Round The World

New Delhi, 7 October 2014

New Foreign Trade Policy

FOCUS ON LATIN AMERICA, AFRICA

By Ashok B Sharma

India’s foreign trade has badly suffered since August-September 2008, the beginning of the global financial crisis and the subsequent sovereign crisis shock in Euro zone. Wherein, exports and imports growth trends became erratic with the changing situation. After a negative trend in export growth (-1.82%) in 2012-13, the performance improved to 4.66% in 2013-14. But imports dipped to -8.26% in 2013-14 from a low base of 0.29% in the previous year. Trade balance remained negative at $1,35,794 million.

Notably, growth in exports is maintained in the current fiscal (April-August 2014) growing at 7.31%. to $1,34,798 million. However, increase in imports turned negative by 2.69% with $4,50,200 million trade balance improved but still remained negative at $56,151 million. With the manufacturing sector picking up capital goods imports of machinery and key raw materials are likely to rise. But services enjoy a positive trade balance.  

Pertinently, over dependence on markets in developed countries is the cause for exports shrinkage. As recovery in developed countries leading to increase in demand is slow, India should strengthen trade bonds with the developing and least developed countries.

Instead of pushing for Bilateral Investment and Trade Agreement (BITA) which is fraught with problems like intellectual property rights, agreements on dairy and pharma sectors, New Delhi should look for more South-South cooperation and extend its outreach to new non-traditional markets in Latin America, Caribbean, Central Asian republics, Africa, small Pacific island countries and explore greater opportunities in Russia for exports.

Indeed, energy-rich countries and those endowed with natural resources can attract Indian investments and solve the country’s energy security problem. Alongside, India should focus on project exports to Africa, West Asia, Central Asian republics and some ASEAN countries.

Specially as recovery in developing countries is faster than the developed world. Bonds with these countries would help India to fight the developed world for a level playing field at WTO.

Particularly as trade has become an integral part of diplomacy and with the Modi Government slated to come out with a new Foreign Trade Policy for the next five years, it would be advisable the Commerce Ministry works in close cooperation with the External Affairs Ministry while evolving the new policy. Wherein, adequate incentives should be given for export promotion to Latin America, Caribbean, Africa, Pacific Islands, Central Asian republics and Russia.

Notwithstanding, India’s initial attempts to explore new export destinations in South America and Caribbean met with limited success. Already the Foreign Ministry has begun the process of engaging with the Community of Latin American and Caribbean States (CELAC), consisting of 33 countries representing 600 million people.

This group includes Mexico but excludes Canada, US and French, Netherlands, Denmark and UK territories in the Americas. There are sub-regional groupings like Mercosur and the Andean with India should engage

Recall, CELAC was created on December 3, 2011 in Caracas, Venezuela to deepen Latin American integration and to reduce the overwhelming influence of US on Latin America’s politics and economics. This body is an alternative to the Organization of American States (OAS), organised by Washington in 1948, ostensibly as a counter-measure to the then-potential Soviet influence in the region.

Importantly, this is the right time for India to step in as it has close ties with regional power Brazil. Despite, a 20% decline in exports to Latin America last year, the first quarter of the current fiscal exports have grown by 35% from $2.1 billion to $2.9 billion, Brazil saw 75% growth, Peru 25% and Columbia 17%. However, import restrictions imposed by Argentina are a cause of concern.

Interestingly, CELAC is diverse with countries following different economic systems and trade policies. It has 18 Spanish-speaking countries, one each Portuguese, French and Dutch and 12 English-speaking countries. But, countries in the region want to move out of the pre-dominant US influence.

China is also engaging with Latin America wherein trade grew by 8% to $255.5 billion in 2012, faster than the 6.2% growth of the Continent's trade with the US. A UN Economic Commission for Latin America and Caribbean study predicts Beijing will surpass the European Union as Latin America's second-largest trading partner in 2016. Others forecast that in 15 years, China will overtake the US to become Latin America's largest trade partner.

Moreover, Chinese investment in the Continent's energy and infrastructure sectors is rising rapidly, with more than $550 billion infrastructure projects. It is to be seen how effectively India plays its diplomacy for boosting trade relations and energy imports in the region.

In Africa, India mainly engages through the African Union comprising 55 countries, sans Morocco and some others suspended from membership due to political reasons. It would be better for New Delhi to engage with African regional groups rather than directly with countries.

Specially against the backdrop of overlapping membership, 8 groups are recognised by the African Union like Arab Maghreb Union (AMU), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN-SAD), East African Community (EAC), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS), Inter-Governmental Authority on Development (IGAD) and Southern African Development Community (SADC).

There are 8 other unrecognised groups like the Economic and Monetary Community of Central Africa (CEMAC), West African Economic and Monetary Union (UEMOA/WAEMU), Economic Community of the Great Lakes Countries (CEPGL), Indian Ocean Commission (IOC), Mano River Union (MRU), Southern African Customs Union (SACU), International Conference on Great Lakes Region (ICGLR/CIRGL), Senegal River Basin Development Authority (OMVS). Thus, it would be tactical for India to engage with each of these groups.

Traditionally, New Delhi has good trade relations with eastern, northern and southern Africa. It is time to give added focus for developing greater trade relations with central and western Africa. Prospects for engaging with sub-Saharan Africa too look bright with good recovery in the region.

In its Look East Policy, India has already engaged substantially with South-East Asia and East Asia. It is now time to look further east and engage with the natural resource rich small Pacific Ocean islands. With Australia and New Zealand partnering these countries it should not be difficult to engage with Pacific Ocean Island Forum countries with which New Delhi enjoys Observer status.

Though Central Asian republics and Russia’s growth rate remain subdued, it is an opportune moment for India to engage with the energy-rich region endowed with natural resources. Clearly, the recent EU and US sanctions against Russia provides an opportunity for New Delhi to regain its lost markets in specific products. ----- INFA

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