All entries for January 2006
January 26, 2006
The Telegraph, 26.01.2006
Ashok Mitra paints a doomsday scenario for India by selectively quoting Amartya Sen and combining it with his own loud rhetoric (“Impolite predictions”, Jan 23). While Sen may have criticized the gaping inequality emerging in many parts of the country, he has also gone on record praising India’s economic performance in the post-liberalization period. Sen is strongly supportive of a social safety net and improved public services, but he would allow the market to function, albeit with institutional checks and balances, as in most advanced countries today. Finally, what Mitra misses out about Sen is his staunch optimism about India’s democratic process. According to Sen, the problems of unemployment, corruption, environmental degradation, inequality and the like get more highlighted in India than in other countries because of our strong argumentative tradition.
January 12, 2006
January 10, 2006
January 05, 2006
January 04, 2006
Asia Times, 04.01.2006
Indian Commerce and Industry Minister Kamal Nath is a very happy man these days. The bludgeoning manner in which he pushed India's agenda at the December 13–18 Hong Kong ministerial summit of the World Trade Organization (WTO) is reason enough. Moreover, last Friday the union cabinet ratified the South Asian Free Trade Area (SAFTA), paving the way for free trade among nearly 1.5 billion people.
The SAFTA agreement came into effect on January 1 and involves members of the South Asian Association for Regional Cooperation (SAARC) – Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. According to the pact, India, Pakistan and Sri Lanka will reduce their custom duties to no morethan 5% by 2013, and the least developed members, Bangladesh, Maldives, Nepal and Bhutan, will do so by 2018.
India, the largest and most developed economy in the region, will give concessions to the least developed countries. That will include a process of compensation for revenue loss from reduction in duties as well as technical assistance. Almost 23% of the world's population lives in the SAARC region.
The Confederation of Indian Industry contends that SAFTA "will increase intra-regional trade and boost development, besides leading to greater integration among the seven countries". Quantum leaps in the US$7 billion annual trade between these countries are expected, with their share of world trade anticipated to reach 10% by 2008.
However, India's policymakers have misread the writing on the wall on many fronts, and a nasty surprise awaits them if they do not get their act together.
First, despite the supposedly ambitious declaration by the European Union to remove all agricultural export subsidies by 2013 and by the US on cotton subsidies, the WTO ministerial summit was "a lost opportunity to make trade fairer for poor people", Oxfam executive director Jeremy Hobbs said. The declaration meant delaying free trade by another three years. Also, export subsidies make up a meager 3.5% of overall agricultural support dished out under the Common Agricultural Policy by the EU.
Similarly, US Trade Representative Robert Portman declared that the ultimate goal was to "reduce subsidies and eventually eliminate subsides". However, when it was pointed out that the West African nations were complaining more about domestic support than export subsidies, he appeared noncommittal.
Historically, WTO summits since Doha (2001) have often been held hostage by the insistence of the US, the EU, Japan and Canada on looking at the "Singapore issues", so called because they were introduced for discussion at the inaugural ministerial conference in 1996 in that country, and many of which can be argued to be outside the jurisdiction of the WTO. They include intellectual property rights and labor issues.
Stubborn French pressure ensured that EU Trade Commissioner Peter Mandelson would only extend an inadequate offer to the developing countries. As Washington had a self-imposed condition that it would only act if the EU did, the agenda hardly went forward.
The developed world hoped for a cul-de-sac at Hong Kong last month, and it was reached. Sure, India was seen as a leading negotiator on a global scene, managing to hold together the G-20 agenda for a second time since Cancun (2003). The G-20 is an informal forum that promotes dialogue among finance ministers and central-bank governors of nations making up two-thirds of the world's population and 90% of global gross domestic product.
But success implies something more positive, rather than simply stalling further encroachment on its own markets. That has eluded Nath and his team.
Second, let's assume for a moment that sanity and selflessness adorn the corridors of policy formulation in the EU and US over free trade, and all barriers to agriculture trade actually do vanish in 2013. What then? Booming exports for India's farmers and en masse prosperity for the most destitute and impoverished?
It needs to be remembered that the vast majority of India's 600 million farmers are small holders and operate on minimal profit margins. Productivity is poor because of lack of funds to invest in new technology, and reliance on the monsoon for water is widespread due to a lack of irrigation and water-storage facilities in the vast hinterland of India. It is not certain how far this model will be competitive in a genuine free market.
For instance, the larger farmers and agri-firms of the West will be able to gain economies of scale far easier vis-a-vis the marginal Indian farmer. Moreover, many food-processing firms from Europe are already entering the Indian market (such as in West Bengal), squeezing the small holders' margin even at home. Food security, something very close to an Indian policymaker's heart, therefore, will be severely jeopardized.
So what should be the government's response? I propose that Indian farming be corporatized – the first step being encouraging cooperative farming.
This would encourage farmers to take advantage of various micro-credit programs being launched by the government by applying as a group. This will increase their creditworthiness and thus allow them to invest in better seeds, fertilizers and technology such as pumps for irrigation and tractors. Moreover, it will spread risks of such ventures among farmers, thus providing more of an incentive to launch such initiatives. As tariffs are supposed to be eliminated by 2013, these joint stock companies will have some lead time to organize their business model and identify markets for export. They will also find it far easier to gain economies of scale and compete internationally.
An example of success by pursuing this route has been shown by Amul Gujarat Cooperative Milk Marketing Federation, India's largest food-products marketing organization, in the western state of Gujarat. By integrating the marketing and some of the production of rural workers, Amul has managed to create a successfully run enterprise whose revenues grew from $355 million in 1994–95 to $672 million in 2004–05. Amul not only sells its products within India, but exports a substantial share too. It has uplifted nearly 2.41 million rural workers from abject poverty, with women benefiting the most.
Third, the entire ballyhoo over SAFTA is based on the underlying assumption that regionalization is a stepping stone for multilateral globalization of trade. Such "open" definitions of regionalism have ample contradictory evidence against them. Between 1990 and 2004, trade within the Andean Group (a subgroup of countries of the Latin American Free Trade Association) rose by an impressive 461%. But its trade with the rest of the world grew only by 136%. Similarly intra-Mercosur (southern common market involving Brazil, Argentina, Uruguay, Paraguay and Venezuela) trade grew by 318% over the same period vis-a-vis 188% for the extra-regional trade.
As Columbia University Professor Jagdish Bhagwati has argued, "Most of the [regional] blocs have a strong defensive character … protecting them from outside influence." The protectionist attitude of the EU also supports this point.
On one hand India is signing free-trade agreements with a number of countries and hopes to benefit from trade on a global scale. On the other hand, its commitments in SAFTA - a concept it coined in the 1980s – could well lead to a dilemma.
The challenge for India is to prepare its farmers better than it did its textile producers in a post-tariff world market. At the same time, it needs to avoid a problematic juxtaposition between SAFTA and wider global free trade.
The babus in Delhi should have their hands full. Instead, they appear contented. Alarm bells, anyone?
Aruni Mukherjee is based at the University of Warwick, England.