The article counters the argument made by External Affairs Minister S. Jaishankar about the impact of economic liberalisation on India’s economy.

Impact of liberalism on India

• 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”

Flaws in the argument

•  There are several flaws in Mr. Jaishankar’s arguments.

1) India cannot be the part of global value chain

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

2) Indian economy has bee relatively closed economy

• 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 applied 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.

3) Economic survey accepts the benefits of FTAs

• 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.

4) India has been a major beneficiary of economic globalisation

• 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%.

Conclusion

Desire to make India a global destination for foreign investment is a pipe dream because it is naive to expect foreign investors to be gung-ho about investing in India if trade protectionism is the government’s official policy.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now