In view of the economic slowdown, populist, protectionist policy measures have to be discarded for a pro-market, pro-reforms mindset
The Union Budget 2020-21 came at one of the toughest times the Indian economy is facing in recent times. Domestic demand for goods and services, export order books, India’s gross domestic product and growth projections, are depressed, if not taking a southern dive. Add to this the binary issues of inflationary pressure and burgeoning fiscal deficit. Finance Minister Nirmala Sitharaman did a tight, long, rope walk on a burning coal pit on February 1, while having a truck load of complex policy decisions on her head. She did manage to put up a show but spectators to this annual mega policy ombudsman event weren’t impressed.
The question is what went wrong and is there scope for course correction during the year? In a nutshell, markets, specially those players who have significant cross-border transactions, didn’t seem to think that the trade and industrial policy direction announced in the Budget was progressive, bold and reformist. Many would agree that despite the current regime coming in with a promise of making India investment, business and trade-friendly, it has gone ahead and erected tall, if not taller, wall of tariffs around its companies, markets, products and small and medium-sector enterprises. Coupled with this are a steady stream of ambiguous to opaque, regulatory and policy frameworks which leave little space for businesses and trade to prosper.
The usual rhetoric heard in many Government circles is India’s small and medium sector businesses need to be cushioned, indigenous manufacturing of products is mandatory and, with or without a life-threatening virus, China’s march in domestic and regional markets has to be contained. Also, new-age data-driven economy is somehow a threat to, and against, national interests.
A brief pause here, and an assertion that many, and all of these narratives are global in nature, and India has simply caught on the winds, which may or may not be the best-fit solution for a recessionary world economic order.
However, an equally important policy document, which was drafted by the same Ministry officials and presented to the world a day prior to the Budget, the Economic Survey, somehow lies forgotten. Consider this edited excerpt, from the Economic Survey which makes a strong case for free trade, by stating “laser-like focus...as an India that harbours misplaced insecurity on the trade front is unlikely to grab this opportunity, our trade policy must be an enabler. In fact, contrary to recent fears, careful analysis that controls for all confounding factors shows that India has gained from trade agreements.”
Even if one were to avoid getting into details of the Economic Survey, just reading the chapter headlines like Undermining Markets: When Government intervention hurts more than it helps, Privatisation and wealth creation and finally, Wealth Creation: The invisible hand supported by hand of trust are clear indicators of a reformist out-of-the-box, economic welfare path to prosperity.
Contrast this with the Budget document, which states that imports under Free Trade Agreements will be scrutinised for adherence to rules of origin clause. Similarly, import tariffs on countless items have been scaled up each year, without a status check on readiness of domestic producers to supply similar quality products at same, if not, cheaper rates. Add to this, the promise of reviewing all customs duty exemptions list by year end. The Budget speech punched with terms like, “imports through free trade agreements” pose a “threat to domestic industry” and many instances of “undue claims of benefits” have been found, harbingers to open a new bureaucratic line of checks and penalty, plus an additional delay at ports of entry. Coupled with this could be significant retaliatory tariffs from countries, whose goods are directly impacted and it gets into a spiraling trade tariff, mostly unfruitful solution finding exercise.
What do successful companies, especially those operating in multi regulatory regimes do when faced with problem of this stature? First, they assess the problem statement, skim out extra or avoidable flab, hold a cross-functional in some cases, cross-geography brainstorming session and perhaps create a war room. Finally, with a “Back to Market” strategy, they focus the best of talent to address key strategic issues within fixed timelines. If, the calibrated strategy fails, the cycle is repeated quickly to minimise loss of business and mostly get back on the growth path.
In the Government’s case a similar policy goal has to be clearly chalked out with an inter-ministerial team headed by a Cabinet Minister. Policy experts and industry representatives have to be given a place on the table and their views counted. Political showers of choicest barbs have to be set aside while darting towards a new India with a $5 trillion economy. Populist, protectionist policy measures have to be discarded for a pro-market pro-reforms mindset. Equal partnership responsibilities along with sweet rewards once a while will do a lot more towards millions of jobs and billions in investments than appearing nonchalant to large investors. Investor guarantee, more important with strategic trade partner companies, coming up with tailor-made solutions for each will be a game changer. Most important, creating India’s economic ambassadors from the business community, if necessary, providing them delegation status, will reassure “the hand of trust, behind invisible hands of market.”
(The writer is Country Manager, India, ITI Council)
