Opinion Former chairman of SEBI Ajay Tyagi writes | The New Abnormal: Global institutions, consensus are fraying under pressure from protectionism

In the world’s largest economy, “America first” policies are directed at protecting US producers from foreign competition. The Inflation Reduction Act smacks of protectionism. The European Commission has reacted to the Inflation Reduction Act by presenting its own Green Deal Industrial Plan with state aid to help Europe in clean tech products manufacturing. The EU has also come out with Carbon Border Adjustment Mechanism to protect its industries from imports from jurisdictions with “less stringent” climate policies.

With so much grandstanding in the name of encouraging “green economy”, there has been virtually no progress under the UNFCCC negotiations in the transfer of the promised finance and technology from developed countries to developing ones. The failure is camouflaged by the increasing use of jargon and innovative accounting. Also, the developed countries haven’t done anything to remove GHGs from the atmosphere.

High global inflation is another unusual phenomenon. For many decades in the pre-Covid era, central banks in the West struggled to increase inflation to near 2 per cent. Now, getting inflation down to this level is a distant dream. Some are even contemplating increasing the inflation target.

India’s stance on trade policy has been confusing, to say the least. We have stayed away from many important regional pluralistic trade agreements and other free trade agreements in the name of “national interest”. This inward-looking stance contradicts our aspiration to be a part of global value supply chains. It is only recently that we have expressed our eagerness to finalise long-pending trade agreements. Our desire to restrict trade with and investments from China hasn’t worked. And considering China’s share in the world economy and global export market, it isn’t likely to work.

The efficacy of press note 3 of 2020, issued by DPIIT, to restrict Chinese investment in India, needs to be analysed. Noticeably, in a sudden U-turn to this policy, 14 of Apple Inc’s Chinese suppliers are now being allowed to set up operations in India via domestic partnerships. India’s trade deficit with China, which was $44 billion in 2020-21, increased to $73 billion in 2021-22 and has reportedly crossed $64 billion during the first nine months of the current financial year.

While policymakers are taking comfort in inflation ebbing, CPI inflation hasn’t come down to 4 per cent, RBI’s target, in a hurry.

Our quest for atmanirbharta has kept import tariffs high. This further fuels the high-cost economy besides bringing in production inefficiencies. The existing PLI scheme should be critically reviewed and its objectives spelt out. Any industry in which India lacks the basic global comparative advantage or whose survival without government support is doubtful in the medium term, shouldn’t be considered under this scheme.

The basic structure of the world order, established over decades through trust, multilateral institutions and mutually beneficial and well-intentioned global negotiations in various fora, is under a cloud. The theme of India’s G20 presidency — Vasudhaiva Kutumbakam or One earth, One family, One future – frames a difficult task. The good news is that the major actors involved in or responsible for global chaos are members of this group and will come together at the discussion table in the coming months. The bad news is that their stance on many issues is entrenched. The recently concluded meeting of G20 Finance Ministers ending without a communique is not a good sign.

The writer is a former IAS officer and former chairman of SEBI