Ex-Envoy Mohan Kumar Says India Is Defensive On Trade Issues

Here’s a word of advice from Ambassador Mohan Kumar, who was India’s lead negotiator at the General Agreement on Tariffs and Trade or GATT, the forerunner of the WTO (World Trade Organisation):

“Forty per cent of your GDP is trade. So if you have to become a $5 trillion, $7 trillion, $10 trillion economy and every body realizes it, if the foreign trade component does not increase, you will never reach that figure. Then again our emphasis seems to be on exports, not imports. And that is curious because countries like China, ASEAN, they all imported a lot. Imports by themselves need not be a dirty word. It depends on what you import.”

Ambassador Kumar, who was answering questions on The Gist, made another point: “If you’re going to export raw material and commodities and import finished products, that’s bad. But if you can actually import machinery, capital items which can be of use to small medium enterprises, that’s not such a bad thing.”

Ambassador Kumar is a career diplomat from the foreign service, so the next logical question: is there a cleavage between the External Affairs Ministry and the Commerce Ministry on approach to trade?

The foreign ministry, Kumar says, has nothing to do with trade. It may have officers posted abroad who will implement the trade policy decided by the Commerce Ministry. But he believes there is a disconnect between the foreign or strategic policy discourse and the trade policy discourse.

He pointed out that when India talks about being part of the Nuclear Suppliers Group, or getting membership of the UN Security Council, the Quad and so on, it gives the impression that India is going to be a $5 trillion or $7 trillion economy soon. On the other hand, if you see India’s performance in the WTO or the recent ministerial conference in Abu Dhabi, one gets the impression that India is not an economy vital to the world, that India is not a $7 trillion economy.

The contradiction lies in India’s reluctance to reform. India needs land reforms and it needs labor reforms. These are very hard. GST took more than a decade to carry out. In Ambassador Kumar’s view, Indians are reformers by compulsion not conviction.

But there’s also the fact that the WTO is unfair to developing countries when it comes to subsidies. After having given the US and EU a free run of agricultural subsidies for years, suddenly they told India, which has to feed a population of 1.4 billion, that if your subsidies exceed 10% of the value of the commodity, you are in trouble. Our point is the subsidy is to feed 700 million people, which has nothing to do with the WTO. Whatever grain India exports is not subsidised.

The Abu Dhabi ministerial also focused on India seeking a 25-year window to develop its fishing industry. This may seem an inordinately long time but the EU, Japan, Taiwan and China run heavily subsidized deep sea fishing fleets. India’s small fishermen cannot compete.

Ambassador Kumar also pointed to moves to make a multilateral institution like the WTO, plurilateral. This was evident in China driving an investment facilitation agreement at the WTO. It was backed by many countries but India objected because the core consensus principle of the WTO was being undermined.

India’s defensiveness at the WTO also reflects the lack of competitiveness of its manufacturing industry. Can the Indian private sector, availing of PLI schemes, compete with products and services from abroad? Uncompetitive industry reduces India’s leverage in terms of what you can get from partners.

“So that is something that we need to get right. We have a short window. I say the next government has three priorities, economy, economy, economy. When they come to power in May, the only issues are trade and economic issues.”

India also needs to ask itself how many more years does it require to become competitive. If it’s anything more than 10 years, then the world will not wait, Kumar says. Geopolitically the world is transforming. At this WTO Ministerial, the US kept a low profile letting Europe do the heavy lifting for the developed world. This flows from the certainty that if Donald Trump wins the November election, he will not be tied down to any WTO commitments.

In fact, the US is undermining the WTO by refusing to restore the dispute settlement mechanism. So if the WTO is not working, India must go towards FTAs and do it quickly.