PM Narendra Modi pulled out of the Regional Comprehensive Economic Partnership this week over fears that India’s trade industry would have been deluged with agricultural imports from Southeast Asia and cheap goods from China.
ThePrint asks: RCEP pullout: How can Indian industry be made more competitive?
India needs Centre & state govt-led reforms. Modi govt can start by rationalising GST, lifting FDI limits
Wadhwani Chair in US-India Policy Studies, Center for Strategic & International Studies
India’s withdrawal from the RCEP is understandable in the short-term. Indian industry is less competitive in many sectors than its counterparts across Asia. If India’s inclusion in this trade deal triggered trade imbalance and job losses, then its instincts against trade integration would have only worsened.
This fresh “pause” on trade integration allows India to re-commit to reforms that would make its industry more competitive. This can be achieved by a combination of reforms at both the central and state level. The Modi government must initiate the following: rationalise GST by reducing the number of rates and include additional products; reduce time and cost for business dispute resolutions; lift remaining FDI restrictions; increase access to growth capital by removing self-imposed restraints on growth like banks’ priority sector lending; and mend the Constitution to have authority over power pricing.
Meanwhile, states must introduce these reforms: relax business licensing norms and reduce time to start businesses; expedite land acquisition process and make it more transparent; ease India’s onerous labour laws, notably the 1947 Industrial Disputes Act; ask political parties to ensure stable business environments.
There are many other reforms required to increase India’s competitiveness in the trading sphere, but these would provide a good start.
India needs to change its mindset of export pessimism to export optimism
Author & former CEO of Procter & Gamble India
India needs to do four things to become more competitive.
First, change its mindset from export pessimism to optimism. This old mindset has plagued us since the 1950s, and India’s share of world exports is a measly 1.7 per cent. “Make in India” should be “Make in India for the World”. PM Modi should emphasise that the $5-trillion economy target will only be achieved if India becomes an exporting nation. During trade negotiations, India should be more confident and not view itself as a victim of global trade.
Second, we should keep our focus on the ease of doing business, where we have made significant gains in recent years. The main roadblock in India’s trade expansion is the bureaucracy, and the government should keep slashing red tape.
Third, structural change is required. Exports require a collaborative effort across a dozen ministries. There needs to be a high-powered initiative under PM Narendra Modi or a senior cabinet minister who is tasked with overseeing India’s trade performance. The minister should be empowered to effect change in all ministries that are blocking the country’s competitiveness. The reality is that no one listens to the commerce ministry.
Finally, and most importantly, we need to reform the basic factors of production — land, labour and capital. One can’t contest the fact that reforms take place at a time of crisis. The government must use the current slowdown to enact bold reforms, so that our transport, electricity, and logistics costs equal to our competitors.
Modi govt’s initiative to revive moribund real estate sector will push economic activity
CEO & chief portfolio manager at Prabhudas Lilladher Pvt Ltd
Modi government’s initiative to kickstart the moribund residential real estate sector through the formation of Category II AIFs with substantially large initial corpus of Rs 25,000 crore will be strongly welcomed by the market. Its promise of top-ups subsequently both from the contributors as well as others including sovereign wealth funds should also be received well.
The real estate sector has one of the largest multiplier effects on the Indian economy with substantial benefits accruing to the asset quality of banks and housing finance companies, which were staring at the spike in NPAs from this sector.
By including the Real Estate (Regulation and Development) Act-registered net worth positive projects that are substantially completed, the Modi government has ring-fenced the risks to a large extent.
With nearly Rs 2 lakh crore-worth housing projects stuck in Delhi-NCR and Rs 97,000 crore projects in MMR, the RERA fund has the potential to act as a force multiplier to give the necessary push to revive economic activity in the nerve centers of the Indian economy
The likes of Piramal Enterprises, L&T Finance, JM Finance, Edelweiss, Indiabulls Housing Finance, DHFL, banks saddled with large real estate exposure like Yes Bank, Induslnd Bank, and reputed companies like the HDFC Ltd should lead the charge.
Real estate developers like the DLF, Godrej, Oberoi, Sobha, Purvankara, Kolte-Patil, Brigade as well as EPC companies deriving substantial revenues from the real estate sector like NBCC, Ahluwalia and L&T will continue to remain in focus.
Also read: Trump and Xi watching, Modi knows India needs reforms even if it pulled out of RCEP
India needs to abandon trade and market phobia once and for all
Director and chief executive, ICRIER
Historically, India’s tryst with free trade has been quite similar to its engagement with markets — a healthy distrust of both. Thus, after independence, import substitution and public sector participation in economic activity were the preferred choices for India attempting to create economic opportunities for its growing population and struggling industry.
Over the years, the mistrust has lessened, in part due to the positive outcomes associated with liberalising trade and markets. India began to export more because its imports increased after 1991. So, it now aspires to achieve $1 trillion in exports by 2025.
Indian industry became more competitive because it embraced markets that forced it to become efficient, adopt technology and produce for global markets. Auto and pharma are two sectors, among others, that have succeeded in facing competition.
Trade and Industry are of course inextricably linked and the principal question is whether a calibrated tariff reduction in RCEP will kill our industry, manufacturing and dairy alike, and India’s ability to create more jobs. Or will it force Indian industry to become more competitive? If the latter is a valid proposition, then we could use RCEP engagement to push domestic reforms.
The converse, i.e. improving the domestic business environment before joining RCEP to enable Indian industry to compete is harder because the incentives are weaker. Industry will always prefer protection over competition. But this does not mean that we should sacrifice our domestic interests at the altar of free trade. It means that we should engage, with the intent to be in rather than out of the RCEP. India needs to abandon the trade and market phobia once and for all.
What the govt needs to now do is revive manufacturing sector to also better counter import competition
Professor of Economics, JNU
India’s pull out from the RCEP has made it imperative for the Modi government to adopt a forward-looking strategy, the centrepiece of which should be the objective to make the manufacturing sector more competitive. The inability of Indian industry to face import competition was the reason why the RCEP was red-flagged.
Central governments in India have been repeatedly reminded since the mid-2000s that the domestic manufacturing sector was going downhill, and yet only pronouncements were made to revive this sector. No wonder that the UPA government’s National Manufacturing Policy was replaced by the Modi-led NDA government’s ‘Make in India’ initiative. However, the requisite thrust for making the manufacturing sector competitive continues to be lacking.
What is required urgently is the adoption of an industrial policy in which the government plays a central role as a facilitator and provider of public goods, especially the necessary infrastructure.
Relying on market forces alone to turn the fortunes of the manufacturing sector has proved to be counterproductive and this model must be cast away. The manufacturing infrastructure needs to be developed through a process of dialogue with the major sectors in terms of value addition and employment. Alongside this approach, an effective innovation system must be put in place, which should be geared towards meeting the technological upgradation needs of the manufacturing sector.
Modi govt must seriously consider liberalising India’s import policy by reducing tariffs, other barriers
Economists at the Institute of Fiscal Studies & International Growth Centre
The Narendra Modi government should seriously consider liberalising India’s import policy by unilaterally reducing tariffs and other barriers to trade. India presently has some of the highest tariffs in the world, accentuated by rising protectionist tendencies over the last few years.
Import liberalisation could have many positive effects on the Indian economy. First, it will allow our producers to gain access to cheaper inputs from abroad that should make our industries more competitive, as has been the case with Chinese imports to India. It could also help expand our footprint in global value chains.
Second, research on developing countries indicates that competition from imports could increase aggregate productivity, reduce slack in firms and induce them to adopt better managerial practices.
Third, unlike trade deals like the RCEP, unilateral tariff reductions will not divert imports from the most productive countries to those covered under a free trade agreement. Although this policy might arguably increase inequality in the short run, there are likely to be net gains from trade that can in principle be redistributed.
Despite the economics, however, the political economy of trade policy makes reform very difficult, but a ‘strong’ government would resist this impulse if it is serious about making India more competitive.
Also read: Narendra Modi rejecting RCEP shows Swadeshis and Left think alike on trade
By Taran Deol, journalist at ThePrint