New Concepts For BRICS

At a recent international seminar on BRICS Studies, in addition to the predictable themes such as building a multipolar world order and the One Belt One Road project, fresh ground was also covered, including the contours of the New Development Bank and the potential impact of the refugee crisis on BRICS countries.

The focus of the conference was to deliberate and discover new development paradigms that are markedly different from the Bretton Woods doctrine, and how BRICS members can embed these in practice.

The opening day included numerous speeches, mostly by former Chinese ministers and diplomats. The overall thrust was predictable: the Bretton Woods’ ideological unipolarity has to end, a new development canon has to be developed, China is interested in fostering a new multipolar world order along with other BRICS countries (as well as other developing and emerging economies), and the world’s (especially western economies’) mistaken notions of China’s global ambitions need to be corrected urgently.

Another recurring theme was bewilderment at India’s inexplicable reluctance to partner in the One Belt One Road initiative.

One of the notable keynote speakers, Leslie Maasdorp, vice president, BRICS New Development Bank (NDB), made three critical points: the NDB will be driven by pragmatism and all changes to the existing paradigm of development financing will be gradual; the Bank will embrace innovation and unlock new technologies with help from civil society and young graduates; and it was working with a long-term horizon of 25-30 years.

Maasdorp also sought to allay three popular misconceptions—that the NDB will compete with the World Bank and the International Monetary Fund, that it will be dominated by China, and that its governance structures will be lax.

Among all the interjections, three stood out. In light of the refugee influx into Europe, BRICS members were requested to also frame a policy on migration. BRICS cannot remain insulated from this humanitarian issue, especially when the growth rate of some members is higher than that of their neighbouring countries. Second, if China wants to partner with BRICS and other emerging economies in articulating a new development theology, it will have to address internal social infirmities such as restrictive human rights, the bar on freedom of speech, and lax safety standards at its industrial complexes. Finally, China was advised to retrospect about why it was misunderstood by other countries, especially India, and make the necessary course corrections.

The seminar, titled ‘New Thinking on Development and BRICS Cooperation’, was organised by the Center for BRICS Studies at Fudan University, Shanghai, on 4-5 September 2015. The text of the full paper follows this blog post. 

The paper was originally published in Gateway House. Here is the link to my paper at the conference: http://www.gatewayhouse.in/wp-content/uploads/2015/10/Rishi_Fudan-full-report.pdf

Do Trade Targets Work?

India has used two-way trade targets as a proxy for judging the temperature of its key bilateral and plurilateral relationships. But a deeper understanding is needed of the extent to which physical targets can help accomplish qualitative objectives

The government of India’s new Foreign Trade Policy (FTP) for 2015-2020 has set a $900-billion goods and services export target, to be achieved by 2020. Compared with the $465.9 billion achieved during 2013-14, the target is almost double of current levels.

The policy document prefaces the target with a rare pithy statement: “A vision is best achieved through measurable targets.”[1] But the fact is, most of India’s key diplomatic engagements—at bilateral, plurilateral, or even multilateral levels—are defined by targets.

Targets are ubiquitous in India’s economic diplomacy. There are many ways to judge the breadth and depth of a relationship between two countries, including cultural exchanges, defence cooperation, people-to-people interaction, and historical ties. But trade and investment targets lay out vector paths for future growth, and set concrete milestones against which progress can be gauged.

The target-driven approach is now spreading to bilateral ties with even smaller nations; for example, India and Vietnam recently agreed to a trade target of $15 billion, to be met by 2020. [2]

But targets are essentially cut-and-dry, and temporal. There is no definitive research showing whether targets have succeeded in imparting additional meaning to an existing relationship, or whether they have been effective in bringing two disparate nation-states closer. In other words, there’s no conclusive evidence showing that quantifiable bounds improve the qualitative facet of an engagement.

India’s Free Trade Agreement (FTA) with ASEAN is a good example. It has been a source of anxiety within government and key stakeholders. India signed the FTA for goods in 2009, but the one on services and investment—arguably India’s strong point—is yet to come into force. Even in the goods trade, India suffers a chronic trade deficit with ASEAN: it imports more than it exports.

In the face of this, the target for India-ASEAN bilateral trade—$100 billion by 2015—looks unattainable, especially since two-way trade (exports plus imports) between the two regions amounted to only $70.5 billion during April-February 2014-15. [3]

Confronted by this glacial pace of trade growth, India has done the next best thing: it has stretched out both the physical target as well the end-date. The India-ASEAN relationship will now be measured by a new target without having to necessarily address performance vis-a-vis the earlier target. External affairs minister Sushma Swaraj announced the new target at the inaugural session of Delhi Dialogue VII on March 11: “However, we need to make a special effort to achieve our target of enhancing trade to $100 billion by 2015, and our aspiration is to double it to $200 billion by 2022.” [4]

India has recast other targets in other strategic relationships as well. During Prime Minister Narendra Modi first state visit to the U.S. in September 2014, the joint statement he issued with President Barack Obama stated: “Noting that two-way trade has increased five-fold since 2001 to nearly $100 billion, President Obama and Prime Minister Modi committed to facilitate the actions necessary to increase trade another five-fold.” [5] In other words, to take trade to $500 billion, though the statement refrained from mentioning a target year.

In the other strategic relation with neighbour China, there is some clarity of objectives on both investments and trade. A joint statement issued by Modi and President Xi Jinping in September 2014 announced: “The Chinese side would also endeavour to realise an investment of $20 billion in India in the next 5 years in various industrial and infrastructure development projects”. [6] During the same trip, a five-year Trade and Economic Development Plan signed between the two countries has, among other targets, an unquantified over-riding objective: reduce the trade imbalance India suffers in its $65-billion bilateral trade with China. [7]

Even with Africa, the $90-billion target set for 2015 is likely to be missed. [8] It is also quite likely that the target will be bumped up—both the volume as well the year. This might be announced at the Third India-Africa Summit scheduled for October 2015.

When the foreign trade and investment landscape is suffused with a surfeit of targets, the logical questions are: How are targets fixed? What is the strategy for meeting them? No one knows the answers.

For one, there is no clarity on who should set and announce targets—the commerce ministry or the external affairs ministry? While think tanks and academic experts are known to have been engaged by both ministries to finalise targets, the research output is not available to civil society, either for viewing or for providing inputs. Inviting public comments before finalising targets, or even to assess the methodology used, can probably infuse some realism into these exercises.

Second, once the targets are announced, there is no detailed analysis of how these will be met, and no outlining of strategy, at least not in the public domain.

Finally, this year’s Foreign Trade Policy also raises a crucial issue that has bedevilled India’s trade practices: the lack of coordination between different economic agents as well as ministries operating in silo-like structures. But then the policy stops short of mentioning how “Make in India” or “Digital India” or even the policy on smart cities can be integrated with the FTP to deliver higher exports of both goods and services. That remains the biggest challenge for India’s trade regime.

References


[1] Ministry of Commerce and Industry, Government of India; Foreign Trade Policy Statement, <http://dgft.gov.in/exim/2000/FTPstatement2015.pdf>, p.14

[2] Ministry of External Affairs, Government of India, Joint Statement by Indian Prime Minister Narendra Modi and Vietnamese Prime Minister Nguyen Tan Dung,28 October 2014, <http://www.mea.gov.in/Speeches-Statements.htm?dtl/24143/Media+Statements+by+Prime+Minister+of+India+and+Prime+Minister+of+Vietnam+in+New+Delhi+October+28+2014>

[3] Ministry of Commerce and Industry, Government of India, Trade Statistics, <http://commerce.nic.in/ftpa/cntq.asp>

[4] Swaraj, Sushma, Keynote Address at Inaugural Session of Delhi Dialogue VII,Ministry of External Affairs, Government of India, 11 March 2015,

<http://www.mea.gov.in/Speeches-Statements.htm?dtl/24899/Keynote_Address_by_External_Affairs_Minister_at_the_Inaugural_Session_of_Delhi_Dialogue_VII_New_Delhi>

[5] Ministry of External Affairs, Government of India, Joint statement by Indian Prime Minister Narendra Modi & U.S.A. President Barack Obama, 30 September 2014,

<http://www.mea.gov.in/bilateral-documents.htm?dtl/24051/Joint_Statement_during_the_visit_of_Prime_Minister_to_USA>

[6] Ministry of External Affairs, Government of India, Joint Statement between the Republic of India and the People’s Republic of China on Building a Closer Developmental Partnership, 19 September 2014,

<http://www.mea.gov.in/bilateral-documents.htmdtl/24022/Joint_Statement_between_the_Republic_of_India_and_the_Peoples_Republic_of_China_on_Building_a_Closer_Developmental_Partnership>

[7] Ministry of External Affairs, Government of India, List of Documents signed during the State Visit of Chinese President Xi Jinping to India, 18 September 2014, <http://www.mea.gov.in/incoming-visit-detail.htm?24012/List+of+Documents+signed+during+the+State+Visit+of+Chinese+President+Xi+Jinping+to+India>

[8] Singhal, Rajrishi; Indian Banks in Africa: Change Agents; Policy Perspective No 8, Gateway House: Indian Counmcil on Global Relations, 9 January 2015, 

<http://www.gatewayhouse.in/wp-content/uploads/2015/01/Policy-Perspective_Economic-diplomacy-with-Africa.pdf>

Budget 2015: No Heed to Economic Diplomacy

Finance minister Arun Jaitley’s 2015-16 Budget resonates only partially with Prime Minister Narendra Modi’s arc of economic diplomacy; it lacks strategic intent that could invest India with some geo-strategic heft in the years to come

Soon after he was sworn in as Prime Minister, Narendra Modi invested India’s languishing economic diplomacy with a renewed energy. It was therefore widely expected that Budget-2015 would achieve strategic convergence with Modi’s vision of using economics to drive India’s foreign policy. But the Budget seems to have achieved that only partially.

Economic diplomacy has a two-pronged role in the Indian economy. One, to open up markets for Indian goods, services and investments, with special emphasis on widening and deepening India’s footprint in neighbouring countries and newer markets like Africa and Latin America. Two, Modi’s whirlwind foreign engagements in the first eight months of his premiership were also focused on attracting foreign inward investments — from governments as well as the private sector — to further invigorate his “Make In India” programme.

On the first count, the Budget is conspicuously silent. It is on the second that the Budget holds out some hope.

The silence in the first instance is surprising. With the U.S., European and Japanese economies — which have also been India’s traditional export markets — still struggling to break out of a low-growth trap, it is imperative for India to create a beach-head in newer markets for its goods, services and investments. Post 2008, India was forced to look to Africa and Latin America to maintain export buoyancy. But, both continents together account for a paltry 15% of India’s total exports and there is nothing strategic in this Budget that indicates a desire to achieve higher numbers.

Modi’s foreign policy priorities have also included a renewed thrust on India’s immediate neighbourhood — countries in both the South Asia Association for Regional Cooperation (SAARC) and Association of Southeast Asian Nations (ASEAN). Barring the announcement of a project development company to help facilitate Indian private sector investments in Cambodia, Myanmar, Laos and Vietnam (CMLV), the Budget is bereft of any meaningful strategy. For example, there is no mention of, or funding allocated to, linking India’s North East to ASEAN through an all-weather transport corridor, an issue that has been discussed and accepted. Even with CMLV, there is no clarity on the investment-absorbing capacity of the individual countries or the kind of sectors Indian companies can focus on [1].

The Budget’s commitment to economic diplomacy is also reflected in money kept aside for various ministries. Budget allocation for 2015-16 under the head “Technical & Economic Cooperation with Other Countries and Advances to Foreign Governments” in the Ministry of External Affairs (MEA) [2] is up by 25.88%. But when compared with the original budget estimate, the allocation is actually down by about 3.5%. Worse, the budgetary outlay for the Department of Commerce in the Ministry for Commerce and Industry (the bulk of which is earmarked for foreign trade and export promotion) for 2015-16 is lower than both the revised and budget estimates for 2014-15. [3]

Another missed opportunity is the Indian Technical and Economic Cooperation (ITEC) programme, a key instrument of India’s development diplomacy which is administered by MEA. Despite its popularity, it’s allocation at Rs 180 crore for 2015-16 is just 16% higher than the actual expenditure last year. 

An argument can be made that given the shrinking fiscal space for the Centre, and the pressure to kickstart growth impulses through public spending, little is left to spare for economic diplomacy. However, that logic is self-defeating because the gains to economy — both in terms of growth and revenue — from accelerated geo-economic strategies is well known.

What makes these lapses doubly alarming is the grim future scenario for India’s trade regime outlined in the Economic Survey, which was released by Chief Economic Advisor Arvind Subramanian only a day before the Budget announcement. [4]

The survey singles out three main challenges: the phenomenon of unbundled and geographically dispersed global value-added manufacturing chains into which India has integrated slowly, the imminent rise of two large trade blocs (Trans-Pacific Partnership with Asia and Trans-Atlantic Trade and Investment Partnership with Europe) which will cover half the world’s trade and China’s emergence as a major voice in trade negotiations. India, says Subramanian, has only two choices: measured integration (an euphemism for status quo) or ambitious integration, which will require India joining the TTP (currently a remote possibility). The flip sides to both options are that measured integration will leave Indian exports isolated, while joining the TTP will require substantial liberalisation which may be out of alignment with domestic level reforms.

As China did during its entry to the WTO in 2001, India can forcefully dovetail the domestic reforms agenda to an external priority. But the country’s competitive democratic politics and the presence of varied interest groups makes that task exceedingly difficult.

Gateway House has been advocating a greater impetus towards improving India’s relationships with neighbours in SAARC and ASEAN, through a strategy of Corridors of Development and Circles of Influence, as a means of achieving some geo-strategic primacy in the coming years. [5] [6] This Budget could have begun that journey.

But, to be fair, finance minister Arun Jaitley has introduced many measures to attract fresh investment into manufacturing and services. These moves may not be headline-grabbing, but are a nuts-and-bolts policy framework: they seek to improve the ground conditions for attracting investments, facilitate efficient use of financing, eliminate legal obstacles that inevitably lead to disputes and prolonged legal battles, simplify processes and stabilise the tax regime. There seems to be a realisation in the Budget, as well as in the Railway Budget of February 26, that investors — whether domestic or foreign — are unlikely to part with their money unless the ground conditions are improved substantially.

The specific measures introduced by Jaitley – heeding the advice of the Economic Survey – include eliminating distinctions between different categories of foreign investors, one-source clearance for regulatory approvals, easier dispute settlement mechanisms, broadening scope of investment vehicles for foreign capital, providing tax clarity and stability. [7]

Hopefully, the oversight in providing the Budget with a strategic edge through geo-economics will be corrected in the quinquennial Trade Policy 2014-2019, which is already delayed and is likely to be announced soon by Commerce Minister Nirmala Sitharaman.

REFERENCES:

[1] Mathur, Akshay; Policy Catalyst: Seven Sisters’ Corridor; 30 May, 2014; Gateway House; http://www.gatewayhouse.in/policy-catalyst-seven-sisters-corridor/

[2] Notes of Demands for Grants 2015-16; Demand No 33, Ministry of External Affairs; Expenditure Budget, Vol II; http://indiabudget.nic.in/ub2015-16/eb/sbe33.pdf

[3] Notes for Demands for Grants 2015-16; Demand No 12, Department of Commerce, Ministry of Commerce and Industry; Expenditure Budget Vol II; http://indiabudget.nic.in/ub2015-16/eb/sbe12.pdf

[4] Economic Survey 2014-15; Department of Economic Affairs, Ministry of Finance, Government of India; February 27, 2015; http://indiabudget.nic.in/es2014-15/echapvol1-01.pdf (Page 37)

[5] Kripalani, Manjeet; Circles & Corridors of Economic Diplomacy; 18 April 2014; Gateway House; http://www.gatewayhouse.in/circles-corridors-of-economic-diplomacy/

[6] Gateway House Fellows; India’s foreign policy priorities 2015; 1 January 2015; Gateway House; http://www.gatewayhouse.in/indias-foreign-policy-priorities-2015/

[7] Jaitley, Arun; Minister of Finance, Government of india; Speech to Parliament while presenting Budget 2015-16; 28 February 2015;http://indiabudget.nic.in/ub2015-16/bs/bs.pdf

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Reprinted with permission from Gateway House: http://www.gatewayhouse.in/budget-2015-no-heed-to-economic-diplomacy/

and

Quartz India: http://qz.com/354516/another-area-where-modis-budget-disappointed-economic-diplomacy/