As India gears up to celebrate its 74th Independence Day, the Narendra Modi government must proactively look at engaging more with other countries to boost its economy. Notwithstanding its exit from the Regional Comprehensive Economic Partnership (RCEP) last year and the outcome of the earlier free trade agreements, it must not shy away from inking contracts in the future.
At the same time, it must provide the required support to companies—both domestic and foreign—to set up manufacturing facilities in the country, especially with the unprecedented rise in global economic uncertainty and the upcoming US elections.
India has to realize that restricting trade with other countries cannot solve the existing problems of the manufacturers in India. Policies, which include taxation, need to be framed in a manner that boost competitiveness of the Indian manufacturers.
With India recording Rs 152.88 billion trade deficit in 2019-20 stood compared to Rs 184 billion in 2018-19, many pundits have prescribed revision of trade agreements.
In the early 2000s, India had become the favorite software destination providing a global sourcing base. It acquired the top slot for business process outsourcing (BPO).
Reason? Competitiveness. The industry boosted entrepreneurship, jobs and revenues. Today, India has competition from several other countries including China. Indonesia, Philippines, Vietnam and Bangladesh; east European countries have now joined the bandwagon.
The lesson that India needs to revisit is this: Restrictions or looking inward will not help the economy in today’s global context. Instead, it needs to reframe policies that boost manufacturing.
Recently in an article in The Week, Sanjaya Baru, economist and media adviser to former prime minister Manmohan Singh wrote, “A stronger, more efficient and more competitive economy would facilitate more effective diplomacy. The era when good speeches and clever posturing made up for poor economic performance was over.”
At a Ficci event earlier this week, Commerce and Industry Minister Piyush Goyal said that India was keen on establishing fair and equitable trade relationships with other countries. “The world works with equal terms, there has to be an equal and fair and reciprocal arrangement,” Goyal said.
After India pulled out of the RCEP, it has been exploring a bilateral trade deal with Australia. After all, China’s dominance in world stage is primarily due to its current economic muscle. Taking a cue, India must increase its economic engagement with other countries, especially those which have remained untapped like many in Africa, while also ensuring that its domestic manufacturers are protected. But the protection should come in the form of policy support not trade restrictions..
