Q.9 “India’s trade outlook needs a policy shift amidst the global paradigm shift in the aftermath of the Brexit and the US elections”. Analyse.

Ans. The environment for global trade policy has probably undergone a paradigm shift in the aftermath of Brexit and the US elections (Economic Survey 2016–17). The Brexit was motivated by protectionist sentiments in the UK. Similar sentiments are being signalled by the new US government, too. This may lead to sharp appreciation in the US dollar—it has already appreciated 5.3 per cent during November-December 2016, settling at 3.1 per cent higher by January 2017 (against an index of partner currencies). During the most protectionist phase of the USA (mid to late 1980s) a sharp rise was seen in the dollar—caused by tighter monetary policy and relaxing fiscal policy.

On the other hand, a vacuum is being created in international trade leadership under the possible resurgence of protectionist pressures. In such a scenario India needs to promote open markets and tap domestic growth. Similar moves are needed from the emerging market economies (EMEs), too. In this way, for India two specific opportunities arise—

(i) India could get much benefits by promoting ‘labour-intensive exports’ and ‘negotiating free trade agreements’ with the UK and Europe. The potential gains for export and employment are substantial—additional export of US$ 3 billion (specially in the apparel and leather & footwear sectors) and additional employment of 1.5 lakhs.

(ii) The likely retreat of USA from regional initiatives such as the Trans- Pacific Partnership (TPP) in Asia and the Trans-Atlantic Trade and Investment Partnership (TTIP) with the EU, it is possible that the relevance of the WTO might increase. As a major stakeholder and given the geo-political shifts under way, India should proactively pursue to revive WTO and multilateralism.

In this backdrop, India needs to recalibrate its foreign trade policy outlook so that it is able to minimise the negative impact of the global changes and maximise gains in its favour.