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Boosting foreign trade big task

Boosting foreign trade big task
The country’s modest export growth of 6.3 per cent during the current fiscal (2013-2014) with estimated merchandise export turnover of 326 billion dollars, after some heady growth rate in double-digits in the recent past, portends daunting challenges ahead. With the rate of imports uncharacteristically notching up meager growth boding bad for both manufacturing and domestic trade, India’s chances of logging sustained spell of higher trade growth appear at risk in the face of none too benign world economic growth in general and world trade in particular.

A recent report of ‘The World Economic Situation and Prospects 2014’ from the United Nations (UN) admitted that the growth of world merchandise trade weakened further in 2013, dragged down by slow global growth. Sluggish demand in many developed countries, which continue to remain the mainstay of India’s touted higher export receipts despite all the hullaballoo over market and product diversifications, coupled with faltering export growth in developing countries led to a decline in world export volume growth from 3.1 per cent in 2012 to only 2.3 per cent in 2013. The growth rate was well below the trend prior to the financial crisis of 2008.  Hence the warning by the UN that the outlook for global merchandise trade is unlikely to fulfill expectations of a net-export led recovery for a number of countries including India which must perforce view and weigh this seriously.

However, a silver lining in an otherwise sable trade sky is that services exports appear to be recovering faster than merchandise trade and is likely to grow faster now after a distinct improvement in mid-2013. Interestingly, just 10 countries India included account for about 70 per cent of total trade in services for developing countries and economies in transition. India is leading in computer and information services exports. But, the increases of imports of services in most of these countries have outpaced that of exports, leading to deterioration in their trade balances in services. Though India’s share in world export of services is 3.2 per cent and its imports of services share is 3.1 per cent, the small surplus on this score is no consolation, if the country is not able to branch out into other crucial segments such as financial, construction and tourism services to expand its services export basket.

The UN report has highlighted the ongoing discussions among some 23 WTO members (the majority of which are Organisation for Economic Cooperation and Development, a club of rich nations) on a plurilateral Trade in Services Agreement (TISA), to cover about 70 per cent of global services trade.

Even as China is seeking to join these negotiations, the United States as a leading services exporter demands certain pre-conditions to be met by Beijing. While the TISA proponents’ hope is that the outcome of the negotiations would be brought into the multilateral system, the modalities for such a development remains unclear given the nature of  contentious issues that range from movement of natural persons as service providers to establishing services in the host country, overcoming formidable hurdles. India is not part of this plurliateral body and must watch out before the latter’s views are foisted on the proposed General Agreement on Trade in Services (GATS) of the WTO.

While in both merchandise goods and services export the prospects of India making a decisive break remain muted in view of the glacial pace of global economic and trade recovery, the UN report chose to downplay the much-trumpeted success of the Doha agenda at the Bali Ministerial in December 2013.

The Union Commerce and Industry Minister Anand Sharma might have legitimately taken a lion’s share of credit for the breakthrough in the minimal agenda of the Bali Ministerial aptly described as ‘Doha-lite’. That is why the latest UN report said that ‘there have been some limited agreements’ in Doha Round negotiations in three areas: agriculture, development and trade facilitation. Going further, it pooh-poohed the economic effect of these changes as ‘unclear at this point and is unlikely to affect trade’.

Rightly the UN cautioned that ‘there remains much unfinished multilateral business under the Doha Round, while regional and national trade liberalisation continues unabated.’ The UN report is not off the mark when it contended that ‘clearly, this Doha-lite outcome attempts far less than the original ambitious Doha Round agenda and achieves little in securing development-oriented outcomes’. For India, which gained  a limited reprieve of four years in the roll-out of its National Food Security Act entailing public stock holding for procurement of grains that does not breach the permissible limit of agricultural subsidy, the Doha-lite delivered only lighter result.

This is further borne out by the UN report’s outspoken assessment that ‘the likely trade and development gains from its implementation are unclear, despite over-optimistic predictions about the welfare gains from the trade facilitation agreement amounting to up to one trillion dollars’. As the UN pertinently points out that in any case, ‘the Bali outcome will take time to implement and thus will not affect world economic prospects in 2014, and probably not in 2015’.

It is small wonder that the UN report lamented that the global trading system has become more brittle and ‘fragmented and considerable uncertainty about particular forthcoming decisions remains’. Although India, the original and founder member of the erstwhile GATT and its subsequent avatar as the WTO in 1995, is currently negotiating as many as 18 free trade agreements (FTAs) including expansion/review of the extant FTAs, it is unfortunately not part of any vibrant and hefty regional trading agreements (RTAs).

IPA
G Srinivasan

G Srinivasan

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