BJP rode to power on the basis of Prime minister Modi’s popularity among the middle class and the industrialists, both of whom who were keen that, India liberalizes, and facilitates manufacturing and trade. The BJP Manifesto and Arun Jaitley’s budget promised the same.
There are several hindrances to internal trade and even more to external trade and as India is the world’s second largest market and both its imports and exports are growing, customs valuations the world over are the key to trade growth. The turnaround time for cargo and Transaction costs are high and it is not for nothing that India is ranked by the world Bank’s Doing Business Indicators at 132 out of 189 for trading across borders.
The Trade Facilitation agreement:
Customs valuations are a methodology that countries use to value imported goods in order to collect duty.
The WTO Bali Ministerial encompassed three major issues that resulted in partial agreements a. The TFA (trade facilitation agreement), b. An agreement to negotiate a permanent settlement of food subsidies and stocking of food grains to be negotiated by 2017 and c. an action plan for the least developed countries.
The TFA was to have set international rules that must be followed by all participating countries and avoid the imbalances and the capriciousness of the present. It was meant to simplify customs procedure, facilitate speedy relaease of goods from ports and cut transaction costs.
India’s refusal to play ball:
But along came the shocker, on a matter of principle no doubt, but still a shocker. The new Indian government, promoted, perceived and bandied as business and trade friendly rejected the TFA – Trade Facilitation agreement that was almost sealed through several back channel negotiations after India in principle agreed for the same at the Ministerial round in Bali in December 2013 pending an assurance and a timeframe on a food security deal that would have allowed India to safety net its poor. This despite having unilaterally put in place almost all that is required under the TFA, including a substantial part of what is called the ‘best endeavor’ clauses, i.e. non-binding but recommended trade facilitation reforms.
India’s principled stand apparently emerged out of its concern for its poor. It had no reason to, as it had been previously agreed that a deal on Food security and subsidies that India had pushed hard for at Bali, was due only 2017 and the two were unconnected. India linked the two, saying no to the trade deal without the Food deal, possibly motivated by electoral dividends, but also worried about a domestic political backlash.
India’s stand has weakened the WTO, and this is not a good development for India and developing countries. The countries are now trying to enter into bilateral and multilateral deals on trade. India is likely to be left out of these deals. That is disadvantage India.
The Government defence:
John Kerry, was in New Delhi when India rejected the WTO agreement and certainly he was surprised at the turn of events. Perhaps it was unexpected that a prime minister and a party that was passionate about taking India forward globally was adamant and in his opinion, displaying regressive behavior. He told Modi on Friday that by blocking the trade pact, he was sending negative signals. “The failure to sign the (WTO) agreement undermined the very image Modi is trying to send about India,” according to a US State Department official.
Seemingly, Modi is following an India first policy, be it in trade, in Politics or in foreign affairs. Is India first always beneficial to India?
Senior members of the party defended India’s blocking of the trade deal saying that the UPA had frittered away the nationalist vision in its eagerness to please the world. On the other hand, the Vajpayee government pursued the same policy despite severe global criticism when it conducted Nuclear tests to the ire of the western world thus demonstrating the same India first Policy
“We will not compromise on national interest,” said Jayant Sinha, a lawmaker from the ruling Bharatiya Janata Party (BJP).
A dent in Modi’s business friendly image:
Blocking an almost finalized and definitely beneficial trade deal, albeit on a matter of principle that was on the verge of being agreed to, does send a wrong message to investors, traders. India is in dire need of FDI and realizing this reality, the Jaitley budget opened up railways insurance and defense to FDI. Despite its strident opposition while in the opposition, it has till date, not scrapped the UPA initiative of FDI in retail, treading softly.
Apart from India’s image among businessmen waiting to invest in India, India’s capacity to grow at a faster rate will be curbed by the piecemeal approach of reforms in Modi’s first budget. “The message that India’s action on the trade facilitation agreement indicates is a black mark against being the investment-friendly, more business-friendly environment that one was hoping this government was going to seek,” said US National Association of Manufacturers vice president of international economic affairs, Linda Dempsey.”It makes foreign investors a bit more skittish about what they are going to expect out of the new government.” She added.
Modi’s firm hand can easlity be seen in the decision to refuse to sign on the dotted line, pending a concrete deal on food security. On July 22nd, he met with Arun Jaitley, the finance minister and Nirmala Seetharaman the Commerce minister, without aides and it was at this meeting the decision was taken to distance itself from India’s assurances at the Bali meeting.
With this it is clear, that the Indian government will stand up for its rights in the world, no matter the economic or political consequences, a move that will delight Modi’s numerous fans but might disappoint the world. Whether India benefits from this stand or not, only time will tell. However certainly it has dented his business friendly face and the pock marks are starting to show.
