The US’ Reciprocal Tariffs have virtually rendered the WTO & GATT ineffective. Even in the US, the economics are not clear-an increase in tariff on inputs would make the final product costly and affect sales, but the US Administration charges the same Reciprocal Tariff across raw materials and final goods. Also, July 9 is fast approaching when the April 2 Tariffs kick back in after a 90-day pause — bringing back the highest levies of the 21st century, unless the pause is extended again. We were told many bilateral FTAs with USA are coming but we are yet to see them. Our topic of discussion today is changing global trade patterns –“Is multilateralism giving way to bilateralism?” Also, a significant proportion, 33% of world trade, is within multinational firms. They enjoy several tax-avoidance benefit schemes, such as international licensing (royalty payments) between affiliated entities, charging central fixed costs and overheads to various foreign affiliates, creating intracorporate loans or export shipment “transfer-pricing,” and tax-haven subsidiaries. The changes in International Trade are not smooth-but are we ready for it? We should deal with (a) gap created by WTO being rendered ineffective, (b) keep pursuing the policy of FTAs and BTAs, but ensure that they benefit us in the long run and (c) actively join the global value chain network, perhaps through the PLI scheme. India is currently involved in several trade negotiations and we humbly urge upon a cautious approach to them as we do not want a repeat of India-ASEAN FTA which benefitted ASEAN more than us. India is one of the fastest growing global economies and it is evident that India’s growth is significantly import-dependent and hence the need is to make growth domestic production dependent. A recent example may be Operation Sindoor, where domestic production made a huge difference to the outcome.
We think that, following the example of China and Developed Economies, the Indian
State should play a bigger role in the development of Indian and Foreign Firms (those who invest in India) and help them to become part of Global Value Chains.
Such linkage and firm growth would automatically lead to growth of Indian Export Basket, like that of China. Following the policy of neoliberalism, leaving everything to the market , would not maximise the welfare of all the stakeholders. The visualised role of the State can be investment in Infrastructure, Education, Skilling, Research and Development that benefit firms and help them to reduce costs and offer competitive prices. By the way, all these activities are happening in India, but they just need to be scaled up. We talk about demographic dividend, but to get the same, we need to investment more in the ordinary Indian-food, health, education and skills. Some of the social schemes are taking care of food and health, but we need to go into education and skills massively. We have to fix our priorities to match our aspirations, taking examples from amongst the best practices may sound like China, but we can be India, taking the best ideas from China. We have to focus on Indian Entrepreneurs, along with trade policies of other nation-states and other factors which distort the market for India. And India can play a bigger role in Global Trade in the days ahead.
Indian Chamber of Commerce