Jobs, exports and the trade pacts link

Description

Context: India needs to shed its exaggerated fears of trade agreements to create new jobs — the country’s biggest challenge

India’s economy contracted by 23.9% in the first quarter of 2020-21.
According to the Reserve Bank of India (RBI), the Indian economy will further contract by 10% in the July-September quarter.
This is technically defined as a recession by economists. India is in an economic recession for the first time in its independent history.

Jobs are the first casualty

Thousands of people lost their jobs due to the slowing economy in 2018-19 and 2019-20.
Unemployment had reached a 45-year high.
By one estimate, more than 2 crore people lost their jobs during the lockdown. They included all kinds of jobs — regular salaried, non-contractual, casual, daily wage, and self-employment.
In any country, the ultimate economic test is, are there sufficient jobs, incomes and livelihoods for all in the workforce?
The single biggest challenge confronting India today is jobs. When people are poor, hungry and desperate, any job will be a blessing.
The job that requires hard, manual work and pays the lowest daily wage is the work provided under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme.
The only meaningful conversation about the economy that we ought to have is how to recover the jobs that were lost and create new well-paying jobs.

Where the jobs are

Large numbers of good quality jobs can be created only in sectors that are labour intensive, and where India has a comparative advantage, such as apparel, leather goods, value-added agriculture and so on.
These job-creating sectors depend not only on the domestic market but, significantly, on export More than one-half of the leather goods and one-third of the apparel produced in India are exported to other countries.
India, therefore, needs to find more export markets, nurture them, and sustain them amid intense global competition.
Merchandise exports also create supporting jobs in warehousing, transport, stevedoring, container stations, shipping, ship chandling, ports and export financing.
It is therefore very important to encourage and incentivise exports to be able to create many new jobs in the country.

Exports and agreements

Unfortunately, despite the “Make in India” hype, export volumes have languished in the last six years.
Merchandise goods exports were $314 billion in 2013-14 and remained stagnant for the next five years touching $313 billion in 2018-19.
The reason for this (other than the disruption of export supply chains due to demonetisation and Goods and Services Tax) is the complete reversal in the direction of India’s foreign trade policy with higher tariffs, non-tariff barriers, quantitative limits, the return of licensing, border country restrictions and the appreciating value of the rupee.
For nearly two decades, the countries of the world invested in a rule-based trading order.
The age of trade agreements — both bilateral and multilateral — was born. There were more winners than losers because of trade agreements.
Some historic trade agreements were the Association of Southeast Asian Nations (ASEAN), North American Free Trade Agreement (NAFTA) and the Southern Common Market (MERCOSUR).
Exports are linked to trade agreements. The member-countries of a trade agreement promote trade among themselves with easy rules but restrict trade with non-members with hard rules.
Many countries rushed to conclude bilateral agreements (free trade agreements or FTA) because they realised the benefits to members. Non-members suffered.

Break down the wall

It is true that FTA provisions were also misused by some countries to question the foreign investment policies and tax policies of other countries, usually recipients of foreign direct investment (FDI) like India.
Purely trade and commercial disputes were dragged to international arbitral tribunals on the pretext of violating FTA provisions.
India decided to keep FTAs in abeyance until we could agree with our partner countries, on a model FTA that built in safeguards against abuse.
Unfortunately, we are just a few steps away from full protectionism that kept India a closed and struggling economy for three decades.
Today, we need to shed exaggerated fears of trade agreements.
India cannot ‘protect’ its domestic industry with high trade barriers while aspiring for bilateral trade treaties to promote exports.
To be able to export goods, India must import raw materials or equipment or technology from other countries in the supply chain.
Hence, we must re-learn to engage with other countries and negotiate favourable trade agreements through the bilateral and multilateral routes.
Otherwise, countries bound by trade agreements among themselves will shut the doors on India’s exports.
Besides, it is common sense that no country will allow import of Indian goods and services unless that country is able to export its goods and services to India on reasonable and fair terms.
The art of survival in a fiercely competitive world is engagement and negotiation.

Conclusion:

India’s economy is in a shambles.
Exports are one of the main engines to revive economic growth and create many new jobs.
India has the immediate opportunity to export goods worth $60 billion in labour intensive sectors, which can then create lakhs of new jobs.
To revive exports, India needs greater and frictionless access to global markets.
Protectionism and autarky will take us back several decades.
Wisdom lies in learning from the past, being smart and resilient in the present and securing our prosperity in the future.