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Anybody who knows anything about the way politics works in this country would have known that US President Donald Trump’s July 9 deadline for a US-India free trade agreement was an unrealistic one. While Union commerce minister Piyush Goyal and his officials have logged many flying miles travelling between New Delhi and Washington DC, it was only inevitable that at the end Mr Goyal would say that India does not make trade deals based on deadlines. It would do so only on the basis of the national interest.
While a deal may yet be struck at the eleventh hour and Mr Goyal’s tactics may pay off, it will be a politically risky gamble given that the Monsoon Session of Parliament is just two weeks away. Prime Minister Narendra Modi will find it difficult to commit to a trade deal with a maverick and unpredictable US President without exposing himself to criticism at home.
While President Trump has promised a “win-win” deal, he is now known to interpret every deal as a win for his “America First” strategy. However balanced a trade deal might be between India and the US, in the competition between Mr Trump’s “America First” and Mr Modi’s “India First” the political Opposition in India would have enough to go to town charging the Modi government of once again “surrendering” to President Trump’s diktat.
Just as the BJP opposed trade deals signed by the Manmohan Singh government, the Congress and Left parties would oppose whatever deal India strikes with the United States, especially in the present context. The context is important. The Modi government is still pushing back on criticism that it agreed to a ceasefire with Pakistan under pressure from President Trump. It can ill afford to be seen buckling down under pressure on the trade front. The stakes are high.
It is not just the criticism from the political Opposition that would worry the Modi government but, and more so, the criticism from within its own support ranks. Even on trade policy, there are as many protectionist hawks within the Sangh Parivar as there are in the Opposition.
Given the difficulties associated with declaring victory on a trade deal with the United States, the Modi government had no option but to place the trade negotiations on the backburner. There can be no movement forward till the Monsoon Session of Parliament is over.
A larger challenge stares India’s trade negotiators. Ever since the early 1990s, when India opted to enter into a multilateral trade agreement, the government has zealously defended the country’s status as a developing economy. India signed on to the membership of the World Trade Organisation after being assured that, along with other developing economies, it would receive “special and differential treatment” (SDT). India remains a protectionist economy by Asian standards.
There was a time, during the tenures of the Atal Behari Vajpayee and the Manmohan Singh governments, when India would declare that the objective of its trade policy was to bring India’s tariffs down to “Asean levels”. This objective has never been restated by the Narendra Modi government that has in fact raised tariff barriers across many product lines over the past decade. India’s trade partners have been protesting all along, and in President Donald Trump they have found a strong advocate of their grievances.
There is, therefore, a two-fold problem for Prime Minister Modi with respect to the trade and tariff policy. On the one hand, he remains under pressure from within the ranks of the Sangh Parivar to stick to a more protectionist stance. There are many reasons put forward to justify this.
On the other hand, the world outside says that if India is indeed in its “Amrit Kaal” and is the world’s fourth or third largest economy and on its way to becoming “Viksit Bharat” and is a “rising power”, a “leading power”, and so on and so forth, then why behave like a low middle income developing economy seeking “special and differential” treatment?
The argument for protecting the agrarian economy and the interests of farmers stands on an altogether different foundation. The highly developed economies of Europe and Japan have defended trade protectionism in agriculture on cultural, social and political grounds. The protection of farmers and the farming economy and the cultivation of local varieties of various products is a legitimate policy objective.
India stands on firm ground in rejecting an open-ended policy of trade liberalisation in agriculture. If the United States continues to insist on this front, the Modi government will have no option but to reject and resist all pressure. Neither India nor Japan can agree to trade liberalisation in farm produce without risking a domestic political backlash. The protectionist argument in the case of manufactured goods is, however, much weaker.
A policy option that can be pursued will be for the government to come out with a timetable for trade liberalisation and tariff reduction, setting firm dates for sectors, and gradually allowing the rupee to depreciate to partly compensate for tariff cuts. This would be in tandem with the earlier and oft-repeated promise of bringing Indian tariffs “down to Asean levels”. This is a long- stated goal and is one that should be implemented.
Rather than berate the Asean countries and call them the “B-team” of China, as Mr Goyal has ill-advisedly done, it is time India caught up with Asean on the trade and manufacturing fronts. It may be recalled that India’s trade and industrial policy liberalisation began in the early 1990s inspired by the experience of Asean.
It was after his visit to Malaysia that the then Prime Minister Vishwanath Pratap Singh tasked an official in the Prime Minister’s Office, Montek Singh Ahluwalia, to come up with a roadmap that would enable India to catch up with Malaysia. Mr Ahluwalia’s “M Paper” was the result and formed the basis of Prime Minister P.V. Narasimha Rao’s trade and industrial policy. The time has come again for India to “catch up” with East and Southeast Asia as far as trade and industrial policies are concerned. Mr Modi’s “Act East Policy” requires him to in fact “act” at home.
