Adopting a clear strategy to raise India’s trade intensity
New Delhi, 14/2:As global trade is poised for a rebound in 2021,
India must get its act together to make the most of it.
We should watch our currency closely and not get left behind on free-trade deals.
For 2021, the WTO forecasts a 7.2% increase in trade volumes. If new strains of coronavirus prove disruptive, this might need a revision, but as of now, trade prospects are looking up. A new administration in the US is expected to resuscitate the WTO, especially its dispute resolution mechanism that was left in limbo, and might even moderate the mercantilism fanned by its predecessor. Another round of globalization, which lost its verve about a decade ago, could also get an impetus from new trade deals.
The latest of these is an agreement between the EU and China that opens up Chinese markets for European investment and grants China easier access to EU markets. While trade friction between Beijing and Washington is not expected to ease much, the relevance of transpacific relations to international trade patterns will decline if the Regional Comprehensive Economic Partnership (RCEP) proves successful. China is the nucleus of this free-trade bloc among 15 nations of the eastern hemisphere. While this was a key reason why New Delhi stayed out, we should either strike alternate deals or prepare to join RCEP at some stage ahead.
What we need for the 2020s is a cohesive trade strategy that goes beyond internal export-incentive schemes. Our trade intensity has weakened since the Great Recession of 2008-09, and Indian exports have fallen in three of the last six years. The government has been setting high outbound shipment targets, and last year’s Economic Survey placed due emphasis on export-led economic growth. To begin with, our share in global exports must break out of the sub-2% levels it has been stuck at, before we aim for double digits. As the rupee’s external value will have a major role to play in this, we should not inadvertently tilt our policy against export competitiveness by setting a goal for the size of our economy in US dollars, one that a strong currency would bring closer within reach. Foreign exchange values in today’s world move in response to capital flows far more than trade dynamics, and our rupee management—not manipulation, mind you—will become a delicate affair should a global dollar downtrend result in depreciatory tactics by other currency managers around the world. The effects of massive monetary easing in the US are expected to combine with a post-pandemic reversal of last year’s financial flight into safe US assets to weaken the greenback, even as we continue to see rupee-buoying inflows. We need to watch out.