A champion of trade liberalisation

Arvind Panagariya's book offers a rich and fascinating analysis of how protectionism has harmed the country's trade and economy

India’s Trade Policy: The 1990s and Beyond

Author: Arvind Panagariya

Publisher: HarperCollins

Pages:  340+XXV

Price:  Rs 599

 

Few may remember that India’s economic reforms of 1991 began with dramatic trade policy changes. The evening before India decided on July 3 to depreciate its currency against the US dollar, for the second time in quick succession and by a steeper margin of 12 per cent, the P V Narasimha Rao government took an equally important step towards abolishing export subsidies or cash compensatory support for exporters, removing the monopoly of the state trading companies over imports and introducing Exim Scrips that could be traded in the market at a premium, which would be discontinued seven months later, ushering in partial convertibility of the Indian rupee on the trade account.

Thus, the story of India’s economic reforms is intricately connected with trade policy changes. Not surprisingly, the journey of India’s trade policy in the past 33 years has been eventful. Arvind Panagariya, a well-regarded economist known for his deep understanding of international trade and related issues, has been a regular writer on the opinion pages of many news publications in India and overseas and has captured these turns and twists. This book is a compilation of 70 short articles, mostly written for newspapers and some for policy magazines. Six of these pieces have been jointly written by Dr Panagariya, and in five of them, his co-author is his “friend and mentor” and eminent economist, Jagdish Bhagwati.

Appropriately, the articles have been segmented under 10 broad subjects that focus on the importance and criticality of free trade, recidivism in trade policy, issues concerning tariff structure and exchange rate, key historical lessons from trade policy, India-US trade engagement, India’s trade relations with China, the role India has played during multilateral trade negotiations, the importance of preferential trade liberalisation, and the growing influence of non-trade issues in multilateral trade negotiations.

The shortest of these sections are the ones with four articles each. In one of these, he dwells on India’s trade ties with China (advocating that India should maintain a distance from China). In another,  he recounts the lessons that trade policy should learn from history. Another article focuses on what Dr Panagariya believed to be the faulty emphasis by India’s first Prime Minister on heavy industries and the other on how rupee depreciation and reducing import duties are helpful for an economy. The longest section has 15 articles and provides detailed commentary on where India failed or succeeded in negotiations at the World Trade Organization.

The range of issues and developments in this book, therefore, is vast. Unsurprisingly, the pieces also present Dr Panagariya as one of the earliest champions of trade liberalisation.

The earliest piece in this book was written in 1989, following a threat of the United States imposing trade sanctions against India. While urging the Indian government to resist US pressure, he also recommended that it should use this opportunity to reduce tariffs and controls on foreign investment. “Admittedly, tariffs are a major source of revenue for us. But lowering tariff rates that average 130 per cent will raise, not lower, revenue,” he had argued. Those views came a couple of years before India began reducing its import tariffs.

These articles provide a rich and fascinating analysis of how protectionism has harmed the country’s trade and economy and how India could have handled its negotiations at multilateral trade bodies better. The author quotes American economist Paul Samuelson to argue that protectionism is like a skin disease; for trade economists, fighting it is almost a never-ending battle. Even the elimination of protectionism is a slow process.

Unfortunately, Dr Panagariya could not write any newspaper articles from the latter half of 1989 to 1993 when he was with the World Bank, which did not allow its staffers to write in the media. His only article after trade policy reforms of 1991 was published in 1994, where he argued for liberalising consumer goods imports and rationalisation of tariffs. But his articles written thereafter bemoan the fact that subsequent governments removed import licensing only by 2001.

And then there is a problematic reversal of tariff liberalisation —between 1996-97 and 1999-2000 and again from 2018-19 onwards. Almost acting like a watchdog, Dr Panagariya questioned the increase in tariffs, which in his view were regressive and harmful for India. Many of his pieces also made a forceful plea against the use of anti-dumping measures that resulted in denying domestic manufacturers an opportunity to procure raw materials or components from the most competitive sources. Even a growing tendency to rely on import substitution, as seen in recent policy initiatives of the Narendra Modi government, drew his ire, so much so that in one of his pieces he questioned the idea of Make in India. Coming from an economist who headed NITI Aayog, the Modi government’s think tank, and is the chairman of the Sixteenth Finance Commission, such views can hardly be ignored by the present government.

A couple of takeaways from this book are inevitable. One, the author seemed to have been the most prolific as a newspaper columnist in the first decade of the 21st century. He published as many as 26 articles between 2000 and 2009, compared to less than half in the 1990s. Two, he appears to be open to modifying his stance when he believes the ground reality may have changed. Though two of his articles in this book questioned India’s decision to pull out of the Regional Comprehensive Economic Partnership (RCEP), he is now not that critical of India’s stance because of his realisation of the China factor. A minor quibble would be the way the articles have appeared in each of the sections without following a chronological order.