Modi and Free Trade: A Love Story

Four score and seven months ago, whilst the nation was witnessing the “Modi-wave” in its original iteration, Modi championed the cause for free trade on his campaign trail. For far too long he said, our nation had kept its economy incarcerated and that liberal trade policies were necessary to unshackle the nations growth, fast forward to 2020 and we all know how our Prime Minister feels about liberal policies these days.

With that in mind, this article talks about the good, the bad and everything in between with regard to our nation’s trade policy and outcomes under PM Modi.

Ministry of Commerce and Industry

First up we have the institutions, Ministry of Commerce and Industry (MoCI), Department of Commerce oversees the formulation and then the implementation of the trade policies via its 10 divisions:

1. International Trade Policy Divisions

2. Foreign Trade Territorial Division

3. Export Products Division

4. Export Industries Division

5. Export Services Division

6. Economic Division

7. Administration & General Service Division

8. Finance Division

9. Supply Division

10. Logistics Division
    

These divisions are tasked to work together in symphony so as to lay the basic framework for the country’s foreign trade policy (FTP), to establish and maintain multilateral and bilateral commercial relations and to monitor the country’s export and import levels.

Under the Modi regime, we have had Nirmala Sitharaman, Suresh Prabhu, Piyush Goyal take turns leading the MoCI with PM Modi pulling the strings. In this piece we will discuss how Modi tipped the balance in favor of more protectionist trade policies as times and the people leading the ministry changed.

Nirmala Sitharaman (May 2014 - September 2017)

First up was Nirmala Sitharaman, currently serving as the finance minister she has a Bachelor of Arts degree in economics and a Master of Arts degree in economics and M.Phil. from Jawaharlal Nehru University (1984). Under Sitharaman, Then FTP laid down plans to double the nation’s exports to 900bn$ and to increase the country’s share of global trade to 3.5% by 2020, Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) were introduced to do the same.

The FTP laid down under Sitharaman, was designed to go hand in hand with the make in India and digital India initiatives. Export of defence, farm produce and eco-friendly products was encouraged and it actively promoted eCommerce industry. The FTP was to undergo review after two and a half years unlike the annual reviews of the past so as to ensure continuity of the policy.

At the time, actively taking a leadership role in the Regional Comprehensive Economic Partnership (RCEP) was seen as a roadway to announce India on the global trade platform and doing so would go well with Modi’s rhetoric promoting free trade. However, a lot of these initiatives became obsolete due to the changing nature of time and circumstances. This FTP, which was drafted in 2015, a time when our nation had a relatively stable economy, a time when Donald Trump had not entered the scene and at a time when demonetization was still a work of fiction.

Suresh Prabhu (September 2017 - May 2019)

Next up, it was Suresh Prabhu’s turn to head the MoCI and see out Modi’s first turn.

Prabhu, a chartered accountant by trade served as the Minister of Railways, Minister of Commerce & Industry and Civil Aviation in the First Modi term. During his time at the MoCI, he would prove to be a transition minister as the country’s FTP grew more and more protectionist.

The highlight of Prabhu’s term was the mini trade war with Trump’s America. Since the beginning of 2018 US levied additional tariffs on India’s steel and aluminum exports amongst other goods. India retaliated quickly imposing tariffs on $1.3billion worth of American goods. Almonds from California and apples from Washington were the top affected products. All this while trump had already led the US into a trade war with China and India eventually relaxed some of the tariffs, leveraging that situation to paper over some other bilateral issues, with Suresh prabhu on quote saying “we have consulted all the ministries and we have given them an offer” when asked about resolving the conflict with the US.

The US-China trade war largely dictated the global trade trends, and during this period India largely presented itself as neutral by-stander with much to gain from both the countries. “We will make sure that without hurting the interests of our partners, there are opportunities for India to participate in the global trading order in a larger scale,” said Prabhu during the Global Business Summit in February 2019 and highlighted how India did not mean to benefit due to disruption in the supply chains caused by the standoff but rather India seeks to benefit from the situation after the trade deal between India’s two largest trade partners.

Whilst Prabhu was in-charge India made significant leaps in the charts for Ease of doing Business rankings leapfrogging 23 places to be ranked 77 worldwide and ranked no. 1 in south Asian countries.

Piyush Goyal (May 2019 - Incumbent)

Coming onto the final piece of the puzzle, Piyush Goyal, he holds two cabinet level positions in Modi’s Cabinet, He serves as the Minister of Railways and Minister of Commerce and Industry. His tenure has proven to be a hallmark example of throwing the kitchen sink response. China’s growing regional superiority coupled with dwindling condition of the Indian Economy put forward a rather difficult choice in front of the Indian Government; Whether to concentrate on regional development at home? or expand the country’s regional influence in an effort to stand its ground against China?

Whilst China focused on closing the Regional Comprehensive Economic Partnership (RCEP), a multilateral free trade deal, the largest of its kind in the Asia-Pacific Region accounting for nearly 50% of the world’s population and nearly one-third of the global GDP, Modi and co. backed out of the RCEP saying it was “bold and courageous decision to not join RCEP, since it was against our economic interests and national priorities”. India runs a trade deficit of $105 billion with the RCEP countries and it feared joining the pact would mean flooding the market with foreign imports and hurting domestic prospects, also the RCEP was seen as pushback on the Make in India policy.

By late November 2019 as China looked to seal the RCEP partnership without an Indian presence, Covid struck, The recently concluded US-China trade deal turned obsolete, The entire world went into lockdown and the global supply chains were heavily affected, a strong anti-China sentiment was at the very centre of our governments foreign policy, following suit amongst the big players was the US. This common resentment against China is playing a key role in the ongoing negotiations between Mr. Goyal and his American counterpart as they work on “quick trade deal” and a preferential trade agreement, but it is plausible that with the upcoming US Presidential elections, ink will only be put to paper once the next President is confirmed.

CONCLUSION

Modi with all his charm, made all these promises that looked good on a sunny day, but just as the tide took a turn he flip-flopped his entire campaign on the free trade cause and put the country back into the rabbit hole he vouched he would help escape.

-Arnav Bhatara