Staying out of IPEF's trade pillar: There are two sides to this debate

There's a school of thought that believes that India is trade averse. This notion arises from India's persistent reluctance and refusal to join regional trading arrangements like the Chinese RCEP and now the American IPEF. India had also been a reluctant supporter of WTO. Overall, it has always preferred bilateral agreements. 

Many economists and diplomats think this is a bad approach to trade. An equal number thinks it's a good approach. 

One huge problem in this 35-year-old debate is the absence of specific criteria for judging good and bad. Another has been that the government always sets the terms of intellectual engagement even though it's least equipped to do so. The result has been polarisation between those who argue in terms of livelihoods (government) and those who argue in terms of economic efficiency and technology transfer.

This creates the usual problem — both sides are right. So, in the end, it boils down to a matter of balance. But how do you achieve that balance when you have no previously agreed upon criteria? 

Nor is there a clear idea of winners and losers. The government wants no losers, which is politically desirable but practically impossible. The other side says let the market decide, never mind if the entire economy suffers. The shakeup and the resultant consolidation will eventually benefit the country. 

In other words, there is no meeting ground between politics which is looking at the elections this year and economics, which is looking at the next decade. 

The first thing to acknowledge is that we are not a big economy. We are to the world economy what the other SAARC countries together are to the Indian economy — inconsequential. It's only after we recognise that we are, in fact, a small economy that we can approach trading blocs sensibly. 

The short point is we have no bargaining power and will always be at a disadvantage in any arrangement led by a much bigger economy like the US and China. It's they who will make the rules. So staying out makes sense. 

We are big enough to matter when we stand outside the tent but tiny and unimportant when we stand inside it. And we are tiny not just in terms of economic size but also in terms of the number of supporters inside the bloc. 

That said, the livelihoods argument can be overdone by politicians who care more about immediate political perception problems and not medium-term economic outcomes. 

The UPA used the livelihoods argument on agriculture in the Doha Round. It had no basis in facts, but no political party would agree to be labelled as anti-farmer. That's a reality that doesn't apply to the US, where farmers are just about 1.5 per cent of the population and China which doesn't care about individuals. 

Having followed these trade policy debates closely for three decades, I would like to propose that we should focus more on specific balance and less on generalised beliefs. 

First, after the world's experience with China in the WTO, it's not just your policies that you must change; you must always be mindful of what China does. 

Second, adopt predictable export and exchange rate policies. This is something the late Rahul Khullar, a fine economist, used to lament all the time. He saw unpredictability from the sharp end as the commerce secretary. 

Third, don't listen to economists and diplomats with no skin in the game. Instead, listen only to trade policy lawyers and, farmers & business people. If the latter say, it's ok to join a trade bloc, join. If they say don't, stay away.