The CEO of NITI Ayog, the apex public policy think tank of the Government of India, delivered a speech at the annual business summit of the CII (Confederation of Indian Industry) on 17 May, 2024. The speech was interesting inasmuch as it proposed a radical overhaul of India’s trade and industrial policy. The fact that the person in question Mr B V R Subrahmanyam, was a former Commerce Secretary of the Government of India and he now heads NITI Ayog, whose proximity to the Government cannot be in doubt, makes the speech that much more interesting. He suggests nothing short of a major overhaul of India’s trade and industrial policy. The key elements of the speech are given below along with comments.
(1) Lowering the applied tariffs: It is well known that the Government has, over the last few years, systematically raised applied tariffs on selected items through executive decisions. While these are broadly WTO-legal (given the considerable gap between India’s bound and applied tariffs) and may possibly fetch extra revenue for the Government, they also contribute to enormous unpredictability for traders, not to mention that fact that its primary purpose is to protect domestic industry from competition thus keeping them fundamentally uncompetitive. Lowering applied tariffs therefore is worth considering.
(2) Become part of GVCs: The CEO recognizes that India has been singularly unsuccessful in becoming part of the Global Value Chains (GVCs). He still holds out hope that this can happen, a view that may or may not be shared by others. The fact that China has a major excess capacity problem, that markets are saturated and there is protectionism raising its head in the West needs to be factored in. Still, it is worth a try. I myself would focus more on ensuring that India does everything to be part of the emerging Resilient Supply Chains. Of course, both strategies are not mutually exclusive.
(3) Government’s increase in CAPEX not matched by our Private Sector: There is no question that the Government has significantly increased CAPEX (Capital Expenditure) in infrastructure year on year for the last ten years. Curiously though, the Indian private sector has stubbornly refrained from keeping pace. It is time the Government had a detailed conversation (perhaps even at the level of PM) with our private sector titans to find out what is keeping them from doing this. The CEO has admitted that this is a problem, the first step in doing something about it.
(4) More ease of doing business: The CEO is remarkably frank in admitting that while some progress has been made, more needs to be done to improve the ease of doing business. He calls it “low procedures”, meaning less red tape. He should know, having been an Indian bureaucrat of long standing. He also makes a valid point of reforming both our contract and dispute settlement procedures, both of which are onerous and time consuming. It is hard to disagree with this point; who can dislike motherhood and apple pie!
(5) Continue Reform: The CEO hints at reform of the banking sector where he argues India needs “bigger banks” and must eventually have our own JP Morgans and Citibanks. Easier said than done you might say, but worth trying. While this is welcome, I would argue that both Agriculture and Land reforms are fundamental if India is to become a major destination for FDI. Triumph of wishful thinking?
(6) NTBs: Perhaps the most revolutionary proposal he makes is the way he says India should approach the whole array of non-tariff barriers (NTBs). These refer to barriers erected by industrialised (but also others) countries relating to labour, environment and more broadly, standards & regulations. The CEO argues dramatically that these are not barriers per se, but part of how the society in an importing country imposes conditions that they deem fair and fit. He therefore argues that Indian industry must simply adjust to it if it wants to export to these destinations, instead of cribbing about these. This is a radical departure from the typical thinking in our Commerce Ministry where until recently, these NTBs were considered anathema by our authorities and industry alike. In particular, he calls on our industry to adjust to the European Union’s proposal of Carbon Border Adjustment Mechanism (CBAM), something that should be music to the ears of the EU negotiators with whom we are negotiating a FTA. It will be interesting to know how our industry reacts to all of this.
(7) FTAs: The CEO makes a fervent plea for India signing more and more FTAs. He says, by and large, domestic industry must not be sheltered and exposed to foreign competition. India has embarked on a FTA signing spree, though the major ones with EU and UK are yet to be concluded. In these negotiations, Labour Standards, Environment, Government Procurement and Digital Commerce will figure prominently. By the way, foreign negotiators have told me in complete confidence that there are too few Indian negotiators who are saddled with FTAs and that India’s lack of negotiating bandwidth is also contributing to delay in these talks. This must be dealt with by the new Government.
Conclusion: It is possible that the CEO of NITI Ayog was being deliberately provocative so that the Indian intelligentsia and trade policy cognoscenti can debate and subsequently prepare the Indian political class and the public for the kind of measures that India may have to take eventually. Equally, it may also serve as an admonition to our industry that they should no longer expect to be mollycoddled.
In any case, the CEO has done great service by raising these profound issues. If it leads to a healthy debate among experts, academics and decision makers, the speech will have eminently served its purpose. The new Government must pay attention to the issues raised with a view to resolving them early in its tenure. Needless politicisation of these issues must be avoided since that will surely prevent progress. At the end of the day, India needs a trade and industrial policy that is fit for purpose and is in consonance with its overall strategic objectives; right now, it hasn’t got one!
Diplomacy and Geopolitics 