In the first part of this article ( BusinessLine March 18), I had argued that Bretton Woods Institutes (BWIs) are not in sync with emerging global economic realities of the 21st century. A new global trade and economic architecture needs to be put in place and that India can play an important role in conceiving, designing and operationalising this institutional mechanism.
That the current global economic climate is full of severe uncertainty and unpredictability is amply evident today. The combined negative impact of Covid 19 and collapse of global oil prices on top of rising protectionist tendencies can be traumatic for the world economy. This comes at a time when the global economy is already flooded with liquidity with debt-to-GDP ratio now at an all-time high of 250 per cent.
Reportedly, more than $11 trillion of debt currently earns negative yields. With the WTO already in limbo and the global economy on the verge of slipping into a recession, it is time to go back to the drawing board for designing a new global economic architecture.
Given the dynamism of Asian economies and their rising share in global economic activity, it is imperative that they play a predominant role in any effort for putting in place a new global economic architecture. India must be a part of this vanguard group.
Given the forthcoming India’s presidency of G-20 in 2022, we can lead the way. India should announce its intention of making this an important agenda item for the future G-20 meetings and try and finalise the design by 2022. A good gift to the world on the 75th anniversary of India’s Independence.
India will bring several strengths to the Vanguard Group that will work to designing the new architecture. These are, our vibrant private sector; commitment to global multilateralism; adherence to an open economy framework; hyperactive parliamentary democracy; continental size and extensive diversity of the country; and our well-recognised intellectual and negotiating talents.
Therefore, India could introduce this Vision of New Global Economic Architecture in the G-20 working agenda right away. The Vanguard Group could be established as a representative sub-set of the G-20 members.
To be an effective member of this Vanguard Group, India will have to firmly establish its credentials as an open economy that is eager to connect with global and regional value chains and enlarge its share in global trade flows. Two immediate steps should be taken in this regard.
First, India must recognise that, like most other economies, India has always benefited from adopting an open and free trade economy stance. Indians have, for centuries, participated in and benefited from trade and commerce with other countries. They used these opportunities to establish flourishing civilisations all over Asia. Bali, Jogjakarta, Ankgor Wat, central Vietnam and Bagaan in Myanmar, are living testimonies to the glorious benefits of open and free trade practised by Indian traders from coastal states. The negative consequences of trade were restricted to the period under British colonial exploitation. This can be seen as mere 90 year blip as opposed to centuries of positive open trade experience that stretched from Aden to Bali and also up to Rome via Tehran and Baku on the Southern silk route.
The short and nasty experience under the colonial regime cannot be allowed to determine our present and future policy stance. It is high time to bury the ghost of the East India Company and not resurrect it time and again to serve narrow vested interests.
The positive legacy of 1991 reforms, which saw a sharp reduction in both our non-tariff and tariff barriers should not be reversed. Instead, we should try and bring our tariffs to global average levels. To achieve this we have to sharply focus on improving trade facilitation and logistics and removing unnecessary impediments for our exporters.
A mission mode has to be adopted to provide globally competitive infrastructure and intermediate services to our exporters. Care has to be taken to prevent any over-valuation of our exchange rate that puts the exporters at an immediate disadvantage vis-a-vis their competitors. We have also to ensure that we have sufficient range of effective domestic standards and regulations that eliminate imports of spurious and unwanted products.
We should not use tariffs to paper over our deficiencies in trade facilitation, weak logistics and excessive regulatory compliance burden.
My second proposition is that we should more actively engage with all the plurilateral negotiations that are currently going on within the WTO. We have to participate in these negotiations because that will ensure that India earns the needed legitimacy and the recognition to be within the vanguard group for redesigning the global trade architecture.
China has pursued this strategy of being a member of a maximum number of global and regional negotiations, whether multilateral or regional, in its attempt to ensure that it is among the rule-making rather than the rules-accepting group of countries.
We have to do the same. It will require not only a change in our mindset but also substantial ramping up of negotiating capacity.
The present mindset of India being a large economy and not in need of global markets is simply unreal. With an economy of less than $3 trillion or 3.7 per cent of the global economy, we are indeed a small economy and need to take maximum advantage of global demand to increase exports and eliminate our structural current account deficit.
Therefore, it is clear that India, having gotten its own act together, should be ready to play an effective role in designing the new institutional architecture. A redesigning of global trading order has today become necessary. Without such an effort, we will not be successful in expanding global trade flows and sustaining global economic growth. These are the necessary conditions for affording a decent life for all.
The writer is Vice-Chairman, NITI Aayog. Based on an address given at the PIC Conference on Asia Economic Dialogue, Pune