From UPSC perspective, the following things are important :
Prelims level : RCEP
Mains level : Paper 3- Economic liberalisation and its impact on Indian economy
The article counters the argument made by External Affairs Minister S. Jaishankar about the impact of economic liberalisation on India’s economy.
Impact of liberalism on India
- India’s External Affairs Minister S. Jaishankar recently disapproved of free trade and globalisation.
- About FTA’s he said that “the effect of past trade agreements has been to de-industrialise some sectors.”
- These observations were made days after countries of the Asia-Pacific region signed the Regional Comprehensive Economic Partnership (RCEP) agreement.
- He said that , “in the name of openness, we have allowed subsidi[s]ed products and unfair production advantages from abroad to prevail”
Flaws in the argument
- There are several flaws in Mr. Jaishankar’s arguments.
1) India cannot be the part of global value chain
- India is now truly at the margins of the regional and global economy.
- With trade multilateralism at the World Trade Organisation (WTO) remaining sluggish, FTAs are the gateways for international trade.
- By not being part of any major FTA, India cannot be part of the global value chains.
- India’s competitors such as the East Asian nations, by virtue of they being part of mega-FTAs, are in an advantageous position to be part of global value chains and attract foreign investment.
2) Indian economy has bee relatively closed economy
- India is surely a much more open economy than it was three decades ago, globally, India continues to remain relatively closed when compared to other major economies.
- According to the WTO, India’s applied most favoured nation import tariffs are 13.8%, which is the highest for any major economy.
- Likewise, according to the United Nations Conference on Trade and Development, on the import restrictiveness index, India figures in the ‘very restrictive’ category.
- From 1995-2019, India has initiated anti-dumping measures 972 times (the highest in the world) trying to protect domestic industry.
3) Economic survey accepts the benefits of FTAs
- The External Affairs Minister is contradicting government’s economic survey presented earlier this year.
- The survey concluded that India has benefitted overall from FTAs signed so far.
- Blaming FTAs for deindustrialisation means ignoring real problem of the Indian industry — which is the lack of competitiveness and absence of structural reforms.
4) India has been a major beneficiary of economic globalisation
- It cannot be ignored that India has been one of the major beneficiaries of economic globalisation — a fact attested by the International Monetary Fund (IMF).
- Post-1991, the Indian economy grew at a faster pace, ushering in an era of economic prosperity.
- According to the economist Arvind Panagariya, poverty in rural and urban India, which stood at close to 40% in 2004-05, almost halved to about 20% by 2011-12.
- This was due to India clocking an average economic growth rate of almost 8%.
Desire to make India a global destination for foreign investment is a pipe dream because it is naive to expect foreign investors to be gung-ho about investing in India if trade protectionism is the government’s official policy.