International trade must become a political priority for BJP's third term

There have been some scathing articles in the western financial media ridiculing India’s stand at the recently concluded WTO meeting. It is painful when your country is made fun of like this.

But truth be told it’s all well deserved derision because the government in India, since 1960, has not had any clue what international trade is.

I started following Indian trade policy — or what has been mistaken for it in 1980 when I was asked to by the editor of the now defunct periodical I worked for then.

In 1987, ICRIER asked me to write a research paper on the inclusion of services in GATT. The resulting 1988 paper — never published because it was “too journalistic in style” — concluded that India’s future lay in the exports of technology-based, disembodied services.

In 1989, the editor of the Economic Times, Manu Shroff, who was himself a trade economist and formidable economist, asked me to focus on trade policy. I thus became an ‘expert’ on the Dunkel draft which went on to become the base document for the Uruguay Round that led to the creation of the WTO. India, of course, opposed it till one fine day in 1983 it began supporting the services part of it.

In the 1990s Dr Ashok Desai, the former chief economic adviser who later became a colleague on this newspaper, often said that India had neither trade nor policy. He was dead right.

The strangest thing now is that all sorts of liberalisation has happened since then but India still doesn’t have a compressible trade policy. All we have is the old ‘gap filling’ approach.

There are, I think, three interconnected reasons for this. One is that there is no permanent trade bureaucracy that is properly trained in trade issues. So policy is made by a largely ignorant bureaucracy who, moreover, are birds of passage.

The second is that even though industry and trade have often had the same minister, trade policy has never been properly integrated into industrial policy. Nor has serious effort been made to do so. SEZs were mere location policy.

This lapse is surprising because in 1947 when India had a relatively free trade regime, it had an export surplus and a market share of 2.3 per cent in world trade. Something happened in the 1950s that made it shift to near autarky.

Over the years since then we have had major crises which can all be traced to the three reasons stated above. Each crisis has reinforced the fear. Each crisis has also strengthened these weaknesses.

India’s failure to become a major trading nation has made it treat international negotiations as an irritant. Its efforts at these negotiations are pathetic, to say the least.

But these problems can be fixed over the next decade — or Mr Modi’s third term — which looks quite likely now.

The first step is to give the one thing that’s been absent since 1955: political priority to the nuances of International trade and its dynamics. In India this is the most difficult part and hence must be taken up immediately.

The second is to create a permanent trade bureaucracy by reorganising the commerce ministry. What we have now is worse than a bad joke.

The third is to let the rupee depreciate, never mind American watchlists of currency manipulation. Every rational calculation shows it ought to be at about 88/dollar.

Since the mid-1950s, India has been actually afraid of trade. It prefers less trade to more trade while saying the opposite. This timorousness is what the BJP must fix.