By Dr DM Deshpande
The hanging sword finally seems to have fallen on India; at least that is what America under Trump believes. On March 4, it’s trade representative announced the intention of the US Government to withdraw India from the list of trade beneficiaries (developing countries) under GSP (Generalized System of Preferences) program. While this might appear to have come as a jolt, actually there was more than a hint from the American side since last November. At that time trade benefits on 50 items were withdrawn.
Though the Indian side has tried to downplay the impact it does have a significant effect on bilateral trade and more importantly on trade relations between our two countries. Putting a brave front, India has said that GSP provided no more than US $190 million in benefits to exporters. However, it impacts trade worth nearly US $ 5.66 billion covering about 3,500 product lines and amounting to 11 to 12 per cent of total exports to the US.
Most of these products are produced and exported by SME’s in India. Now, if the privilege is no more available then we will lose out to competitors such as Mexico which have free trade agreements with the US.
This will be a double whammy. On the one hand, our exports take a hit at a time when in real terms exports are flat, that is, not growing over the last few years. On the other, this will mean job losses-direct and indirect. Again at a time, when there is widespread criticism of this government that it has not been able to kick start the economy and generate enough jobs for it’s educated youth population. According to data released by CMIE very recently, unemployment was 7.2 per cent in Feb. the highest in several years. The NSO data given out earlier too corroborated the same line of thought.
The reason cited by the US for it’s trade sanction is that India has failed to render reciprocal market access to numerous products and sectors of U.S. Now this is a specious argument; under WTO rules, for schemes such as GSP of US there is no requirement of reciprocity. As such India is not bound to give market access to goods and services of U.S. However, in practice, it does not work in this manner. President Trump is a transactional person and the Chinese, after all the talks of trade wars, have probably learnt to deal with him.
It is not that India has not tried. It has reduced duties on expensive motor bikes from US by 50 per cent. But, as has been pointed out, it is still at a high of 50 per cent compared with a virtual free pass for Indian made motor bikes in US. The US does not realize that for several expensive American goods, market in India is limited and the elite who buy them are not bothered about having to pay higher duties. So, it’s a source of revenue to the Government. Same is the case with American whiskies. Similarly it is not right to deny access to US dairy products on the basis of religious feelings. But India is well within it’s right if allowing such access costs several livelihoods and incomes in India.
Yet, India is being perceived as becoming protectionist. The new e-commerce policy is a case in point. The changes discourage foreign investors without offering tangible benefits or protection to small domestic producers. It is distorting and limits competition.
It is interesting to see why the US has chosen now to terminate benefits accruing to specified Indian exporters. One, under the current security environment, the US knows that India needs it’s backing fully and unconditionally. India cannot afford to rub US on the wrong side. Second, chances of settling trade woes of US with China have brightened. The US has measly US $23 billion trade deficit with India whereas with China it is a huge US $323 billion! If it can bring China to the negotiating table and extract concessions that it wants, then it can do the same with India. China is close to catching up with US on science and technology in which the later has reigned supreme for decades, if not centuries.
There is a still a window for negotiation with the US. The decision to revoke beneficiary status will come in to effect only after two months. We need to adopt a two pronged approach. One, to negotiate with the US in a spirit of give and take. Second, is to improve our own competitiveness. China’s perceptible decline of manufacturing prowess will not automatically flow to India. Turkey, Vietnam, to name only two, have already seized the initiative and their exports are rising. Chief Economic Advisor Subramanian has rightly called for urgent reforms in labour, land and financial sector. Equally important are reforms in education, without which manpower competitiveness will remain deficient.
*The writer is in the field of higher education- teaching, research and administration for nearly four decades. Presently he is the Vice Chancellor of ISBM University, Chattisgarh.