India can’t afford to lose the world’s trust on trade
By Mihir Sharma, Bloomberg /
Indian Prime Minister Narendra Modi often speaks of “trusted” supply chains. At the G-20 last year, he said that global supply chains depend upon “trust, transparency, and timeframes”; he’s made a similar pitch for Japan, the United States and Australia to “trust” India as a trade partner.
And he’s right: The only chance that countries such as India have to entice value chains away from China is by focusing on resilience and reliability.
Yet the actions of Modi’s government are severely undermining his argument.
India has responded to rising global commodity prices by unexpectedly blocking exports of sugar and wheat; some expect rice to be next.
These are products in which India plays a major role in global markets; the country is the world’s second-largest exporter of sugar and the second-largest producer of wheat. World prices for wheat rose 6% on news of India’s export ban.
True, for India, food prices are of particular importance. It’s one of the few countries in the world in which food products comprise more than half the consumer price index. If you don’t control food prices, you risk inflation expectations spiraling out of control and years of macroeconomic instability.
But export bans aren’t the only way to manage food inflation. Besides, what’s the excuse for all of New Delhi’s other anti-trade moves? India’s steel industry is still reeling from the unexpected and arbitrary increase in export taxes for finished steel products imposed last month. Share prices for Tata Steel Ltd NSE -1.32 %. fell by 15% and those of Steel Authority of India NSE -0.98 % Ltd.
The arbitrariness of India’s trade policy is even more evident in the way the government has treated the country’s paper industry. After two years of global price increases, officials recently declared that all imports of paper products would henceforth require “pre-registration” — dangerously close to a 1970s-style license. This, the government claimed, would “go a long way in promoting ‘Make In India’ and ‘Atmanirbhar’ [self-reliance].”
Thus, rather than arguments detailing how consistent trade policy helps productivity and investment, we’re left with empty slogans. Every bad, anti-trade decision is presented as either supporting Modi’s “Make in India” and “self-reliance” drives, or as necessary to control inflation. And the slogans can cheerfully point in opposite directions: Two years ago, India levied tariffs on steel imports to protect domestic producers; now it has an export tax to protect domestic consumers.
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