Economic
Highlights
New Delhi, 10 June 2019
Trump’s Big Punch
‘DEVELOPED’ IS
PROBLEMATIC!
By Shivaji Sarkar
India is being continuously hit by the US President
Donald Trump’s withdrawal of Generalised system of preferences (GSP) on 5,111
items as is the latest. Trump says, “It is appropriate to terminate India’s
designation as a beneficiary developing country effective June 5, 2019.” Thus,
the second term of Prime Minister Narendra Modi may have to contend with tightening
of the Trump’s policies towards Iran, Venezuela, Syria, Iraq and the Gulf
region.
New External Affairs Minister S Jayashankar
and Commerce Minister Piyush Goel will now have to look for policies to counter
the US move. India has not been able to take retaliatory steps, as Trump says
India is a high-tariff nation. It is now mulling a ban on $10.6 billion worth
imports from the US.
Trump is targeting not just oil that India
prospects from these countries but also its sale of steel and other commodities.
The Indian steel sector is facing difficulties as the US announced high tariff.
India has moved the World Trade Organisation (WTO) against 25 per cent hike in
duties on steel and 10 per cent on aluminium. As the US plans replacing over
500 bridges, the tariff barriers are bound to hit the Indian steel industry.
In 2017, India increased steel exports by 87
per cent in volume and 74 per cent in value terms. But in 2018, the US Congress
reports note it has fallen by 49 per cent to $372 million and aluminium 58 per cent
to $221 million. Both the countries are also in several other disputes in WTO,
including poultry, export incentives that the US considers subsidies and solar.
India has been enjoying the GSP benefits
since 1974. Out of $6.35 billion exports GSP benefit is about $260 million.
Federation of Indian Export Organisation says that exporters may find it
difficult to absorb GSP loss.
The sudden move by Japan to drag India to the
WTO, over duties on electronics in the wake of ‘Make in India’ campaign, has
surprised the diplomatic circle. Japan has alleged that these import duties are
in excess of bound rates, which is a ceiling of import duty beyond which a WTO
member cannot go. Japan has also sought removal of duties on cellular phones
and printed circuit boards.
The Samsung producing cellular phones is
specifically under challenge by Japan. The country has either to be given
tariff concession or a similar treatment to its phone makers in India. It might
hit viability of such projects and some, as Nokia did, may be forced to pack
off. Thus, every policy has a counter.
Undoubtedly, post-Obama lukewarm US approach
is hitting India’s energy security. The sanctions on Iran are a double whammy.
It makes India look for more expensive energy sources as also in a quandary
about its diplomacy with Iran. The country has emerged as a key route to
Afghanistan and Central Asia. The US for now has not put checks on the Chabahar
port as that helps it too. A threat, however, looms large.
Former Chief Economic Advisor to Government
of India Arvind Subramaniam had dubbed the use of access to energy as “carbon
imperialism”, be it hydrocarbon, coal or nuclear energy. That is dubbed as
neo-imperialism. Each denial raises cost of energy and hurts India.
Political hugs apart, a financially troubled
US tries to hit the world equilibrium. The
military warning to Iran to toe its line is a clear move to crush the only
non-conforming country. It is also aimed at India subtly. The US wants Indian
involvement in Afghanistan but does not want her to become a real power or axis
of global economy as it is trying to woo BIMSTEC -- Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan
or Shanghai Cooperation Council or BRICS.
Prime Minister Narendra Modi indeed has a
challenging time ahead. His government had expected a favourable treatment on
oil imports from Iran. But the US obstinate stance is causing much problem.
India has been forced to open its market to innocuous imports of California
almonds, Washington apples, and chicken legs from Middle America. For Trump, it
is chicken feed, but India has to buy over close to $25 billion in trade
deficit.
India’s posturing as a global power and
developed economy apparently is hitting it hard. While these are more political
in nature, hyping some economic gains has its own problems. India suffered in a
major way when around 2000, the WTO cancelled exports quota on textiles over budgetary
projections that the country was doing well.
Now the International Monetary Fund (IMF) is
likely to declare that India, instead of being a developing nation, is the
fastest growing economy. This means more denials of sops. In reality, the country
is still developing, and maintaining a practical posture at international fora
would be wiser, instead of projecting unreal statistics, for avoiding such
policy traps.
The
country is in a critical economic and technological evolution phase. It has to
do the rope trick and keep different powers on its right side. Plus, it must
start looking for a middle path to keep the US happy and at the same time not
annoy Iran. The US is now also a key strategic partner. So the US cannot be
ignored. The balancing act is not easy. Strategically, India can chose to be an
interlocutor between the US and Iran to resolve Iranian approach to its nuclear
tech.
Iran
has been exporting around 1.1 million barrels/day of crude and 200-300,000
barrels a day of condensates to China, India, Japan, South Korea and Turkey
under the existing sanction waivers. The US has so far not relented on pleas by
these countries. Prospecting oil from Latin America is possible. But the
distance has an economic cost.
The Modi government has to go for bold
reforms. It’s a political commitment and such international nitpicks shouldn’t deter
it. The government has to overcome problems in the neighbourhood, fighting an
international tariff war, hike in oil prospecting costs, and consequent
inflationary situation. These affect the budgetary and other policy options as
the Government would now require more finances for welfare and boosting the
economy in all fronts.
The government has functioned intelligently
in the past. Now New Delhi has to have a sharper policy so that international
situation has the least impact on its domestic economy.---INFA
(Copyright,
India News & Feature Alliance)
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