December 5, 2001


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G Parthasarathy

Economic challenges to Indian diplomacy

Even as the entire nation remained glued to television sets watching the Taliban collapse in the face of sustained American bombings and onslaughts of the Northern Alliance, important developments were taking place that are going to seriously affect not only our economic development, but also our role and influence in our neighborhood and in the world.

The ASEAN recently announced that it would be concluding a Free Trade Agreement with China within the next decade. It also decided to upgrade its relations with India to involving regular annual summits. China was recently admitted to the WTO and far-reaching decisions aimed at promoting international trade and investment were taken at the Doha WTO Ministerial Conference. We, in India faced a rather peculiar situation because even as China clawed its way into the WTO after painful negotiations, our leaders were proclaiming that the WTO was, at best, a "necessary evil".

China's proposed free trade agreement with ASEAN is going to pose as serious challenge to our exports in a region that is showing distinct signs of recovering from its recent economic travails and resuming a path of sustained high growth rates. Even today Chinese products ranging from textiles and engineering products to handicrafts and consumer electronics are rendering our exports uncompetitive in world markets and even entering our markets. With the lifting of Quantitative Restrictions, it would not be surprising if we soon face similar challenges from the products of our South East Asian neighbors.

Countries in the entire Asia-Pacific Region have committed themselves to reducing and eliminating tariff barriers as essential measures for expanding world trade and accelerating economic growth and prosperity. Yet India remains an island where protectionism is regarded as a virtue, even as we demand that others should liberalize and open out their markets for our exports. One has only to visit Sri Lanka or Bangladesh to understand the chasm between their approaches and those we adopt to issues of trade and economic liberalization.

Even as Commerce Minister Murasoli Maran was ably defending the brief given to him for the Doha Ministerial meeting, China was being welcomed into the WTO after having made substantial concessions just to secure entry. China has agreed to bind its agricultural tariffs to an average of 17.5 per cent with a peak tariff of 20 per cent. It has agreed to reduce tariffs on agricultural items in which the United States has an interest to just 6 per cent and reduce its average industrial tariff to 9.5 per cent by 2005. The Chinese government has also committed itself to not interfering in investment agreements concluded by private parties with foreign investors. China's importance in the world community today is not because of its inter-continental missiles alone, but because it is viewed as a crucial player in the global economic scenario, with an emerging market of $ 600 billion. In comparison, India's share of the global market is negligible and likely to remain so, if we choose to persist in protecting inefficient and obsolete industries behind high tariff walls.

The prime minister has recently set up a high level ministerial committee to push ahead with the crucial second generation of economic reforms. The political leadership in our country will have to recognize that reforms and end to corruption in the power sector, the de-reservation and restructuring of industries in the small-scale sector and drastic improvement in our infrastructure like roads, ports and international airports brook no delay. Protectionist rhetoric may be good for short- term political gains, but are a sure recipe for long-term economic stagnation and regional and international marginalisation. It is a pity that there are only a few economic thinkers like Dr Manmohan Singh who realize the truth of this and are courageous enough to swim against the tide of populism.

Maran has played a positive role in Doha in ensuring that our agricultural sector and concerns about food security are protected. But even he will agree that we have, at best, bought time to set our own house in order. The approach of South Africa, the African and Caribbean countries and most importantly the countries of East and South-East Asia are quite different from us when it comes to trade liberalization. Given the concessions it has already made, China will be a strong supporter of further trade liberalization. Our friends and well-wishers naturally expect that rather than swimming against the tide, we will set our own house in order to assume our rightful role in the global economy.

India should signal its readiness to play a pro-active role to meet emerging economic challenges in the forthcoming SAARC Summit at Kathmandu. One sincerely hopes that New Delhi will ensure that the entire attention from the summit is not diverted to yet another Indo-Pakistan meeting on its sidelines. The focus must be kept predominantly on promoting economic cooperation in the region.

The Eminent Personas Group (EPG) setup during the Tenth SAARC Summit had made wider ranging proposals focused on the establishment of a South Asian Economic Community by 2020. This is to be preceded by the establishment of a SAARC Free Trade Area by 2008, a SAARC Customs Union by 2015 and an agreement for the free flow of investments across national borders in the SAARC Region. The summit should agree to adhere to the schedule proposed by the EPG and set up necessary mechanisms to ensure time-bound implementation. But for us to be credible in this approach we will need to avoid the myopic approach of placing tariff and non-tariff barriers that we have thus far adopted in our trade relations with SAARC partners like Sri Lanka and Bangladesh.

George Fernandes taught his Mandarins the realities of the world by compelling them to visit Siachen. It may be useful if Maran likewise, sends some of his Mandarins in Udyog Bhavan on a padyatra across East and South East Asia so that they can learn how countries in this region have rapidly achieved progress and prosperity for their peoples.

One hopes that after the decimation of the Taliban, General Musharraf will learn some lessons about the hazards of extolling Jihad. But, old habits are not easily given up. It is quite likely that rather than join the rest of South Asia on an exciting new journey to economic cooperation and prosperity, he will resume chanting his now tiresome mantras on the centrality of Kashmir, before he will deign to smile on India.

New Delhi should ensure that any bilateral meeting in Kathmandu with the only military ruler in the SAARC does not become a repeat of what transpired at Agra and in past SAARC Summits. If the Musharraf-Sattar duo choose to stall or obfuscate on proposals for regional economic integration, New Delhi should make it clear that it will proceed on this path bilaterally and sub-regionally. It is now necessary for us to also activate the BIMSTEC organization bringing together Bangladesh, India, Myanmar, Sri Lanka and Thailand and not only make it project oriented, but also a vehicle for promoting free trade between SAARC and ASEAN member states.

Our active diplomatic involvement in the post-September 11 global war against terrorism has been conducted with skill and substantial success. While such diplomatic efforts receive a high media and political profile, we do appear to be paying less than adequate political attention to developing an integrated and comprehensive policy on issues of economic cooperation with countries in our neighborhood. This approach will adversely affect our long-term economic interests, more so because of China's pragmatic policies.

Our influence in South and South East Asia will grow only if we show a measure of self-confidence and integrate our markets to these countries for trade and investment. We could deal bilaterally with individual ASEAN members and with ASEAN itself to achieve these objectives. There should also be no reason why countries in the SAARC that are more interested in economic prosperity than Jihad, cannot join their friends in ASEAN in an extended partnership that promotes free trade and investment across South and South East Asia.

G Parthasarathy

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