Is lowering of tariffs actually good for India?

 

Photo by Markus Winkler: https://www.pexels.com/photo/usa-tariffs-concept-with-scrabble-tiles-30855417/

 Come April 2 and the imposition of the reciprocal tariff regime by the United States on nations around the world including ours, there is bound to be tremendous economic uncertainty facing the Indian nation. Though India is not as economically integrated with the US as the other major economies of the world like China, the EU, Canada and Mexico, there are bound to be serious ramifications of this upending of international trade conventions on it as well.

India has two options before it. It can choose to ride it out by letting the reciprocal tariffs roll and play themselves out or it can take a hard look at whether its policy of inordinately high tariffs on imported goods are actually doing its economy more harm than good. While India is definitely better positioned than most other major countries to stare the bully in the face and not back down on tariffs, the question that it needs to ask is if doing so actually suits the interests of the Indian economy and its people.

High tariffs on imported goods makes local industry complacent and lazy, in the process harming the interests of the consumers-the common people of India. There is no incentive on the part of local industry to compete with the best in the world in terms of quality, features and price. This in turn stifles innovativeness and the development of new age products that offer the consumers the best value for their money. Remember the kind of cars India used to have in the old license-raj era of high import duties on practically every product under the sun.

Once the license raj was dismantled, the old Ambassadors and Premier Padminis with their sputtering engines and vintage bodies became relics of the past, which had no place on Indian roads. As a matter of fact a veritable automobile revolution swept the land with the vast middle class section of the population, which barely managed to buy a scooter, thought nothing of buying the leading car brands of the world.

India today stands on the threshold of becoming a major global power and a developed country, but for that it needs to expose its economy to more comprehensive trade with major economies like the U.S., the U.K. and the European Union.  We could sign separate trade deals with all of them to facilitate and expedite the process if needed, but it cannot be business as usual. The latter approach will find India always lagging behind and failing to realize its full potential.

Reducing tariffs will help Indian companies become more competitive globally as they will be required to enhance quality and improve efficiency in order to survive in the new dispensation. This will grow India’s exports in a major way. The Indian consumers on the other hand will have access to much better quality goods at more reasonable prices.

India’s current share of global exports is a mere 1.8%[1]. This is dismal for a country seeking to become a global economic super power in the near future. Dismantling the high tariff regime might be the big-bang reform that India needs to kick start and rev up its economy for exponential growth.

 

 

 

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[1] https://economictimes.indiatimes.com/news/economy/foreign-trade/indias-share-in-global-trade-doubled-since-2005-comparatively-moderated-in-last-10-years-report/articleshow/116676603.cms?from=mdr

Bracing for a tougher world order

 

Photo by Porapak Apichodilok: https://www.pexels.com/photo/person-holding-world-globe-facing-mountain-346885/

The benign world that we have been used to for nearly eighty years is about to come to an end. This was the most glorious era, Earth had ever witnessed in terms of the nations of the world coming together to usher in an era of trade, cultural osmosis, incredible scientific discoveries, setting up of global institutions that worked for the collective good of mankind and the emergence of a largely peaceful worldwide climate of aspiring to a tomorrow that is better than yesterday.

This was the era that saw the end of colonialism and the Cold War and the emergence of a global network of trade and commerce that saw wealth creation on an unparalleled scale in nations across the world that had hitherto known only scarcity. This helped millions of people emerge from the shackles of poverty and deprivation and dream big.

It was thought that the international networks of mutual interest had made war and conflict largely redundant and with the emergence of the technology revolution, it was thought the word was on a high speed ride to utopia. But alas, this was all a pipe dream, which is now rapidly unravelling before our eyes.

The post Second World War global order of peace, stability, seamless international trade, the sanctity of international borders and adhering to the rule of law was something that the sole super power of the time the US was largely responsible for putting in place. This seemingly altruistic and benign act on their part was driven by their desire to incentivize the nations of the world to be on their side in their ideological and geostrategic battle against their primary rival, the Soviet Union.

Ever since the collapse of the Soviet Union in 1991, the US has been losing interest in supporting the global order it so carefully nurtured and set up. It may have been done with purely strategic intent, but it enabled Europe and Japan to rebuild their wealth and nations like China and India become formidable economic powers. More importantly it helped economically backward nations to industrialise and raise the living standards of millions and millions of people living in the Third World.

As things stand now a powerful China, which rose to be the second largest economy in the world and a formidable military power on account of the US’s policy of détente initiated in the 1970’s to wean the communist giant away from the Soviet Union is its biggest strategic threat and rival. On the other hand a bitter Russia seething from the loss of its Soviet Empire and the diminishing of its strategic sphere of influence, Eastern Europe has brought the world to the doorstep of a catastrophic Third World War with its dastardly misadventure in Ukraine.

It no longer suits the US to support the global strategic order it had itself carefully built up and it is busy dismantling it. It has withdrawn from the Paris climate accord, exited the WHO, and postponed funding to USA Aid. It has threatened and brow beaten Europe into enhancing their contributions to NATO and to think in terms of being responsible for their own defense at a time when a revisionist Russia threatens to upend East Europe.  

The US of today does not distinguish between foes and allies and wields the stick against both whenever it suits it. In a bid to reduce its humongous debt it has proposed reciprocal tariff on goods and services it imports from nations across the world. The only way around that is to sign bi lateral trade deals with the US on terms that favour the latter.

There is a new world order emerging and it is not a pretty one. It is reminiscent of the way the world was till the era of the two World Wars. This was the time when nations invaded one another and subjugated the defeated nations. It was an era of famines, diseases and horrible genocides. Look at the world around you. Russia and Europe are locked in mortal combat with Europe cowering in fear.  An ambitious China, though beset with demographic problems is casting covetous eyes on not just Taiwan, but also most of its neighbour in almost all geographical directions. The Middle East is a constant cauldron of trouble and much of Africa is in the midst of endemic civil war. The global supply chains are under the severest stress and catastrophic global warming is already upon us. Brace for a tougher world order? That is the least that we can do.