Fault Lines in India’s economic liberalism

Context : Impact of economic liberalisation on India’s economy.

Details :

  • 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”

Issues with his statement :

  • 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 them being part of mega-FTAs, are in an advantageous position to be part of global value chains and attract foreign investment.
  • 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 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.
  • 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.
  • 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%.