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Finally, we are hearing a sensible line on free trade agreements

Indians will export items in whose production they have relative competitiveness, even as those who import Indian produce will export to India things in which they have a relative competitive advantage, Piyush Goyal saidPremium
Indians will export items in whose production they have relative competitiveness, even as those who import Indian produce will export to India things in which they have a relative competitive advantage, Piyush Goyal said

  • FTAs are an invitation to the Indian industry to raise their ambition. Instead of looking up only as far as the lowest hanging fruit, Indian industry should aim for the sky

Addressing the 120-year-old Merchants Chamber of Commerce and Industry of Kolkata, commerce minister Piyush Goyal rediscovered a 204-year-old insight dubbed the theory of comparative advantage by its proponent, David Ricardo. Free trade agreements (FTAs) are not one-way streets, said the minister: Indians will export items in whose production they have relative competitiveness, even as those who import Indian produce will export to India things in which they have a relative competitive advantage. Become more competitive and export more, don’t come crying to the government that our free trade agreement partners are ‘dumping’ their produce on the Indian market, urged the minister.

Goyal also highlighted the advantage this brings to Indians who use the efficiently produced, competitively priced imports. They get goods at world-beating prices. These then become inputs for Indians to produce value-added goods that are world-beaters in quality and price.

FTAs are an invitation to the Indian industry to raise their ambition. Instead of looking up only as far as the lowest hanging fruit, Indian industry should aim for the sky. In modern manufacturing, the rejection rate is 10 parts per million or lower. For India to churn out such quality produce, the workers who make them must be happy on the shopfloor, realising their human creativity in the work they do, not chafing at the unfair deal they get from the management; companies must invest a fair bit of their revenue in real research and development, as opposed to dressing up market research as tax-deductible R&D expense; have capital costs that shed the padding meant to divert bank loans for cost-inflated projects to promoter pockets, to be shared with the neta-babu nexus as and when required; have access to world-class infrastructure at world-beating prices as well as a supportive rather than an obstructive, rent-seeking bureaucracy.

The workforce must be healthy and skill-upgradable, meaning, well-educated. Taxes must be competitive in rates and easy to comply with. Contract enforcement must be predictable as to both the time horizon and the logic of the law. Financial intermediation must be efficient. Macroeconomic management must keep prices in check and offer financial stability.

Are we asking for the moon, when we set out this laundry list of conditions that must be met to enable the Indian industry to become competitive in FTAs with efficient rival producers of goods and services? Absolutely not. These are things that developed economies take for granted, meaning they have realised these conditions. A country like China, while still a middle-income country and at risk of growing old before growing rich, has also achieved a fair proportion of these conditions.

If others can do it, why can’t Indians?

 

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