A new government has been formed and the dust is settling down. And now, it is time for a hard-nosed appraisal of some of the challenges and opportunities that the Centre faces.Corporate India has welcomed the results and wants the government to focus on reforms, growth and jobs. The Centre will have its work cut out on both domestic and foreign policy fronts. I shall restrict myself to decisions—some requiring immediate attention and some pending for a while—and challenges, and opportunities on the international economic front which may have a collateral bearing on the domestic sector and vice versa.
Iranian oil and Russian hardware: The US has been tightening the screws on the countries importing oil from Iran. The US deadline for waivers of sanctions on countries importing oil (from Iran) ended on May 2. Oil accounts for roughly 30 per cent of our import bill and 80 per cent of India’s oil is imported. India had recently promised Iran (during Iranian foreign minister’s visit to India last month) that the new government would take a decision on the matter of importing oil from Iran. For India, ceasing to import oil from Iran (which roughly accounts for 10 per cent of our crude supplies) soon after stopping imports from Venezuela would be a huge blow. The US sanctions on the upcoming S-400 missile defence purchase from Russia would be another area of concern. One of the immediate challenges before the new government is negotiating these two tricky situations.
The US and tariffs: President Donald Trump has been threatening India with retaliatory tariffs on account of ‘tremendously high’ tariffs imposed by India on some US products. Trump has also taken India off the list of countries which have been given preferential trade benefits. This will affect Indian exports to the tune of $5.6 billion. India recently decided to extend its deadline to retaliate with higher tariffs against US products like almonds, walnuts and pulses. The new government would need to tread carefully and see how best America’s concerns over trade deficit with India and Intellectual Property Rights are addressed without compromising India’s interests and its friendship with the US. The ongoing trade war between the US and China are not going to make things any easier.
FTAs with Regional Comprehensive Economic Partnership (RCEP) and EU: The RCEP comprising the 10 ASEAN countries and their six FTA partners—India, China, Japan, South Korea, Australia and New Zealand has been under negotiations for a while now. Indian experts have not been particularly upbeat about this mega agreement as India is reported to have a trade deficit with as many as 11 RCEP countries and a deal like this, it is felt, will only add to the woes of the domestic manufacturers even though it would give greater access to Indian goods and services to the RCEP markets. India’s negotiations with the EU for entering into an FTA has been going on for more than a decade. The new government would have to see how best to get the agreements with the EU and RCEP off the ground.
India taking a lead in resuscitating/reviving institutions like the WTO: Former Commerce Minister Suresh Prabhu had said India would like to see the WTO continue as ‘an engine of growth’. India had taken the lead in drawing up an agenda factoring the issues and concerns of the developed as well as developing countries for discussions on the sidelines of the World Economic Forum in Davos in January 2019. As for e-commerce, India has opposed any move to draw up rules relating to this outside the ambit of WTO and has insisted that the current multilateral programme on e-commerce under WTO should be taken to its logical conclusion. The new government would need to revisit and review its position on issues like e-commerce which seem to be gaining resonance amongst countries. It is important to list out a few issues and try working on them through diplomatic and other channels before the WTO Ministerial Conference in June 2020.
The new government would need to continue furthering its economic engagements including attracting investments and technology from countries such as Japan, France, Germany and the UK. It will also be required to handle the fallout on India (dumping of steel by China for instance is already being voiced as a matter of concern) of the ongoing US China trade war.
Global economic headwinds, growing protectionism, a severely threatened and hampered trade body (WTO) fast losing its relevance, a full blown trade war between the world’s two largest powerhouses, US and China, and a fast deteriorating situation in West Asia are hugely daunting challenges for a developing country like India poised to take a ‘leap of faith’. The new government, buoyed as it would be, by the sheer strength of the mandate, would be better equipped to deal with the above issues and also the myriad other challenges—both domestic and international—including the pursuing of trade policies geared towards increasing the country’s share of world exports to 3.5 per cent by 2020 (as was spelt out in the mid-term Review of the Foreign Trade Policy 2015-2020) and attracting more Foreign Direct Investment (FDI) which should be easier with a stable government at the Centre. A clear and aggressive Trade Policy would be just the recipe which an aspirational New India requires.
Ashok Warrier
Former Ambassador of India to DRC
Email: ashokwarrier27@gmail.com