Keep an eye on all invisibles

Poverty, however, matters. Trade-led growth is brisk but it results in a higher disconnect between the largely subsistence agriculture and non-agricultural trade-led growth. This increases inequality. Trade-led growth can have poverty alleviating consequences through inter-state migration, rise of the informal sector and higher engagement in services. Recent studies show that in the case of India, people who can take advantage of trade-led growth are typically those who have access to assets such as education and health instead of assets such as land. That is, the government must invest in social infrastructural facilities.

Pending that, India can still use its new leverages. In 2004-05, gross earnings from invisibles stood at $77.5 billion, $3 billion short of merchandise export earnings of $80.8 billion. As automation becomes a prerequisite for increases in productivity and the provision of services becomes less elitist, old beliefs that manufacturing creates more jobs than services may increasingly be questioned. India is the largest recipient of inward remittances in the developing world. As lower skill categories get vacated for white collar and technical specialists and as the West, faced with greying populations, allows freer movement of labour, such remittances will only increase. So it is logical for India to push for faster opening up of services trade, especially Mode 4 (movement of natural persons).

Indian policymakers face two major strategic challenges in adopting an export promotion model of growth. First, in relation to employment and work, India not only currently has large-scale underemployment and unemployment, its labour force is growing at 2 per cent per annum. The task of ensuring that the new entrants to the labour force, as well as the existing unemployed and underemployed, are able to have employment and work with adequate remuneration and/or rising real wages is immense. Second, in relation to international integration, India should seek further integration with the world economy in such a way that it does not lead to employment losses, poor income distribution, or increased poverty. It is also predicated that the formal sector in India is unlikely to create net new jobs without a much faster rate of growth (which for many reasons may not be feasible in already fast-growing countries like India), and the burden of providing employment and work will fall necessarily on the informal sector. The informal economy is estimated to account for 60 per cent of net domestic product (NDP), 68 per cent of income, 60 per cent of savings, 31 per cent of agriculture exports, and 41 per cent of manufacture exports. The CMIE estimated that people in the informal sector spend 90 per cent of their incomes on products of the informal economy, and only 10 per cent on those of the corporate sector.

An issue of central concern is how to make the informal sector dynamic. The most important way in which the government can help is through maintaining as high a rate of growth of aggregate demand and exports as possible, and as is compatible with the country’s sustainable current account balance. In this context, market access becomes all the more important, especially in sectors of export interest to India such as textiles and garments, gems and jewellery, auto components, leather and leather goods, etc. Some of these sectors particularly face tariff peaks and tariff escalation in major markets. In addition non-tariff barriers need to be addressed in a definitive manner. But, the informal sector is vulnerable in sectors such as fish and processed food where protection may be required.

It is also argued that liberalisation of services is market and technology driven and would take place with or without the Doha round of negotiations. It is therefore necessary to evaluate whether tradeoffs should be offered in other sectors for greater gains in services. Each sector is sui generis and tradeoffs should be affected in each individually, though the gains from liberalisation in terms of growth and employment may be highest from services liberalisation.

India should only bind its unbound tariffs if, in return, it is able to get some market concessions. As regards agriculture, for the medium term, India should try to get a timeframe for total reduction of subsidies in developed countries, as in a few years there may be a few products and a few sectors where it may become competitive in agricultural exports. In addition, the price wedge between domestic and international prices would decrease making agriculture in India less vulnerable to import surges. Tariff cuts on the market access pillar granted by India should only match the subsidy reductions offered by developed countries.

India’s interests lie primarily in using trade facilitation negotiations to address several logistic related non-tariff barriers (NTBs) while putting its own house in order. Similarly its large reserve of traditional knowledge and the stage of its development argue for more development friendly Agreement on Trade-Related Intellectual Property Rights (TRIPS) and a subsidy regime that permits subsidised capital imports. On TRIPs and public health the General Council decision should be ratified by India, as the provision of medicines for medical emergencies is a tangible way in which India can assist the Least Developed countries. India could also show leadership by granting preferential market access to LDCs, a proposal which the government is already considering.

To conclude, as a significant and growing contributor to the economy, trade and hence the round of negotiations in which the Hong Kong Ministerial (December 13-18) is but a milestone, is of importance to India. While every sector is of importance, from a pro-poor angle India needs to push for greater market access in all sectors, while maintaining flexibilities, especially in agriculture. It should also be understood that India’s vast market, its growing appetite for imports, its service potential make it a particularly attractive negotiating partner for developed and developing countries.

Veena Jha is coordinator, India Programme, United Nations Conference on Trade and Development