Time To Focus On Exports

Readers of the New York Times online often come across ads marketing the ‘Make in India’ campaign spearheaded by Prime Minister Narendra Modi. It highlights opportunities in low-cost manufacturing in India’s textile sector. Underpinning this promotional message are concerns that the nation once considered the king of cotton exporters has now fallen to eighth in world rankings.

Those fears will now deepen with the impending conclusion of the Trans-Pacific Partnership (TPP), of which India is not a signatory. As one of the world’s biggest markets, India has the potential to become a key player but it has first to undertake significant reforms. For that to happen, it has to get its political house in order — replacing preoccupation with scoring political points with agreement over sorely-needed economic reforms.

It has been some years now since India lost its supremacy in cotton textiles to China and other emerging economics. But the emergence of TPP means that India stands to fall further behind, losing market share to newcomers like Vietnam, a member of TPP. Under the terms of the trade deal, yarn and other fabrics used in final products must be sourced from member states in order to enjoy duty-free status. This means that Asian manufacturers may have to drop Indian yarn and fabrics suppliers in order to retain duty-free access to the US. At the same time, India’s own textile exports to the US may suffer from Vietnamese competition, which will enjoy duty-free access to the US, while Indian exporters will have to pay duty ranging from 14-32 per cent.

The challenges confronting the textile sector are of course only a small part of the larger export challenge. Since the launch of the Doha trade round, India has devoted much energy to block attempts by developed countries to liberalise trade in the services sector. With the failure of the Doha round, the world has moved on, focusing on bilateral and regional free trade agreements. With its protectionist demands, India’s negotiations for FTAs with the EU and the US — as well as its Regional Comprehensive Economic Partnership (RCEP) with Asean — have remained stuck. And given that TPP member countries must comply with stringent norms relating to land, labour and environmental laws, India cannot realistically be expected to undertake the reforms necessary to become a party to that agreement.
The first order of business for India before even considering joining the TPP would be to join APEC and complete its bilateral investment treaty with the US. For India to achieve these vitally important objectives, it has to first take steps towards reforming land and labour laws for which political parties must reach a compromise. As long as the BJP and its allies remain locked in zero-sum political combat with the opposition parties, all of their optimistic slogans about ‘Make in India’ will remain hollow rhetoric.

Despite Modi’s promises to focus on development, his party and its supporters seem more interested in enforcing religious purity and establishing Hindu majoritarian domination. Growing tensions over cow slaughter and beef consumption could make political compromise even more difficult. With Indian exports shrinking, with infrastructure and administrative reform moving far too slowly, India’s growth will remain sluggish while the number of unemployed in a youthful country keeps growing.

Modi has energised overseas Indians with his rousing call to make this an Indo-Pacific Century. The arrival of TPP has highlighted the fact that India’s failure to reach a consensus on economic reforms will see the prosperous Pacific nations increasingly drift away from India.

(This story was published in BW | Businessworld Issue Dated 30-11-2015)