Shift in India’s Trade Policy – Reverse India’s trend of trace barriers going up

Source: The post India’s Trade Policy Shifting has been created, based on the article “Reverse India’s trend of trace barriers going up” published in “Live mints” 3rd January 2024.

UPSC Syllabus Topic: GS paper3 – Indian Economy – Effects of liberalization on the economy

News: The article discusses the global decline of free trade, and the challenges India has faced with its Free Trade Agreements (FTAs). India’s trade deficits have grown due to these agreements, prompting a reevaluation of its trade strategy and tariff policies.

What Is the Global Trade Scenario?

Protectionism on the Rise: Western nations are increasing trade barriers, indicating a shift away from free trade.

Ineffective International Bodies: The World Trade Organization is struggling to enforce global trade rules, diminishing its effectiveness.

Geopolitical Divisions: The geopolitical split is challenging the past three decades of globalization efforts. The global market is now a mix of bilateral deals instead of a unified system.

Why Is India’s Trade Policy Shifting?

Increased Tariffs: After decreasing import tariffs in the 1990s, India raised them again, signaling a shift in policy towards protectionism.

Trade Deficits Concerns: The growing merchandise trade deficits with FTA partners like ASEAN (over 300%), South Korea (160%), and Japan (138%) highlight the challenges India faces in boosting exports relative to imports. India left the RCEP in 2019, aiming to reduce trade imbalances and overdependence on Eastern economies, particularly China.

Pursuit of Western and West Asian FTAs: Post 2019, India shifted focus to forge free trade agreements with Western and West Asian economies, moving away from the RCEP to avoid further trade imbalances and attract global value chains.

For information on RCEP read here

Way forward

To improve trade, India should consider reducing tariffs to foster competitiveness and attract global value chains. Reversing the growing trade deficits, as seen with ASEAN (300% increase), South Korea, and Japan, could be achieved by integrating more effectively into global markets and making domestic industries more competitive, thereby enhancing exports and economic health.

For more information On Shift in Global Trade Policy read here

Question for practice:

Evaluate the effectiveness of India’s trade policy shift towards raising tariffs, leaving the RCEP, and pursuing FTAs with Western and West Asian economies in addressing its trade deficit concerns.