IMPRI Team
By looking at the current scenario, it is indeed true that the Covid-19 Pandemic has brought a drastic change in the global economic scenario. These changes are the consequences of the various policy measures including, locking and unlocking of the economies, deglobalization- forcing countries to shut down their borders, putting restrictions on the movements of goods and humans across borders, changing fiscal and monetary policies, and various other strategic decisions made by the government that are debatable and matters of discussion at the table.
Specifically, India has been reeling under recession since last February as revealed by the drastic contraction of GDP (by 23.9%) in the first quarter of 2020-21, followed by a significant contraction of the economy by 7.5% in the second quarter. There was a drastic fall in GST collection in the wake of lock-down and a consequent fall in production and business activities. Not only this, it has affected the life and livelihood of the people.
International trade has reached its lowest except the transaction of essential items like medicines, medical equipment, and the like. The imports during April-May 2020 declined faster than that of exports and the India exiting RECP turned out to be burning topics for discussion.
To discuss the minimalities of the Changing Dynamics of India’s Trade in South Asia in this ongoing pandemic South Asian Studies Center (SASC) Impact and Policy Research Institute (IMPRI), Counterview and Center for Development Communication & Studies organized and insightful #WebPolicTalk with Prof. Utpal K De, Professor, North-Eastern Hill University, Shillong and the speaker Prof. Prabir De, Professor, Research and Information System for Developing Countries on November 19, 2020.
Background
Prof. Utpal K De initiated the discussion by highlighting the pertaining economic issues that India has been facing since the last 6-7 months like uncertain employment, depression, and the government policies to revive survival: addressing the most affected backward communities through relaxations, the industrial production, and trade to overcome them.
Openess and GVC
To understand the Indian trade scenario, Prof. Prabir De presented his paper,r which mainly focused on the topics like the assessment of the impact of Covid-19 on trade openness and value chain participation, the impact of trade costs on India’s exports, India’s exports forecast based on gravity modeling framework and derivation of the role of trade facilitation in the changing world trade.
In his paper, he addressed the issue of drastic change in imports and exports and the trade with other countries, and the reason behind these. Through empirics and analytics, he analyzed that the quarter-on-quarter growth of exports during the Covid-19 period is negative for the countries which have trade openness of more than 60%. At the same time, the growth of export is negative across countries falling under the GVC backward participation.
He elucidated the concept of ‘openness’ as the measure of trade openness proxied by the percentage share of total export and imports to GDP and GVC. During his analysis, he found that trade openness and GVC participation negatively affected trade in the Covid period and called for strengthening support. The impact of the supply chain due to lockdown and the pandemic is multifaceted due to the high degree of integration and interdependence of value chains across the countries. Therefore, countries need to strengthen their supply chain.
Trade Partners
He showed the impact of trade cost on India’s exports through the Augmented Gravity model and concluded that the entry cost in the partner country is negative, suggesting an increase in trade costs would affect India’s export to the partner country.
He also claimed that countries in international trade are voluntarily agreeing to the WTO Trade Facilitation Agreement as they want transparent, digital, and combined paperless trade now. He also showed 2SLS Methodology to Investigate the effect of digital trade facilitation measures on trade costs and its impact on import and export through gravity modeling framework.
Addressing the Atma Nirbhar Bharat Abhiyan, he suggested that we need to rationalize when we have overlapping FTA partners, according to him, multilateralism is the best policy in the long run. The paper also shows a new emerging architecture among the relations and trade agreements between the countries, especially with Covid-19.
Other Facets of Trade
Prof. Utpal K De raised pertinent issues like the real reason behind the increase in the Foreign Exchange Reserves in India, changing composition of trade, East Asia integration, and one important observation that having common borders does not necessarily enhance the trade because of political and social globalization issues. This became especially prominent during Coivd-19.
Dr. Simi Mehta emphasized India exiting RCEP and questioned whether that was a careful repositioning of India against China? She also raised the questions of free trade agreement, which has now become at least a preferential trade agreement with the USA and EU.
Dr. Arjun Kumar emphasized protectionism, which is being adopted through Atma Nirbhar Bharat in India, and how it will affect the global supply chain and the ways of how businesses can be integrated into new trade agreements.
Conclusion
As a key takeaway from the paper, it can be concluded that to revive the economy from the aftermath of the Covid-19 pandemic, we need to promote trade openness and value chains by focusing on strengthening the supply chain and connectivity, skilling and logistic services, etc. We must focus on more digital trade facilitation and reforms, paperless trade, etc. For achieving multilateralism, we need to have effective implementation of the WTO TFA.
To increase manufacturing competitiveness, India needs to reform domestic policy, promote regional and global value chains to benefit from tariff liberalization. There is a need to focus on MSMEs to make them simple and friendly to promote India’s exports.
Acknowledgment: Divya Singh is a Research Intern at IMPRI
