India needs to look beyond Buenos Aires, says Suresh Prabhu

Commerce and Industry Minister Suresh Prabhu
With a little over a fortnight left before the World Trade Organization’s biennial ministerial conference gets underway at Buenos Aires in Argentina, Commerce and Industry Minister Suresh Prabhu tells Subhayan Chakraborty that India should focus on strategising how to scale up its exports in tandem with the economy reaching the $5 trillion mark in less than a decade. To jumpstart exports, Prabhu says the government is conducting market research on specific geographies and products to analyse import demand globally. Edited excerpts:

What are your expectations from the upcoming ministerial conference of the World Trade Organisation in Buenos Aires?

One should judge the success of this round on a very fundamental issue — whether we will continue with the WTO system or not because some countries are questioning multilateralism itself. We very strongly feel that the WTO as an institution needs to be reformed but it has to become even stronger than before. It is a democratic body believing in the consensus of all nations. In my opinion, if multilateralism and its implementation through the WTO are perpetuated, that in itself is a success. So that should be the basic assessment process for Buenos Aires.

But do you feel India can expect some progress?

We should not have some unrealistic, undue, romantic or ambitious expectations from the Buenos Aires meet. We believe in engaging with the world and we are trying to build enough allies across all continents at the WTO. Every ministerial cannot produce great outcomes. A good example is climate change, which was discussed recently at the global Conference of Parties discussion in Bonn. Nothing major happened this time but despite the US walking out of the Paris Agreement, at Bonn they decided to stay within the system. India needs to look beyond the WTO. Buenos Aires is not the end of the world. 

What’s your plan regarding stepping up exports once again?

Over the next few years, definitely less than a decade, India will become a $5 trillion economy, but we won’t reach that size by locking ourselves in a room. We need to remain engaged, to which a significant contribution will be made by global trade.

I have told the Exim Bank to prepare a detailed, well-laid-out strategy on how to reach scale. The strategy will also look at what the role of the WTO as well as that of Free Trade Agreements and regional trade deals will be for India to reach that scale. We are in the process of engaging top-class consultants to conduct, for the first time, market research to focus on specific geographies to map the kind of products going into those markets. Similarly, there will also be a product-specific study. Strategies will be customised for these specific variables. Both the matrices of products and markets, when joined together, will allow us to sell. 

How do you see the challenge of the goods and services tax (GST) affecting exports and what may be the way to resolve it?

We have taken up the issue of the GST on behalf of the exporting community with the finance ministry. Most issues have been addressed by the GST Council, though some are still pending. The good thing is that the finance ministry and the GST Council are responsive to these difficulties. We are working on them. 

What is your view on the role of the exchange rates in boosting exports?

I'm not denying that a weaker currency helps exports. That is proven beyond a point by China, the largest exporter in the world today, which has kept its currency low over a very long period of time. They are continuing with a lower currency even now despite some strong intrinsic strengths of its economy and the large foreign exchange balance sheets and the current account surplus they maintain. A current account surplus and foreign exchange have to go hand in hand. But that is the domain of the larger monetary policy of the country. In a situation where we have a floating currency and certain issues related to that, we must look at support to exports as a strategic economic investment in the country's economy 

Are you reviewing the ministry’s position on Free Trade Agreements (FTAs)?

We have already reviewed our trade deals with South Korea and Asean (Association of Southeast Asian Nations) and are currently reviewing all other trade deals. A review doesn't mean we are coming out of it. We have to find out the difficulties and issues in implementation that some countries may be facing. For example, the paper industry in India is facing huge challenges due to the import of newsprint from Asean. On FTAs, we are talking to some countries. There is Canada, Colombia, Sri Lanka, and the European Union. So, we are trying to work on it. 

Apart from mandated periodic reviews, is the government also considering renegotiating some of the FTAS that industry has continuously pointed out as unhelpful for India?

That's why we take into account everyone's inputs. Also, there are those that say we should have FTAs. If we could have an FTA that only allows us to export and not import, that would be the best FTA. But no country will agree to that. 

Many of our competitors such as Bangladesh and Vietnam are growing their exports, but we are unable to do so. What do you feel will happen, going forward?

We need to do a sectoral analysis of this. For example, in textiles and garments, Bangladesh has done better than us. That's why we came out with the textile package, which was the Prime Minister’s own idea to utilise the huge employment potential in the sector. That policy is under implementation. But sometimes events such as the strengthening of the currency overtake you. There are certain macro level issues active in sectors. Or there might be certain domestic loaded costs like infrastructure costs or interest costs. I have asked officials to look at our competitors and the things they are dong specifically in a particular sector. We may then also use it here.

Domestic investments have remained sluggish. Do you have a revival plan?

Clearly, investment is directly related to savings or you have to borrow from outside. But the pool of investments comes from household savings, which are based on household income. In gross domestic savings, there are three components — government, corporate, and household. But actually speaking, where do corporates get the savings from? They also go through the process of raising money wherein ultimately the shareholders invest their savings. And shareholders’ money comes from equity. So ultimately, if you go to the root cause, the savings rate in the economy has to rise for investments to rise. Now the savings rate has started going up. So that will have a reflection on investments later on. Luckily, demonetisation will help us because of the formalisation of domestic savings into the banking system. So, the formal savings rate will improve also.

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