<b>Jayanta Roy:</b> New institutional framework for India's trade reforms

In my earlier pieces, I had highlighted the 21st century trade reforms that India needs to implement to solve the current CAD problems, and to help restore the economy back to a high growth trajectory. Unfortunately, trade policy does not feature prominently in the recent discussions on India's failing economy, which in large part is the result of the neglect of the next generation trade reforms. The focus is still on quick fixes when the problems are structural in nature. Trade and investment in today's world takes place in an environment defined by highly integrated global production networks. Trade in intangibles as defined by management of knowledge, data, and support services (IT and ITES) is becoming increasingly more important. The impending automation of many manufacturing and services functions is already starting to re-define the relationship between labour and capital. Such drastic changes require a highly efficient trade and investment environment (low transaction costs), and strategic thinking from the policymakers who manage this relationship.

India, which is still on the fringes of the global production and investment system, desperately needs better management of its international economic relationship. The current institutional arrangement that disperses strategic decisions to the ministries of commerce and industry (MOCI), finance, and external affairs, with the support of a trade and economic relations committee (Terc) chaired by the prime minister, lacks the necessary depth.

In order to separate the strategic decision making process related to trade and industrial policy from day to day operational issues, a new, independent trade policy council (TPC) needs to be developed outside the line ministries and which reports directly to the PM. Its role could include strategic decisions on multilateral, bilateral, and regional trade policy; policy related to FDI; policies related to trade facilitation and reducing transaction costs; strategic policymaking on improving India's competitiveness; policies to improve India's logistical capacity and connectivity; and policies to make India ready for the structural changes in global production focusing on skilling and technological acquisition.

The TPC would have three offices: the office of a chief trade negotiator (OCTN), of a chief economist (OCE), and of a director-general of a national trade facilitation council (DGNTFC).

A chief trade negotiator
The office of a chief trade negotiator could be responsible for all trade negotiations at the multilateral, regional, and bilateral levels. Trade negotiations are a strategic economic objective, and not an administrative one. It is critical to have a small dedicated secretariat that is not burdened with day-to-day administrative responsibilities to deal with it.

The multilateral unit could be responsible for all negotiations at the WTO and to develop the agenda and policy position for India for the G20 discussions, as well as guide India's engagement with the UN's trade and development council. The bilateral/regional negotiations unit could be responsible for all bilateral and regional trade and economic engagement with Southeast Asia; Africa and West/Central Asia; and Europe and the Americas (EA). In particular, India's role in Southeast Asia and its integration with Asian production, trade and investment networks are critical to its economic future. Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) related strategic decisions have tremendous geo-political implications as well. The Africa and West/Central Asia unit would also be critical, especially to India's energy and resource security. Its mandate could be to rapidly deepen India's economic engagement and investment with Iran, GCC, and key Central Asian states like Afghanistan, Uzbekistan, and Kazakhstan. It could also have the mandate for exponentially increasing India's economic footprint in Africa through strategic trade and investment linkages, and concluding agreements with key African regional groupings.

The unit dealing with Europe and the Americas would have the responsibility for Indian economic engagement with more mature industrialised economies. The recent global economic crisis has led to the development of new production models and technology-led innovation in manufacturing. The EU and the US are at the centre of these new manufacturing techniques and products. India must be an integral part of these developments.

A unit on institutional systems could provide a strong base of domain knowledge on key areas of technical expertise required for negotiations on trade and investment related issues. The broad areas of expertise are IPR, professional and technical standards, customs, and environment.

Economic expertise
A chief economist's office could consist of two working groups whose primary function would be to draw on a wide range of economic and commercial expertise and intelligence and develop strategies related to improving the overall competitiveness of Indian economy, as well as to provide inputs for negotiations. One called, say, the economic advisors working group (EAWG), would be a permanent forum that would include the economic advisers of key economic ministries. Unfortunately, the role of the economic advisor in almost all ministries has been downgraded over time, and an immediate institutional overhaul is required. Another, a national competitive councils' working group, would provide a platform for government to work with the private sector in developing sectoral competitiveness, as well as developing practical roadmaps for the implementation of policies developed by the EAWG. Possibly, upgrade the existing National Manufacturing Competitiveness Council (NMCC) by making it truly an operational private-public platform - allowing the private sector to be an equal partner.

A trade facilitation council
This would have a trade facilitation policy working group, headed by the director-general, with the mandate to essentially develop trade facilitation solutions in consultation with all stakeholders, both public and private. It would need senior-level representation from all key line ministries and private industry. Its agreed-on recommendations would have to be made time-bound in terms of implementation under the close surveillance of the PM. The council would also have a "single-window committee" to ensure a single-window environment for all trade-related transactions. It should also be mandated for developing robust measures of trade facilitation and logistics quality and monitor them on a regular basis by ports and by process.

While the TPC with a small dedicated team would focus on the strategic policy, the administrative and implementation functions would have to be carried out by the MOCI, and the other line ministries. It is high time to create the 21st century institutional framework for India's global trade and investment engagement. In all developed and successful economies, strategic trade decisions are taken at the highest political level, and not left to the narrow focus of the line ministries whose task should be the detailed implementation of these strategic decisions.
The author is a trade economist and former economic adviser in the Commerce Ministry. The views are his own, and not of the institutions he is or was associated with