One of the key principles of economics which underpins the very
concept of globalization is that "trade can make everyone better
off".
As per the famous economist Gregory Mankiw, "Trade allows
each person to specialize at what he or she does best, whether it’s farming,
sewing, or home building. In the same way, nations can specialize in what they
do best. In both cases, people get a wider range of choices at lower
prices."
Conceptually therefore no one should have a problem as such with
trans border trade, so long it benefits the people at large in both the
producer and consumer jurisdictions.
If we want to understand it in the context of India's decision
to withdraw from the RCEP agreement (see
here) consider this. One of the examples cited for this decision was the
threat of New Zealand dairy product flooding Indian markets and harming poor
Indian milk producers.
It is pertinent to note that India is the largest producer of
milk in the world. However, the largest amount of production is not large
enough to provide affordable milk to a large section of the population. The
average rate for a liter of milk in India ranges between Rs40-55. At constant
prices, the consumption of milk and milk products has grown at a meager 1.6%
CAGR between FY12 and FY18, while at current prices it has recorded a growth
rate of ~9% over the same period. The inflation rate of daily products is thus
quite high for a country that has a vast population of malnutritioned and
undernutritioned, especially children and women.
Now, if a trade agreement allows import of milk at much lower
rate, i.e., Rs15-20, why should it be a matter of concern?
A balanced approach, in my view, would include - (a) All the
state governments should be allowed to import cheaper milk to be provided to
the children in schools, the pregnant and lactating mother registered with
government health centers, registered MNREGA workers and BPL card holders; (b)
Intensive programs may be run for local dairy farmers to increase the
productivity of their livestock through breed improvement; (c) Fully integrated
dairy farms may be established in each block of the country to maximize the
productivity through modernized production & processing of milk, production
of bio gas and organic fertilizers from the dung.
But this is the ideal situation, which rarely exists. In the
modern day complex world, the economic considerations are heavily influenced by
geo-political, domestic political and "other" considerations.
To understand the full context of RCEP in relation to India, it
may be pertinent to note the following:
The current economic model being pursued since economic liberalization
started in 1991 is largely a distortion of the classical Keynesian model that
advocates a larger role for the private enterprise with active state
intervention during extremities of business cycle and argues against higher
savings in both private and public sector. The Keynesian model has its genesis
in the great depression and mostly found useful during larger economic crisis.
As Chief Minister of Gujarat, the incumbent prime minister
appeared an advocate of laissez-faire or free market which entails
minimal state intervention even during crisis. He had implemented the model in
Gujarat albeit with limited success.
However, as he must have realized by now, considering the
present state of socio-economic development of various parts of the country, it
is perhaps 10-15years too early to test the laissez-faire model at the
pan-India level.
The major challenge before the government therefore is to find a
balance between the desirable laissez-faire model and the current
variant of Nehruvian socialism model.
From whatever I have deciphered from the incumbent government's
policy, it is planning to achieve the balance through (a) reforming
institutional framework to promote ease of doing business; (b) materially
enhancing physical infrastructure through public investment to improve logistic
support for the businesses; and (c) encouraging entrepreneurs to invest in
business ventures that will create productive jobs for the burgeoning Indian
workforce and improve trade balance of India through export promotion and
import substitution.
For executing the plan it has proposed to (a) rationalize social
sector spending to save public resources for investment; and (b) liberalize
capital controls (FDI rules) to encourage foreign investors to invest in
manufacturing facilities and services like insurance, banking, retailing etc.
This strategy has faced opposition from both political class and
civil society. Moreover, the government has thus far not been able to make a
convincing case about its strategy. It is creating doubts in minds of investors
and entrepreneurs with regard to the capabilities of the government in
successfully achieving the desired balance.
The withdrawal from RCEP, in my view, is also part of this
balancing exercise.
Insofar as geopolitical angle in this step is concerned, I find
the following article of Sanjay Baru (media advisor to the former PM Dr.
Manmohan Singh) interesting.
The suggestions of Karan Bhasin in the following article are
also worth taking a note:
