The inevitable happens

After years of stretching its luck, India is probably about to get its comeuppance on its restrictive import regime. After balance of payme...

After years of stretching its luck, India is probably about to get its comeuppance on its restrictive import regime. After balance of payments BoP talks collapsed in Geneva last month, it was clear that India would be taken to the World Trade Organisation WTO, and the United States has now done it. If the strength of its case is anything to go by, and if the matter does go into dispute settlement, India8217;s prospects for a favourable ruling are close to zero. The issue is simple. India has traditionally availed itself of a world trade-regime clause that allows countries with precarious BoP to restrict imports. India8217;s BoP was precarious, for a long time. No longer, and its trading partners now want it to quickly phase out quantitative restrictions QRs on imports and replace them with tariffs.

The battle is over timing. India offered nine, then seven, years to phase out restrictions; its trading partners wanted two or three. They might have been mollified if it had agreed to quickly phase out restrictions in areas such as automobiles, easing out the rest more slowly, but India would not play ball.

For a long time India has not had a leg to stand on in this argument. At 25 billion-odd, it has enough foreign reserves to finance six months8217; imports, a very respectable figure by international standards. The reserves have been stable to boot, though India argues that much is hot money that could melt away in a flash. The real reason for this intransigence is, of course, political pusillanimity. The government has been hiding behind BoP cover to escape the political storm that would break over its head for opening up agricultural and consumer goods imports. Yet, in fact, there is no escaping the political trouble. The WTO mechanism will force it to open up anyway, and probably more quickly than India could have got its partners to agree to in earlier negotiations. Recalcitrance against a WTO ruling would invoke sanctions. India is in a spot, to be sure, and for what? In whose interest is a protectionist import regime? Certainly not consumers8217;, who would be afforded both more choice and better prices through more liberal imports. It is in the interests of inefficient producers and the self-appointed protectors of India8217;s farmers whom, incidentally, they do not hesitate to exploit through skewed domestic trade.

If the government sees sense in the two months that must lapse for the WTO consultations to yield to dispute settlement, all to the good. But there is little reason to suppose that political timidity and self-serving ways will suddenly mutate into vision and courage. Ironically, though, the Indian people would have reason to see victory in a defeat for India in a WTO ruling. So the danger is not economic. It is that in a country where the WTO is already considered a suspect organisation and where 8220;victory8221;, 8220;sovereignty8221;, and 8220;national pride8221; are too freely bandied about, a ruling against India could provoke more political muscle-flexing and paranoid reactions by people who are kept deliberately ill-informed of the benefits of opening up. That would make for still more political risk-averseness.