Trade Policy For Viksit Bharat

This year’s budget gave pride of place to the long-term goal of Viksit Bharat 2047 and mentioned that reforms in many areas would be needed to achieve it, particularly in trade policy.

• With the flagship program of “Make in India” and a vision of becoming a $ 5 trillion economy by FY 2025-26, this Union Budget seems to be a cornerstone in translating this vision into actionable policies and investments.

About Viksit Bharat 2047

The term ‘Viksit Bharat’ means ‘Developed India’. Viksit Bharat 2047 is the vision to transform India into a developed nation by 2047. 

• Vision: It encompasses various facets of development, such as economic growth, environmental sustainability, social progress, and good governance, to make India a developed nation by 2047.
• Pillars: The four pillars of Viksit Bharat are Yuva (Youth), Garib (Poor), Mahilayen (Women) and Annadata (Farmers). 
• Targets for Developed India:
  • Gross Domestic Product (GDP): The proposed measures should boost India’s GDP to $6.69 trillion in 2030, $16.13 trillion by 2040, and $29.02 trillion by 2047. 
  • Per Capita Income: The projections for per capita income at current prices are $4,418 by 2030, $10,021 by 2040, and $17,590 by 2047. 
    • It means the present per capita income of about Rs 2 lakhs will become about Rs 14.9 Lakhs by 2047. 
  • Exports: Export targets are $1.58 trillion by value in 2030, $4.56 trillion by 2040, and $8.67 trillion by 2047.
• Different aspects of Viksit Bharat should look like in 2047:
  • Economic Growth: A Viksit Bharat should have a resilient and strong economy that can provide opportunities and a high standard of living for all its citizens. 
  • Environmental Sustainability: A Viksit Bharat should have a clean and green environment to preserve India’s biodiversity and natural resources. 
  • Social Progress: A Viksit Bharat should have an inclusive and harmonious society that ensures the dignity and well-being of all its citizens. 
  • Good Governance: A Viksit Bharat should have an agile governance with sound policies and accountability. 

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About Trade Policy

Trade policy refers to a nation’s formal set of practices, laws, regulations, and agreements that govern international trade practices, or imports and exports to foreign countries. 

• Refers: The management of international exchanges of goods and services between national and regional economies. It involves regulating imports and managing exports, including export promotion and export controls.
• Aim: Trade policies aim to strengthen the domestic economy. 
  • Policies should be tailored to specific targets and in this respect an ambitious target for exports of goods and services must rise from $775 billion in 2023-24 to $2 trillion by 2030 has been set. 
  • This implies a growth rate of over 14 % in nominal US dollars. This is three times faster than the International Monetary Fund (IMF) projection of global exports of goods and services in the same period.
• Role of Government: Trade policy is a government’s stance on international trade, or a combination of laws and practices that affects imports and exports.
  • Trade policies can include regulations, tariffs, and quotas.
  • Some nations want to encourage more trade and pursue open trade policies with certain other nations, while others want to restrict trade and set policies that protect local industries from competition.
  • Trade policies can have a number of benefits, including economic growth or lower costs of goods.

Significance of Trade Policy

Trade policy is only one of the factors that can deliver strong export performance. Other initiatives, such as developing good infrastructure, reducing logistical costs, development of human skills and improving the ease of doing business, are also important. These factors are relevant not just for exports, but for the economy as a whole.

• Appropriate Distribution of Labour: With the  trade policy, India can generate a sphere of expertise and specialisation over a worldwide platform. 
  • Trade policy of India can support in making merchandises at a lower cost. 
  • India has massive natural resources, it has plenty of labour, can import some raw material and export finished goods to countries. Thus, this lessens the overall cost of production.
• Stable Pricing: With the assistance of Foreign trade policy, India can lead to parity of pricing to guarantee a steady demand and supply scenario. 
  • A foreign trade policy of India also allows India to import some products at the period of a natural calamity when demand is huge. It means the shortage is handled without taxing the consumer.
• Consumer Advantage: There is a consumer advantage by availing better quality and quantity of goods. 
  • It also aids in elevating the standard of living particularly for underdeveloped areas.

Challenges that need to be Tackled

India won its political freedom in 1947 as a first step in its journey of decolonisation onto poorna swaraj. Now, it must seize its intellectual freedom. Following are the various challenges that India needs to be tackled to achieve the target and dream of Viksit Bharat 2047:

• Bilateral Investment Treaties (BITs): 
  • India recently cancelled all existing BITs unilaterally, and proposed that partners accept India’s new model BIT. 
  • Under the new model, aggrieved investors cannot invoke international arbitration to resolve disputes with the host state without first exhausting all other possibilities under domestic law. 
  • This model is contentious due to It India’s slow legal system. 
• Narrow Base for Free Trade Agreements (FTAs): India has signed an FTA with the UAE and European Free Trade Association, but this is a very small group of countries. 
  • India has signed a limited “early harvest FTA” with Australia, but its coverage is limited. 
  • India is negotiating FTAs with the UK and EU. Both are important, but progress will depend on India’s taking a more flexible line on harmonising other standards.
• Redressal Procedure: Investors in development of critical industries and in technologically sensitive areas may hesitate due to lack of speedy redress avenues along the lines that other countries offer.
• Inter-ministerial Consent: It is possible that commerce ministry negotiators find it difficult to get other ministries to agree on the flexibilities needed. 
  • Perhaps these issues should be referred to the Niti Aayog to take an overall view and seek clearance at the highest level.

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• Others: 
  • EU’s Carbon Border Adjustment Mechanism (CBAM): EU’s CBAM poses problems for India, as it may impact exports like steel and cement.
    • CBAM will initially affect a few sectors but may expand to other sectors in the future, such as refined petroleum products, pharma medicaments, etc which are among the top 20 goods imported from India by the EU.
    • Since India has no domestic carbon pricing scheme in place, it poses a greater risk to export competitiveness. India may have to deal with it separately outside FTA.
  • FTAs Signing with the US: The US is India’s most important trading partner, but it has indicated that it does not propose to sign any more FTAs. 
    • However, India should perhaps review its position of not joining the trade pillar of the US-sponsored Indo-Pacific Economic Framework. This does not offer any market access, as of now, but there is no harm in joining it.

Way Forward For India’s Trade Policy for Viksit Bharat

In the last decade, India has witnessed a paradigm shift in its approach towards trade policies, driven by a combination of regulatory reforms, technological advancements, and increased emphasis on quality and safety standards. 

• Shift in Focus: The trade policy India needs to achieve this target requires resolving some internal differences and also evolving a new approach to handle the global environment.

• • As part of the change, trade policy seems to have shifted its focus from foreign exchange earnings to investment lead impetus to value add manufacturing in India.
  • Example: India took a few initiatives in this direction such as reducing import duties on several items in this year’s budget to become more competitive for domestic production and announcing a comprehensive internal review for India’s tariff structure.
• Focus on External Developments that affect Trade Policy: In addition to restructuring customs duties, the trade policy must deal with two new developments in global trade- FTAs and the Global Value Chains (GVCs).
  • These developments imply that if India wants exports to benefit from GVCs, it need:
    • To attract the multinational companies that dominate them to locate part of their production facilities in India.
    • To join FTAs that ensure seamless duty-free access for parts and components which are essential for GVCs to work. 
• Geopolitical Developments: Rethought on Free Trade Agreements (FTAs) has acquired urgency because of geopolitical developments. There is growing tension between the West and a China-Russia partnership. 
  • Also, the IMF has stated categorically that global growth and world trade will be hurt, including India. 
  • India has a discriminatory trade policy aimed at ‘re-shoring,’ ‘near-shoring’ or ‘friend shoring.’ The discriminatory trade measures against China and Russia will have a negative impact on all sides. 
  • However, the attempt to shift trade away from China also offers India an opportunity. MNCs with GVCs may want to evolve a ‘China plus one policy,’ and India is particularly well placed to benefit from this.
• Membership on Trade Pacts: It is also important which allows the smooth movement of components across borders. 
  • Regional Comprehensive Economic Partnership (RCEP): It is the world’s largest regional trading arrangement, covering all of East Asia, including China. India was on the verge of joining it in November 2016, but backed out at the last minute. 
    • This was reportedly because Indian industry groups were nervous about giving duty-free trade access to China.
  • If China was the only reason for walking out of the RCEP, India should seriously consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). 
    • CPTPP currently covers 11 countries including Japan, South Korea, Australia and some from ASEAN. China has applied to join the CPTPP, but has not so far been accepted. The geopolitics that is keeping China out is likely to work in our favour if India applies. 
  • Time to Rethink on Approach: The real problem is that joining will require acceptance of high environmental and labour standards which India has traditionally opposed on the grounds that it restricts our ‘policy space.’ This approach needs a rethink.
• Time for Gandhian Approach: Local systems solutions, cooperatively developed by communities in their own villages and towns, are the way to solve global systemic problems of climate change and inequitable economic growth.
  • Rural India can be a university for India’s policymakers to produce innovations in policies for sustainable and inclusive progress while taking appropriate advantage of new technologies. This will make India a leader on a new course for progress that India and the world urgently need.

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