A Trilogy on India’s Contemporary International Trade Policy:

Part One – 1991 First Generation Reforms and Aftermath

Raj Bhala

 

ABSTRACT: India now is the most populous nation on earth, but its modern international trade policy remains an under-researched area. In contrast, the literature on the trade policy of the second largest nation, China, is voluminous. It is widely appreciated that China, since acceding to the World Trade Organization (WTO) on 11 December 2001, seeks – one way or the other – an ever-more powerful role in shaping the rules of the world trading system. That aspiration remains the lodestar of Chinese trade policy.

As for India, it is understood that from the August 1947 British Partition to the ballyhooed 1991 First Generation Reforms, India’s trade policy was that of import substitution. Following the semi-Socialist path chalked out by its founding Prime Minister, Jawaharlal Nehru, India kept tariff and non-tariff barriers high, mandated licenses for importation, and mollycoddled domestic champions favoured by the government in the hopes of transforming its traditional agriculture into modern industry. All the while, as a founding contracting party to the General Agreement on Tariffs and Trade (GATT), and founding Member of the WTO, India put its faith in multilateralism.

After 1991, import substitution seemed no longer to be the Indian lodestar. By the early 2000s, protectionism seemed back in vogue. But India also explored free trade agreements (FTAs). That, too, was irregular: India opted for a few bilateral FTAs, but stayed out of mega-deals like the Regional Comprehensive Economic Partnership (RCEP) and Trans-Pacific Partnership (TPP). With Prime Minister (PM) Narendra Modi came expectations of liberalization, but also Hindutva. Redolent of America First advocated by former U.S. President Donald J. Trump, for this Hindu nationalist sentiment, words like ‘globalization’ and ‘cosmopolitan’ are pejorative, and hopes for enhancing peace through cross-border commercial interdependence undermines national security.

So, what is India’s trade policy about? What word best characterizes India’s international trade policy since the watershed year of 1991? This trilogy of articles argues that word is ‘inconstant’. Since the ballyhooed 1991 First Generation Reforms, India’s approach to its trade measures, be they tariff or non-tariff barriers, and to potential FTAs, has been irregular. The lodestar is that there is no lodestar.

Part One of this Trilogy might be colloquially sub-titled, ‘It all started off so well, but then….’ The 1991 reforms promised a genuinely new Indian approach to cross-border trade, foreign exchange (FX) rates, and foreign direct investment (FDI). The reforms sputtered amidst governance problems. India faced no less than 12 serious challenges, and desperately needed a political apparatus that reinforced open trade and investment regime.

Parts Two and Three advance this argument by, respectively, critically analysing the twists and turns in Indian trade policy during the first and second terms (2014-2019, and 2019-present) of Prime Minister. Together, the three Parts indicate that if India’s post-1991 past is prologue, then future Indian trade policy is uncertain and thus unpredictable. Or to put the conclusion differently, as the U.S. and its Allies navigate the many variables of de-coupling (i.e., euphemistically, de-risking) from China amidst the Sino-American trade war, they would do well to see India’s trade policy as a variable, too.