Beware of Obama’s trade agenda

Communists and socialists may change their ideology to accommodate economic liberalism as many Latin American leaders have done—our erstwhile comrades in West Bengal had also begun to see the light just before they were thrown out—but rarely does it happen the other way round. Free market ideologues seldom turn into protectionists who want to nurture their domestic industries or sectors. So it’s most unlikely that Arvind Subramanian has changed his economic philosophy in the months since he became Chief Economic Adviser to the Government of India. That is, since October 16, 2014.

Before that Subramanian was the senior fellow at the Peterson Institute for International Economics and Centre for Global Development, Washington DC, after a stint at the International Monetary Fund. He also served at GATT during the Uruguay Round of trade negotiations. (Note: it was during this round that most of the iniquitous agreements of the WTO were signed, pacts that have proved lethal for developing countries.)

Subramanian’s background has a bearing on what lies ahead. His inputs to the Narendra Modi government are key to the reform path that India will be taking and specially significant as Barack Obama prepares to come to Delhi for the Republic Day Parade. Obama is the first US president to visit the country twice during his tenure and there is much speculation about the underlying quid pro quo. The consensus is that Obama’s pound of flesh will be substantial—economic reforms that will open up India to US investors.

In March 2013, as an economist at the Peterson Institute, Subramanian had made a scathing attack on India’s “protectionist” and “discriminatory” economic policies—discriminating apparently against the US because Delhi was signing trade pacts with Japan, Singapore, EU and ASEAN—and suggested a series of measures to make India fall in line.

One of the steps he had advocated in testimony before a committee of the US Congress was that the US should launch more cases against India at the WTO to address frictions and conflict “where Indian policy is egregiously protectionist”. One such case had already been initiated by the US on India’s domestic content requirement in its solar energy mission programme. Lauding it, the Indian academic had suggested that the US “should consider initiating more such disputes for policies in other sectors”.

Coincidence or not, within 10 months, the US had launched a second case against India at the WTO. That case has now gone to the disputes settlement body, placing a major obstacle in India’s efforts to upscale its production of renewable energy.

Then there is his other suggestion which is more worrying. The US, he had urged, should use the mega regional trade blocs it had put together, such as the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership, to exert “natural pressure” on India to open up. That is as bad as it can get: India will come under tremendous pressure to change its policies on a wide front—from easing its intellectual property laws to cutting tariffs on industrial goods at a time when it is hoping to get its manufacturing back on stream.

Now that he has joined the Modi government, is Subramanian embarrassed or concerned about what he had advocated? More to the point, is he likely to have changed his views on what India needs to do to tone up its far from sprightly economy, specially the manufacturing sector which is in the doldrums? It is unlikely that an economist of Subramanian’s persuasion regrets his prescriptions since his ideological moorings make few allowances for developing country concerns. And yet, one hopes the view from Delhi is different—even for diehard free marketers. DOWN TO EARTH