Not(PolicyWTF): Trade Deals Are Good
This section looks at policies that are surprisingly sane.
- RSJ
We signed a trade deal with Australia yesterday. For over a decade now, we have been trying to get this going. The deal falls just short of a free trade agreement (FTA) but that’s a minor quibble that should get sorted in future. Australia’s desire to reduce its dependence on China as the primary trading partner and India’s willingness to have a stronger link with the Quad on economic matters seem to have brought the deal to fruition. There is a small matter of upcoming national elections in Australia too where the economy will play a key role in setting the agenda. The deal is significant in what it signals about the Indian government’s view on global trade. For the past few years, we have gone on and on about atmanirbhar Bharat whose primary manifestation was an increase in import duties across a range of goods taking us back to the pre-liberalisation era. We have lamented about this wrong turn. As Pranay argues we must focus on atmashakti instead of atmanirbharta. So, reading the key terms of the deal warms my heart. As Reuters reports:
“The deal with India removes tariffs on more than 85% of Australian goods exports to India, worth A$12.6 billion, rising to almost 91% over 10 years. Tariffs will be scrapped on sheep meat, wool, copper, coal, alumina, fresh Australian rock lobster, and some critical minerals and non-ferrous metals to India.
It will see 96% of Indian goods imports enter Australia duty-free.”
That’s good. What’s better was the Comprehensive Economic Partnership Agreement (CEPA) that India signed last month with the UAE. There were the usual agreements on tariffs and duties which is in line with the agreement with Australia. From Mint:
“The CEPA between India and the UAE covers almost all the tariff lines dealt in by India (11,908 tariff lines) and the UAE (7581 tariff lines) respectively. India will benefit from preferential market access provided by the UAE on over 97% of its tariff lines which account for 99% of Indian exports to the UAE in value terms, especially for all labour-intensive sectors such as Gems and Jewellery, Textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, medical devices, and Automobiles. India will also be offering preferential access to the UAE on over 90% of its tariff lines, including lines of export interest to the UAE.
As regards trade in services, India has offered market access to the UAE in around 100 sub-sectors, while Indian service providers will have access to around 111 sub-sectors from the 11 broad service sectors.”
But the eye-popping section in this agreement was on government procurement where the UAE based companies will be treated on par with domestic companies. This is a first and quite remarkable when you consider India hasn’t even signed the Government Procurement Agreement (GPA) as a member of WTO. UAE companies will now have the ability to bid for government contracts of value greater than Rs. 200 Crs while being seen as an equivalent to a domestic company. The unwillingness to agree on government procurement has stalled other FTAs between India and the EU, UK, and Japan. So, the UAE agreement appears like a watershed moment.
There has been the usual noise in some quarters about how this will impact the domestic producers, but that swadeshi lobby has been having it good for the last few years. So, maybe they will have to lump it this time. Having sat out of the RCEP much to my disappointment and raising the protectionist rhetoric in the past few years, these two agreements signal a shift in the government’s thinking. This is for the good. Indian manufacturers must see the world as their market. They must learn to compete with the best in domestic markets, improve the quality of their products and use the existing factor cost advantage to win in global markets. Also, opening up government procurement to suppliers from other countries will help improve the quality of government projects. The shoddiness we have come to associate with such projects owes its origins to colonial-era L1 (lowest cost) guidelines that are being dismantled, and to the jugaad mindset that’s prevalent among the suppliers to the government. Things can only get better if there is a global competition for such projects with best-in-class project management and governance practices. And like we have often argued here, voluntary trade doesn’t happen between countries. People transact with one another. And all voluntary trade is a win-win as has been demonstrated over and over again. The Indian consumer will eventually benefit.
There is also a geostrategic element to these trade deals. Closer integration with Australia on the eastern Quad and stronger relations with Israel and UAE on the so-called ‘western’ QUAD are good measures to build a counter to China on trade. They also provide these countries with access to India and the Indian subcontinent markets. Lastly, stronger trade integration is the best counterweight to bigotry in domestic politics. There is no credible domestic political force that’s left that can stem the tide on this. We need global markets and trade deals for growth. And closer economic cooperation with other nations will mean a responsibility to behave well on the domestic front. It may sound optimistic at this stage. But in the long run, global trade and the broader trend of decentralisation are the key countervailing forces to a fast-narrowing domestic polity.
But…
—Pranay Kotasthane
The trade agreements with the UAE and Australia deserve praise. However, my worry stems from inadequate state capacity.
A multilateral trade agreement is useful also because it can override points of bilateral contention. Moreover, multilateral agreements also make it easier for a government to convince its domestic stakeholders (recall Putnam’s paper Diplomacy and Domestic Politics).
India seems to have opted for a bilateral approach instead where it will fine-tune the deal specifics with countries. Such an approach will be protracted. It will face opposition from domestic lobbies, who will want to keep their products out of deals with states having competing suppliers. Finally, this approach would require immense and sustained political, intellectual, and administrative capacity. Without building this capacity, the Commerce and External Affairs ministries are likely to satisfice rather than maximise. So, I remain sceptical of the outcomes.
India Policy Watch: The Paradoxes of India’s Westernophobia
Insights on burning policy issues in India
- Pranay Kotasthane
Once again, the Russia-Ukraine war has brought India's geopolitical stance into focus. The last two weeks witnessed visits by delegations from the US, UK, European Union, Japan, Russia, and China. High profile visits by the Russian and Chinese foreign ministers, in particular, have led to heated debates about India's position. Some commentators in the West see these visits as further proof of India's Westernophobia. In contrast, some Indian commentators interpret that the Russia-India-China (RIC) grouping is not dead after all.
I think Westernophobia is self-defeating and RIC is good riddance. What K Subrahmanyam said with characteristic incisiveness in a Pragati interview fourteen years ago still remains a sound principle for guiding India’s foreign policy:
“India has to leverage this situation and change the US-EU-China triangle into a rectangle. Until then it is in our interest to help America to sustain its pre-eminence. After all, in a three-person game, If America is at Number One, China is at Number Two and we are lower down, it is in our best interest to ensure that it is America that remains Number One.”
With intense US-China contestation in play, the convergence of interests and values between the West and India is at an all-time high. A deeper collaboration with the West is critical for improving India’s economic, technological, and security futures. China and the East Asian countries benefited massively from a deeper relationship with the West over the last forty years. India now has the opportunity to play the same game.
Nevertheless, it does seem that a streak of Westernophobia, particularly its subset anti-Americanism, still exists in India. Why so? Let’s explore.
In my view, we should begin the analysis of India-US relationship using a tri-axis framework: state-to-state relations, state-to-people relations, and people-to-people relations.
As far as state-to-state relations are concerned, I’m less worried. India’s foreign policy establishment of India adroitly shifted its weight behind the Quad 2.0 as the China threat increased. With Pakistan having moved itself out of the equation, the job of the US and Indian officials has become far easier than it was in the past. The sensible statements made by the US spokespersons in response to India’s stance on Russia in the UN are indicative of the mutual understanding and trust between the two sides.
On the people-to-people relationship, there was never any doubt in the first place. On this front, ties between the West and India are absolutely no match for the ties between India and Russia or India and China. Indian elites’ reference network for everything from music to education is American. There is a robust movement of ideas, people, goods and services that has outpaced the state-to-state relationship for nearly three decades. This twitter thread by Brookings Senior Fellow Tanvi Madan gives a good idea of the deep connections.
It’s the state-to-people axis which is problematic. Many Indians still seem to harbour a deep frustration with the American state. Charges of unreliability (hint: the 1971 War) or hypocrisy (hint: Afghanistan) always make an appearance in casual discussions on India-US relations. The lesson people derive from such arguments is that if India were to throw its weight behind the US, it would get sucked into fighting America’s wars all over the world, only to be ditched by the US in one fell swoop soon after.
Here on, let’s focus on this third axis—the state-people relationship. Without going into the psychoanalytical reasons for why we think this way, there are three paradoxes implicit in this anti-American strand that I want to emphasise.
Paradox 1: Vishwaguru and Victim
The flurry of official diplomatic visits over the last two weeks has filled some Indians with pride. Notwithstanding India’s poor and declining economic potential over the last decade, many seriously believe that India’s concurrence is indispensable for any future global order. And that all sides desperately need the vishwaguru on their side.
The paradox is that the same people also hold the view that India is a victim of circumstances at the global stage. Hence, it should neither call out Russia’s invasion and revisionism for fear of losing cover in the UN or military supplies, nor should it ally with the US lest it becomes a mere pawn in the global machinations of an unreliable superpower.
Clearly, only one of these conceptions can be true. Either way, the conclusion remains the same: India need not stick to its old stance of non-alignment. If India truly is a swing power, it has enough leverage to go against its partners without necessarily facing the worst consequences. It can partner with the US without necessarily committing itself to all the global wars that America indulges itself in. It can also call out the Russian invasion for what it is, without the fear of a proportional retaliation from Russia.
On the other hand, if the dominant conception is that India is a victim of global machinations, gaining economic and military power in the shortest possible time remains the only way out. This approach again needs collaboration with richer and more powerful countries with which we have no major divergence on interests and values i.e. the West.
Paradox 2: Three is Better than Two
Many Indians seriously believe that a closer India-Russia partnership can wean Russia away from China. Hence, they argue that the answer to India’s current problems lies not in collaborating with the West, but by reinvigorating the Russia-India-China grouping. This argument is often couched under multipolarity mumbo-jumbo that I fail to grasp.
It is a paradox for two reasons. First, India’s ability to influence the Russia-China collaboration is exaggerated. India’s GDP per capita is a fifth of both Russia and China. The Russia-India partnership is a single-tracked one, relying on one way movement of defence goods. Contrast that with Russia’s China dependence, which is set to rise further due to the economic sanctions. There’s no scenario in which India would be able to drive a wedge between Russia and China on its own accord. Second, the notion that Russia and China would create a world order that is in India’s interests is truly fantastical. With RIC, the successor to the West’s unipolarity will not be multipolarity, but a Sinocentric world order.
Paradox 3: Silent Majority vs the Vocal Minority
The Westernophobia seen on India Twitter might not be a true representation of the state-to-people axis. I say this based on the first edition of the Global Outlook Survey conducted by my colleagues at Takshashila.
To a question ‘Which of these bilateral relationships is the most important for India to achieve its strategic objectives?’, 64 per cent of the non-expert survey takers answered India-US. Russia came a distant second at 10 per cent. Notably, the survey sample is skewed towards the young (63 per cent of recipients) and towards South and West India (57 per cent of recipients).
To another question ‘What sort of international order best serves India’s interests?’, 84 per cent of the non-expert respondents opted for ‘a multipolar order with an expanded UNSC’.
These two data points highlight an interesting dynamic. While many Indians consider the India-US partnership as supremely important, they also believe that the current world order is inimical to India’s interests. Therein lies an opportunity for the US. Backing India’s inclusion in UNSC, reducing barriers for technology transfer to India, and deeper technology alliance might make the vocal minority irrelevant.
In any case, resolving these three paradoxes on the state-to-people axis is a key policy challenge for India.
I want to end this essay with a question for all of you: what event, decision, or circumstance would make you reverse your current thinking on the India-Russia relationship?
India Policy Watch: Nehru-Jinnah Debates
Insights on burning policy issues in India
- RSJ
I was reading Nehru: The Debates That Defined India by Adeel Hussain and Tripurdaman Singh this week. The book has Nehru debating four of his contemporaries with whom he had differences about the fundamental question of the idea of India.
Two things struck me. One, the civility of exchanges that were otherwise marked by huge differences in views. Two, how the fundamental questions of that era (1930-50) remain relevant today. In many ways, they have come back to bite us. I will touch upon some of the debates in other editions.
The book is a must-read.
Today, I will reproduce extracts from the book on the Nehru-Jinnah debate about the question of Muslim representation in a democratic India. I have touched upon this in a previous edition. Quoting from the book:
“In Nehru’s view, the Hindu-Muslim problem or communalism was at its core a problem of ‘upper middle-class people’ who only made up a small fraction of the Indian population. If the ‘mass elements take part in the election of the constituent assembly’, communal issues would ‘recede into the background’. Broadly secular in his political outlook, Nehru never warmed to the idea that religion deserved a place in progressive politics. ‘The so-called Hindu-Muslim problem,’ Nehru disclosed his position in usual frankness, ‘is not a genuine problem concerning the masses, but it is the creation of self-seekers, job-hunters, and timid people, who believe in British rule in India till eternity.’
For Nehru, therefore, it was telling that Muslim politicians preferred to discuss the communal question from a numerical perspective and connect it to reserved seats in the legislature or the colonial administration. Nehru openly raged against the Communal Award of 1932, the chief institution that the British had established to ensure the retention of separate electorates for Indian Muslims. At its core, Nehru saw reservations opposed to the egalitarian principles of nationalism.
‘It is absurd to consider this question [of communalism] from the point of view of numbers,’ Nehru declared in the presence of Jinnah. ‘If there was a question of numbers we thirty five crores [350 million] of people would not have become a slave country being dominated by a small number of people in Britain.’
Against the Nehru Report (on Montagu-Chelmsford Reforms), Jinnah proposed his Fourteen Points, which sought, among other things, a federal constitutional make-up of India with residual power vested in the provinces, a fixed Muslim representation in the Central legislature and the upholding of separate electorates. However, Jinnah signalled that he was willing to consider joint electorates if the Congress met his other demands. Clothed into concrete modifications to the Nehru Report during an ‘All Parties Conference’ in Calcutta, Jinnah pressed the committee members who were deciding on the merits of the Nehru Report that at least ‘one-third of the elected representatives of both the Houses of the Central Legislature should be Musalamans’.
In a moving speech on the fifth day of the convention, Jinnah clarified that his desire was not to overwhelm the Congress with demands that would make it look soft on Muslims in front of the Hindu Mahasabha. Instead, Jinnah’s demands were guided solely by dry constitutional observations from other countries. According to Jinnah, by the 1920s, it had become conventional wisdom that ‘majorities are apt to be oppressive and tyrannical and minorities always dread and fear that their interests and rights, unless clearly and definitely safeguarded by statutory provisions, would suffer […].’
Jinnah reasoned that because the Nehru Report predicted that a third of the legislature would consist of Muslim delegates anyway, there would be no harm in implementing this figure as a formal constitutional safeguard. Such a written anchor would also allow Indian Muslims to distribute those seats more evenly and distribute the excess seats that they would receive in the Muslim-majority provinces of Bengal and Punjab to regions where Muslims were numerically weaker.
The delegates roundly rejected Jinnah’s proposal. Dissent to his suggestions even emerged from within the ranks of the Muslim League. Other parties rejoiced over the open split in the Muslim League. M.R. Jayakar of the Hindu Mahasabha, for instance, poked right into this wound. In his response to Jinnah’s speech, Jayakar cautioned the audience to ‘bear in mind that the demands, as set forth by Mr Jinnah, do not proceed on behalf of the entire Muslim Community, not even a large bulk of it’. With some justification, Jayakar reiterated that the position Jinnah voiced reflected the desires of ‘a small minority of Muhammadans’.
This speech left a mark on Jinnah. Responding to Jayakar, he moved away from his otherwise carefully measured statements that tended to evoke constitutional principles as an acid test for minority protections. Now Jinnah asserted that lasting harmony between communities could not be established in ‘a Court of Law’ or through a constitution ‘however perfect from a theoretical point of view it may seem’. Instead, it could only turn into a reality through ‘the highest order of statesmanship and political wisdom’ and the recognition that ‘there is no progress for India until the Musalmans and Hindus are united’. The alternative Jinnah presciently predicted was ‘a revolution and civil war’.
When Jinnah re-emerged on the political scene in 1934, after an extended hiatus to heal from the humiliation in the aftermath of the Nehru Report, he began to filter politics more squarely through the lens of war and peace….
Moving from contractual obligations to honour was reflective of Jinnah’s changed perspective. Earlier, he had viewed Indian Muslims primarily as a minority community, constantly vying to petition for rights from the British crown or the Congress party. Now he saw Indian Muslims as a distinct and separate nation capable of ensuring their rights through force. This view clashed severely with the secularist outlook of Jawaharlal Nehru, who could only interpret Jinnah’s religious posturing as a profound symptom of political alienation: a desperate attempt to plaster over existential anxieties that ranged from colonial oppression to unemployment and food scarcity. With constitutional reforms bringing more and more Indians into the realm of electoral politics, Jinnah and Nehru’s contradictory ideas of India clashed soon after their joint appearance in Lucknow.
In the 1937 provincial elections, the Indian National Congress secured a resounding victory. At the polls of India’s first large-scale election campaign that departed from the established system of dyarchy and increased the vote to thirty-six million Indians, including some women, the Indian National Congress secured more than 750 of some 1,500 seats. This sweeping success did more than underline the Congress’s claim of being a national party. It altogether transformed the Congress from a mass movement to a political party. Congress members now occupied ministries in five provinces outright and constituted coalition governments in another two.
Jinnah suffered a crushing defeat. His All-India Muslim League secured less than 5 per cent of the Muslim vote, although this slim vote share amounted to some 108 seats from 485 reserved for Muslims under the Communal Award….
In full awareness that the Congress did not require the League to rule, Nehru conducted this communication from a position of strength. Jinnah refused to acknowledge that the election result was an adequate measure of the political value of the Muslim League. To him, the communal question remained the most critical issue to determine India’s future. Jinnah’s cold responses were his way to shake Nehru out of this false sense of security that the Hindu-Muslim issue had receded into the background and given way to lofty ideas around socialism and constitutional democracy. Perhaps for this reason, Jinnah refused to lay the Muslim case to Nehru anew.”
Advertisement: If you enjoy the themes we discuss in this newsletter, consider taking up the Graduate Certificate in Public Policy course. Intake for the next cohort is open. 12-weeks, fully online, designed with working professionals in mind, and most importantly, guaranteed fun and learning. Do not miss.
HomeWork
Reading and listening recommendations on public policy matters
[Article] Check out our take on Hypocrisy in International Relations in edition #52.
[Article] This post by Yiqin Fu has some cool insights on the consequences of a mobile-first internet with Chinese characteristics.
[Podcast] On Puliyabaazi, we discussed organic farming troubles in Sri Lanka.
Share this post