Listen up, India: Trade liberalisation is inevitable, no point blocking it

There is something about the World Trade Organisation (WTO) that makes Indian commerce ministers simply die to flex their muscles. Murasoli Maran set the tone with his plain talk at the Seattle ministerial, followed up with an even more rigid stand at the Doha ministerial. Every commerce minister after that has tried to live up to that standard. Sari-clad Nirmala Sitharaman doesn’t fit this testosterone-driven image, but in her case the muscles are being flexed by her prime minister.

There’s another difference. When India put its foot down on earlier occasions, it always managed to get something, either for itself or for developing countries. One isn’t quite sure what the Indian government has got from blocking the Trade Facilitation Agreement (TFA), apart from reinforcing its image of being a spoiler.

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One thing that is being forgotten in the current commentary on the TFA debacle is that there was an agreement at the Bali ministerial in December. India fought hard and got a four-year peace clause to negotiate on a permanent solution to the food security issue, in return for agreeing to sign the TFA. Sure, that was a different government. Yes, Arun Jaitley had pointed out even then that the Bali compromise was not in India’s interests. But that does not make going back on a commitment within six months right. Never mind that developed countries routinely go back on their commitments.

It would have been better for the government to have used this four-year window to bargain really hard and get a solution that is favourable to it in the long term, covering more than just the way in which domestic subsidies are calculated. Right now, it has got only a six-month negotiating window. How hard can it bargain from a position of isolation? Does it have enough aces up its sleeve?

But there is a larger issue at play here. India has routinely been taking a hard line at the WTO, seeking special treatment on everything from agriculture to industrial goods to intellectual property. It has done so on the grounds that it is a developing country and needs some time to prepare for opening up. It has ended up getting concessions for developing countries in both the Agreement on Agriculture and NAMA (Non Agricultural Market Access).

But what has India done with this cushion? Precious little. Globalisation is inevitable and Indian agriculture and industry will have to meet the challenge some time or the other. India needs to prepare both for this, but it has failed to do so.

Agriculture remains the most regulated economic activity in the country and that is one of the reasons the sector remains an ailing one. The only reason it has not collapsed completely is that it has been sheltered from unchecked international competition for a long time now. But there has been no progress on strengthening Indian agriculture through a mix of increased public investment in infrastructure and research and development on the one hand and unshackling it on the other. At this rate, Indian agriculture will never be competitive and strong.

Ditto for the industrial sector, especially manufactured goods. Indian exports continue to be uncompetitive in the global market thanks to a range of domestic policy issues - taxes, labour laws, poor infrastructure, to name just a few. It is not as if the solutions are not known. There are any number of reports pointing to what needs to be done. But action on these is just not visible.

If India fixes its domestic policies relating to both agriculture and industry, it can bargain in the WTO from a position of strength, which is the always the best position to bargain from, and get deals that are favourable to it. Right now, it can’t do very much other than playing spoiler.

Would it be a tragedy if the WTO collapses? In that case, its place will be taken by regional and bilateral trade agreements like free trade agreements. But even here, both Indian agriculture and industry will be exposed to competition for which they are not prepared. That is why all FTAs are routinely opposed by domestic lobbies.

Even during the UPA government, finance minister P. Chidambaram and National Manufacturing Competitiveness Council chairman V Krishnamurthy spoke out strongly against FTAs, something that has been echoed by the industries secretary in this government. The BJP manifesto also spoke about reviewing all FTAs that have been entered into.

But in the globalised world, there are limits to protectionist policies. Whether it is a multi-lateral trade regime or a regional/bilateral one, Indian industry, agriculture and services will have to face competition some time or the other. It cannot be delayed beyond a point. The answer then is not to block negotiations but to prepare to get the best out of them.