks after an assurance to the world that India would be a reliable supplier and stand in for wheat shortages created by the war in Ukraine. India was expected to export a record 10 million tonnes. Its ban caused the Chicago benchmark wheat index to jump 6% and caused great dismay among importer countries. Second, just a fortnight after that wheat export ban, the government announced another ban, on the export of sugar. This is from a country that is the world’s largest producer of sugar, which had a 14% increase in production last year, and is looking at a further record production of 35.5 million tonnes this year. These bans reflect domestic concerns about price inflation but are undeniably interventions in free trade. Third, another telling incident was a warning from India’s trade minister to automakers not to “force" their component makers to import. Never mind that India’s auto-component industry is a net exporter and recorded $19 billion of exports last year. The industry has matured far beyond expectations and won many international quality awards like the Deming Award. Presumably the relationship between automakers and their suppliers is akin to one between consenting adults, and “forcing" automakers to localize their component content should be decided freely on market considerations.
Fourth, this past week, India decided to opt out of the “trade" pillar of the Indo-Pacific Economic Framework, the only nation to do so among 13 others. The IPEF is an ambitious US-led grouping whose agenda goes beyond free trade, and includes building supply chain resilience, clean energy, taxation and anti-corruption. India’s hesitation is driven by concerns about digital trade, labour and environmental standards and public procurement. Each of these poses domestic complexities. Surely India’s competitiveness in global trade does not derive from lax domestic standards of labour or environmental protection. Indeed, India has shown a readiness to harmonize its domestic policies with global best regulatory practices in its negotiations with the EU for a free trade agreement. So, there is no need to be squeamish in signing up to these so-called trade-unrelated conditionalities. India is now out of two mega trade treaties in the Asian region, namely RCEP and the Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP). The latter was formed when the US exited the TPP under President Donald Trump; China, Taiwan, South Korea and even the UK are knocking on its doors now. It would be ironic that a grouping (TPP) formed expressly to counter the clout of China ends up admitting it.
In the days ahead, geopolitics and geo-economics will be increasingly intertwined, so India’s commitment to open and free trade will be tested. Frequent tariff tweaks to protect domestic vested interests and periodic trade bans should be resisted. A moderate and uniform tariff structure across the board is optimal, while differential rates can cause harm. The anomalies of inverted duties, for example, injure our trade competitiveness. Our uneven and often high import tariffs are in addition to higher costs imposed by logistics, energy and taxes. Achieving high and sustainable economic growth requires us to tap global markets more deeply, which calls for an unwavering fidelity to trade openness.
Ajit Ranade is a Pune-based economist
