India Needs to Reset Its Trade Policy – UPSC Daily Editorial Analysis – 10th July 2024 – Edukemy

India’s trade policy needs a major overhaul to keep up with the rapidly changing global economy. With shifts in international trade dynamics and emerging opportunities, it’s crucial for India to rethink its strategies to boost exports, attract foreign investments, and strengthen its economic position. By resetting its trade policy, India can better address challenges like trade imbalances, protect its industries, and create more jobs. A fresh approach will help India become more competitive on the world stage and ensure sustainable economic growth for the future.

Tags: GS – 3, Growth & Development– Mobilisation of Resources – Effect of Policies & Politics of Countries on India’s Interests

Context:

• India’s resistance to expanding the World Trade Organisation’s (WTO) negotiation agenda, especially in areas like e-commerce, trade, climate change, and investment facilitation, has sparked considerable debate. 
• India’s stance on preserving policy flexibility benefits traditional sectors like agriculture and fisheries but may hinder capitalising on opportunities in the digital economy and high-tech manufacturing, crucial to its Vikas Bharat vision.

Reason Behind India’s Resistance to WTO Expansion and Its Drawbacks:

• To Maintain Policy Flexibility:
  • India’s resistance to the WTO’s expanded negotiation agenda is primarily to maintain policy flexibility for its economic development strategies. 
  • This cautious approach benefits traditional sectors such as agriculture and fisheries, where policy autonomy is crucial to protect the livelihoods of millions of small farmers and fishermen. 
  • These sectors are highly sensitive to international competition and volatile global markets, necessitating a protective stance to ensure food security and sustainable rural development.
• Drawbacks of India’s Resistance:
  • India’s resistance to liberalising trade policies can have significant drawbacks, particularly in seizing new opportunities in the digital economy and high-tech manufacturing. 
  • These sectors are rapidly transforming the global economic landscape, driven by advancements in technology, innovation, and the increasing integration of digital platforms in business operations. 
  • The digital economy encompasses a broad range of activities, including e-commerce, digital services, fintech, and artificial intelligence, all of which present immense growth potential for India. 
  • Therefore, India’s stance against the WTO’s expansion could hinder the realisation of its Vision 2047.

Key Components of India’s Vision 2047:

• Digital Infrastructure Development
  • Internet Connectivity: Aim for 100% broadband coverage across rural and urban areas by 2030.
  • Data Centers: Establish multiple advanced data centres to support growing data needs.
  • Digital Payment Systems: Increase digital payment transactions to $1 trillion annually by 2030.
• Innovation and R&D
  • R&D Investment: Increase R&D spending to 2.5% of GDP by 2047.
  • Startups: Support the growth of 100,000 tech startups by 2047.
  • Technology Advancements: Focus on developing AI, biotechnology, and quantum computing technologies.
• Skilled Workforce
  • Educational Reforms: Revamp curricula to include emerging technologies and digital skills.
  • Vocational Training: Provide vocational training programs for 50 million people by 2030.
  • Upskilling Initiatives: Launch programs to upskill the existing workforce in digital and high-tech sectors.
• Regulatory Reforms
  • Ease of Doing Business: Aim to be in the top 25 of the World Bank’s Ease of Doing Business ranking by 2030.
  • Data Protection: Implement data protection regulations aligned with global standards by 2025.
  • Foreign Investment: Create a conducive environment to attract $100 billion in FDI annually by 2030.
• Sustainable Development
  • Green Technologies: Invest in renewable energy to achieve 500 GW of installed capacity by 2040.
  • Carbon Emissions: Reduce carbon emissions to achieve net-zero by 2070.
  • Environmental Sustainability: Promote sustainable practices in agriculture, manufacturing, and urban development to ensure long-term environmental health.

Why India Needs to Reset Its Trade Policy:

• To Navigate Global Economic Governance Effectively
  • Evolving Landscape: The global economic governance landscape is changing, influenced by geoeconomics, emerging technologies, resilient global value chains, and environmental sustainability.
  • India’s Stake: As a rising economy, India has significant stakes in this new paradigm. Its growing global stature necessitates a constructive role in managing differences amidst these changes.
• To Sustain Technology-Driven Economic Growth
  • Policy Reforms: India’s domestic policy reforms aim to promote global integration by fostering technology-driven and environmentally sustainable economic growth.
  • FDI Attraction: India ranked third in attracting foreign direct investment (FDI) in 2022, after the US and China.
  • Export Goals: India aims to boost goods exports to $1 trillion by 2030, positioning itself as a manufacturing powerhouse. The e-commerce market is expected to reach $350 billion by 2030, offering significant opportunities for export growth.
• To Leverage E-Commerce Opportunities
  • Regulatory Reforms: India’s regulatory reforms have promoted digitization, transparency, and operational efficiency in the business landscape.
  • Data Protection: India’s data protection regulations are being aligned with global standards.
  • Environmental Goals: India is committed to a low-carbon, resilient, and equitable transition, targeting net zero carbon emissions by 2070 and making significant strides in energy access and greenhouse gas emission reductions.

Way Forward:

• Shift from Defensive to Proactive Engagement
  • Policy Predictability: 
    • India’s evolving export-led economic growth model should emphasise seeking policy predictability in key destination markets like the US, the EU, and Japan, particularly in high-tech sectors.
  • Active Participation: 
    • India must actively participate in WTO negotiations on e-commerce, trade, climate change, and investment facilitation.
• Move Towards Present Imperatives
  • Context Change: 
    • Since the 1991 economic crisis, policy reforms have dismantled trade barriers, attracted foreign investments, and spurred economic expansion.
  • Growth Management: 
    • Emphasising digitization, sustainable development, and resilient value chains is crucial for bolstering India’s manufacturing sector.
• Active Global Participation:
  • Bilateral Engagement: 
    • Active participation in WTO discussions is crucial for successful bilateral engagement with major markets and building a leadership position in the Global South.
  • Regulation Consensus: 
    • India’s engagement is necessary to influence regulations in disruptive technologies and unilateral carbon border adjustment measures that could impact Indian businesses.
• Abandon Traditional Defensive Approach:
  • Trade-to-GDP Ratio: 
    • From 2000 to 2007, India’s trade-to-GDP ratio surged from 12% to 23%. To achieve ambitious export targets and accelerate GDP growth, the country aims for a higher trade-to-GDP ratio, ideally between 30-35%.

Conclusion:

India’s proactive approach to shaping multilateral disciplines in trade and investment has been demonstrated through its active participation in G20 forums and bilateral trade and investment negotiations with economically advanced nations. A similar proactive engagement strategy should extend to WTO negotiations, pivotal for achieving national economic development objectives.

Source: IE

FAQs

Q: Why does India need to reset its trade policy?

Answer: India needs to reset its trade policy to boost economic growth, increase exports, and create jobs. Current policies may not be fully leveraging India’s potential in global markets, and updating them can help the country compete better internationally.

Q: What are the main problems with India’s current trade policy?

Answer: The main problems include high tariffs, complex regulations, and lack of infrastructure. These issues make it difficult for Indian businesses to export goods and attract foreign investment, limiting economic opportunities.

Q: How can a new trade policy benefit Indian businesses?

Answer: A new trade policy can simplify export procedures, reduce tariffs, and improve trade infrastructure. This will make it easier for Indian businesses to sell their products overseas, leading to higher revenues and growth.

Q: What changes should India make in its trade policy?

Answer: India should consider lowering tariffs, simplifying trade regulations, and improving port and logistics facilities. Additionally, forming new trade agreements with other countries can open up more markets for Indian goods.

Q: How will resetting trade policy affect Indian consumers?

Answer: Resetting trade policy can benefit Indian consumers by increasing the availability of imported goods at lower prices. It can also stimulate competition among local businesses, leading to better quality products and services at more affordable prices.

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