The G20 leaders’ summit in New Delhi is nearly upon us and the capital city has swung into action to host the heads of the most powerful nations in the world. This is no doubt a matter of significant prestige for India, which has developed a reputation as a reasonably steadfast and reliable global economic power over the years. However, some recent trade-related decisions by the government of India are eroding this trust.
The problem with these decisions isn’t so much in their substance but in how they were implemented—with a suddenness that has become the hallmark of the Narendra Modi government’s management style. Domestically, these sudden changes have been marketed as decisiveness on the part of the Prime Minister and his government, but internationally, they come off as unreliability.
From India’s point of view, prioritising the country’s interests is a good quality in a Prime Minister. However, any ambitions of becoming a vishwa guru become that much harder to achieve. It’s hard to reconcile a global, caring country with decisions it makes designed solely to benefit itself, no matter the cost to others.
The sudden, disruptive bans
In September 2022, the government effectively banned the export of broken rice and in July this year, it extended this ban to all non-Basmati white rice. The food ministry said the ban was to contain inflation in food grains “and ensure adequate availability of non-basmati white rice in the Indian market”.
The inflation rate for cereals was 13 per cent in July, and this pushed food inflation to 10.5 per cent, which in turn led to overall inflation coming in at 7.4 per cent, well above the RBI’s upper comfort limit of 6 per cent. So, it was perhaps only natural that the government would try to do something to ensure greater supplies of rice in the domestic market to cool prices.
The why wasn’t the problem. It was the how. With an overnight ban on Indian exports, the government suddenly deprived the world of about 40 per cent of the rice available to world markets. When it comes to food, everybody likes a warning before an impending supply disruption.
The notification did include a provision that allowed exports, with the permission of the government, to ensure food security among India’s trading partners. For one thing, government permission takes a while to come. It was only at the end of August 2023 that the government allowed the export of non-basmati white rice to Singapore, Bhutan, and Mauritius — all three of which are heavily dependent on Indian rice.
Countries like to strike trade deals that are stable and long-lasting, especially when it is to do with food and fuel. A single incident that shakes this confidence can be hugely damaging in the future. It’s highly likely that each of these countries, and several others, will now revisit their food supply plans, setting up contingencies in case India does something drastic again.
Apart from supply issues, sudden bans also have a large impact on prices. According to global media reports, India’s rice ban led to a surge in global rice prices, which hurts friends and foes alike.
A phased ban on rice exports—starting with halving supplies, maybe—would have not only helped India maintain domestic supplies, but would have given trading partners enough time to plan their own supplies.
The same goes with wheat, albeit less so. India is the second-largest producer of wheat, but accounts for a minuscule share of the global wheat trade. However, in the months leading up to India’s May 2022 wheat export ban, the government had said it had plans to increase its wheat exports five-fold, and that the focus would be Asian and African countries.
These countries were naturally keen, but the export ban again cast India in a poor light.
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Fuelling uncertainty among MNCs too
It’s not just India’s reputation with sovereigns that gets affected by its hasty decision-making. At stake is also the country’s reputation among multinational corporations as a stable economy with regulatory clarity.
In early August this year, the government again—with an unsettling suddenness—banned the import of laptops, servers, personal computers, and some other electronics unless the companies doing the importing obtained a particular licence from the government. This effectively meant that several companies such as Apple were left high and dry because many of their models are not being assembled within the country at the moment.
The government belatedly extended the window in which imports would be allowed until companies managed to get the licence, but this only reinforced the feeling of uncertainty among companies.
The reasons the government gave for the import restriction had to do with internal security and ensuring trusted supply chains. The actual upshot was that the revamped Production-Linked Incentive scheme for IT hardware saw a surge in demand.
An effective PLI scheme would have attracted this kind of demand in any case, as has been seen in so many other sectors. Using trade barriers as a tool to push companies to invest in India—which is effectively choosing the stick over the carrot—isn’t likely to go down well with companies looking to invest.
It’s not as if global companies are lining up to invest in India either. Foreign direct investment levels fell 16 per cent in 2022-23 compared to their level the previous year, and dropped 34 per cent in the first quarter of 2023-24 as compared to the same period of the previous year.
Even India’s handling of its oil supplies in the wake of the Russia-Ukraine war has called into question its reputation as a country with a moral high ground. Yes, importing lots of relatively cheap Russian oil is good for India, but also attracts allegations of war profiteering, a distinctly unsavoury reputation to have.
India has been pretty consistently developing the reputation of being a stable global power for a while now. This can be seen in the big, visible things like the 123 nuclear deal with the US, the revocation of the controversial retrospective tax amendment brought in by Pranab Mukherjee, playing host to an international grouping like the International Solar Alliance, and now hosting the G20 summit (even if that is by rotation).
It can also be seen in the smaller, more invisible things like the multiple free trade agreements (FTAs), advance pricing agreements (APAs), double tax avoidance agreements (DTAAs), and automatic exchange of information (AEOI) agreements that we have been party to.
From India’s point of view, the decisions taken by the government are nearly all positive, whether in the short term or medium term. Other countries do the same. But then, you also don’t hear the likes of Xi, Scholz, Putin, or even Biden vocally aspiring to their equivalent of vishwa guru status. They do what is best for only their country, without pretence or posturing. Let us similarly unambiguously embrace our self-interest.
Views are personal.
(Edited by Prashant)