Back in the early 1990s, immediately after the balance of payments crisis of 1990-91, one of the big stories was inevitably India’s external debt. Even an incremental movement in the level of outstanding debt would be reported by the media with the tone of a crisis; politicians would follow the lead as it were, often resulting in several hours of debate in Parliament, when in session.
Since India was under a loan programme from the International Monetary Fund and, hence, under multilateral surveillance, the media leaks could come from almost anywhere. Most of the time, it was not the quantum of the increase, but the fact that it put the government on the defensive that got everyone going.
Then finance minister Manmohan Singh, who was the target of a peeved opposition, figured that the best way out was being transparent and commenced the practice of publishing an annual external debt statement and ritually placed it in the Lok Sabha. Unbelievably, the media hysteria died down overnight; the news reports, excepting for the diligent analyst, were dealt as routine thereafter.
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It is, therefore, baffling to observe that the Congress-led United Progressive Alliance (UPA) under the leadership of now Prime Minister Manmohan Singh react so defensively on the subject of the free trade agreement (FTA), inked on Thursday by commerce and industry minister Anand Sharma, with the Association of Southeast Asian Nations (Asean).
The timing of the deal, which allows for duty free imports in a staggered manner beginning 1 January, is no doubt surprising given that exports are contracting by 50%.
But what was surprising was the absolute lack of communication or transparency from the government on the nature of the deal. In the absence of an authoritative narrative, the reaction is that the government has something to hide. Strangely, while the opposition response was muted or non-existent, the adverse response came from none other than Congress party insiders.
In fact, it was probably the first serious difference in the new tenure of the UPA on an economic issue. What was surprising was not only the sharpness of the dissent but also the fact that the opposition was led by defence minister A.K. Antony—who is part of the charmed inner circle of Congress party president Sonia Gandhi. Support from environment minister Jairam Ramesh, another person considered close to the Gandhi family, only reaffirmed the disquiet in the political leadership of the Congress party.
In fact, it was eventually cleared after Singh personally prevailed on the issue, presumably also expending a considerable amount of his social capital. To mollify the dissenters, the government ordained the setting up of a group of ministers to assess the impact of the agreement on various sectors of the economy.
Spin doctors sought to mitigate further political damage by arguing that it was a localized problem and hence raised by a bunch of Kerala members of Parliament. This argument is facetious. If indeed their fears are unfounded, then why was it that the government did not disclose the contents of the deal to the concerned ministers—instead of handing out a two-page note to them?
It is more worrying because an internal government note prepared ahead of inking of the deal by commerce and industry minister Anand Sharma reveals that:
—70% of the tariff lines would be free of import duties by 2013; they will account for 55% of India’s annual imports.
—The increased market access for India will be 20%, while it will be 75% for Asean.
—A warning that it could hurt India’s negotiating position ahead of the conclusion of the Doha Round of negotiations at the World Trade Organization; the country is actually resisting any drastic across the board reduction in tariffs.
If, indeed, the fears voiced in the note are true, then the merits of entering into a free trade deal with a powerful trading block such as Asean needs to be explained to the nation.
Purely on the issue of transparency, the UPA has come up dramatically short on the India-Asean free trade deal.
While it is unlikely that this fait accompli can be reversed without risking a severe diplomatic setback, it is important to ensure against any such setbacks in future. Obviously, an independent body, such as, say, the Comptroller and Auditor General, which reports to Parliament, needs to take a call on the economic impact of such trade deals, especially given the devastation that the ongoing contraction in exports has created in employment-intensive sectors such as diamonds and textiles.
If nothing, sectors can be prepared for any inclement impact and public policy prepared to deal with the consequences. The US has a body called the United States International Trade Commission, which undertakes a confidential study of the economic impact of FTA deals and also reports to the US Congress.
It would only be fair that the UPA did indeed make this move under the aegis of Singh, who as finance minister had set out such a legacy.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org