Back India and free trade in Asia
G. Parthasarathy
| Why should consumers pay higher prices for tea, spices and rubber? Is it not time to treat agriculture like the industrial sector, to help it become globally competitive? |
India's prosperity and influence in Asia is going to depend on how it leverages developments in this dynamic region. It should be prepared, like China, to grant products from Asean access to Indian markets.
The joke in South Block (housing the Prime Minister's office and the Ministries of External Affairs and Defence) these days is that the Prime Minister, Dr Manmohan Singh, is ever so keen to visit Pakistan because he finds it easier to deal with Gen Pervez Musharraf than with his own Cabinet colleagues.
If the Human Resource Development Minister, Mr Arjun Singh, ambushed him and sent the entire country into a caste driven frenzy, one of his other Ministerial colleagues leaked the contents of a letter to the Prime Minister from the Congress President, Ms Sonia Gandhi, that expressed concern over the Free Trade Agreement that India had concluded with its Asean (Association of South East Asian Nations) partners.
As the Congress President, it was only natural for Ms Sonia Gandhi to privately allude to the concerns of farmers in India to duty-free imports from Asean countries.
The Prime Minister is said to have replied assuaging her concerns, pointing out that the freeing of imports with Asean was to be over a period of time.
The rising Asia
Why is free trade with our neighbours in Asia important? The Asian region today accounts for 60 per cent of the world's population, two-thirds of the world's hydrocarbon reserves and around 40 per cent of the world's GDP.
In next half-century as the population of the West ages, a younger and better educated work force in Asia will fill the void.
Asia accounted for 60 per cent of global output at the dawn of the industrial age in 1820. Its share of global output fell to 20 per cent by 1940. At present rates of growth, Asia will account for 60 per cent of the world's output by 2025 — the same level as in 1820.
The 21st century is set to become Asia's, with the centre of global industrial production and services shifting from North America and Europe to Asia.
India's prosperity and influence in this dynamic neighbourhood are going to depend on how it leverages these developments to its advantage and emerges a major player in the continent.
The Asean connection
With Asean concluding FTAs with other major Asian powers, such as China, India will find that it will have a declining role and influence in the region, unless it secures duty free access to Asean markets.
If it desires such access, then it should be prepared, like China, to grant products from Asean similar access to the Indian market. Our share in the booming intra-Asian trade will, otherwise, decline further. It needs to be remembered that India is today a marginal player in the Asean market compared to China, Japan or South Korea.
While our trade with Asean is just over $15 billion, China's trade with these dynamic economies is around $120 billion.
Japan also has a similar level of trade, coupled with huge investments in Asean economies. While our trade with Japan has hovered at $4-5 billion, that between China and Japan reached $167.88 billion in 2004.
Our policies towards Asean and its Asian dialogue partners will have to envisage how we can expand trade and investment, and cooperate to meet the growing energy demands of the region.
Successive Prime Ministers since P. V. Narasimha Rao have realised the importance of trade and economic relations with Asean as part of a new "Look East Policy."
It was in recognition of these imperatives that India signed FTAs with its South Asian neighbours in SAARC (South Asian Association for Regional Cooperation), the countries of the Bay of Bengal basin (Myanmar, Bangladesh, Thailand, Sri Lanka, Nepal and Bhutan) and a framework agreement for free trade with Asean.
All these agreements will come fully into force between 2016 and 2019, unless Pakistan chooses to stall free trade in South Asia under SAFTA.
It was this approach, which conforms with the trade and investment policies of virtually all other Asian countries, that led to India being invited to participate in the East Asian Summit in Kuala Lumpur in December 2005.
Dr Manmohan Singh eloquently proclaimed in Kuala Lumpur: "I believe that the objective basis for the economies of our region to come together exists.
The subjective desire to create an East Asian community bringing together Asean, China, Japan, Korea and also Australia and New Zealand is manifest. Like the North American Free Trade area and the expanding European Union, a pan Asian free trade area will be a dynamic, open and inclusive association of countries of our region."
Challenges for India
Despite Dr Manmohan Singh's assertion, the fact remains that India is today seen in Asia as a country with an inefficient and uncompetitive economy protecting the inefficient sectors with massive tariff and non-tariff barriers. Despite an FTA with Sri Lanka, we have imposed all kinds of trade barriers on the imports of tea, spices and rubber from a friendly neighbour.
A logical question one could ask is: Why should consumers across India pay higher prices for tea, spices and rubber merely to protect inefficient and populist agricultural practices and policies in its own States?
Similarly, why should consumers pay higher prices for cooking oil, while palm oil from Indonesia and Malaysia is available at cheaper rates?
Over the past 15 years we have steadily lowered tariff barriers on industrial products and forced industry to become globally competitive. Is it not time to treat the agricultural sector similarly?
There may be some temporary dislocation in our agriculture sector as we move in this direction. But, in the long term, our farmers should and can compete with confidence with their counterparts in Asia who do not enjoy agricultural subsidies as in the European Union.
These challenges can be met only if we recognise the infirmities in our agriculture sector where wheat output peaked in 1999-2000 and then stagnated. The output of pulses has also stagnated, with Myanmar emerging as an important supplier of pulses for meeting the growing demand.
We had a bufferstock of 63 million tonnes of foodgrains in 2002. We are now heading for a situation where wheat imports are likely to become a regular feature.
While the yield per acre of wheat in India has been around 2.5-3 tonnes, that in China is reported to be around 5 tonnes.
India can thus be an emerging power of some consequence in Asia only if it seriously undertakes a process of agricultural reform similar to the industrial and service sector reforms of the 1990s.
This cannot happen if Ministers try to snipe at and undermine a larger national vision articulated by the Prime Minister.
(The author is a former High Commissioner to Pakistan.)
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