UN points out regressive trade policies and higher costs in India

'Make in India' initiative adds to FDI hopes

Business & Politics

News - Biz@India

December 1, 2016

/ By / Kolkata

India is still lagging behind in terms of providing an amicable business space - UN

India is still lagging behind in terms of providing an amicable business space – UN

While the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) finds trade costs in India higher than the best-performing economies in the region, the ‘Make in India’ initiative is expected to ease foreign investment regulations.

The United Nations has seen the opportunity to pursue sustainable development in a comprehensive manner as the second half of 2016 shows stable economic conditions. Economic, social, environmental and governance dimensions of sustainable development remained the primary concerns of the flagship economic and social survey report conducted by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The report argues that progressive tax policies, together with better and effective economic governance, can help economies make progress on inclusiveness and move decisively towards sustainable development.

India’s trade costs report suggests that the country still remains a tough soil to conduct international and intra-regional trade on although the costs are declining after 2009. The robust economic growth and domestic market demand in India coupled with the ‘Make in India’ initiative is expected to ease foreign direct investment (FDI) in 15 sectors such as aviation, defence, pharmaceuticals etc. However, the overseas investment from India reduced by 36, pc implying that Indian investors find their home soil more conducive, as per the Asia-Pacific Trade and Investment Report 2016. Looking at the future, the high and steady economic growth in the Asia Pacific region, led by China and India, has been an anchor of stability for the global economy, resulting in a broadly positive outlook for developing countries of Asia and the Pacific for 2017.

Asia Pacific – a weak performer

Although the volume of exports of goods grew at 3 pc in 2015, the nominal value of exports and imports by the Asia-Pacific region experienced a major slump in 2015, of 9.7 pc and 15 pc, respectively. Sluggish growth in trade is expected to continue through to the end of 2016. Rebounding somewhat, exports are expected to increase by 4.5 per cent and imports by 6.5 per cent in developing countries of Asia and the Pacific in 2017, but the report forecasts more modest growth in exports and imports in volume terms, at 2.2 per cent and 3.8 per cent, respectively.

“Trade is the key driver of economic activity in Asia and the Pacific,” stated Dr Shamshad Akhtar, Under-Secretary-General of the United Nations and Executive Secretary of ESCAP.

“The region’s economic and trade dynamism is confirmed by the steady rise in the region’s share to 40 pc in global exports. Even if the regional significance in global trade scene is maintained, the fall in share of exports as a proportion of GDP from the 67.5 pc pre-global crisis level to 52.9 pc in 2015 is a cause of concern. To their credit, most Asian exporter economies have decoupled from economic cycles in traditional exports markets, i.e. the United States and the European Union, not only diversifying their export markets but also boosting domestic consumption and the services sector. Notwithstanding, the region has the potential to regain the trade momentum so critical for sustainable development and lead by example, especially if we are to ensure that our future is sustainable and that our societies are more equal,” Akhtar added.

On the positive side, the report reveals that the region has improved its market share in the commercial services trade, with the services trade more than doubling between 2005 and 2015, from just under USD 600 billion to nearly USD 1400 billion. These aggregates however conceal the fall in the region’s export and import of services by 4.5 pc and 4.9 pc in 2015, respectively, compared with the previous year, mainly due to persisting economic uncertainty resulting in the global decline in merchandise trade and a depressed demand for the services sector including transport.

Turning to investment, the report indicates that while foreign direct investment (FDI) has modestly increased, its share in global FDI inflows has shrunk from 42 pc in 2014 to 32 pc in 2015, in spite of growth of 26 pc in green field FDI inflows. South Asia and South West Asia recorded a modest increase, with FDI growth in India standing out. FDI inflows continued to contract in 2015 in the Pacific and North and Central Asia.

Regressive policies

India has received the burns of restricting policies in terms of trade and foreign investment in the country due to complex and time-consuming policies. The investment report points out the worrying trend on the similar lines as the increased usage of restrictive trade policies – especially non-tariff measures – within the Asia-Pacific region, which is partly driven by past distortive trade measures and current excess capacity in several key sectors. Additionally, the region is seeing a proliferation of preferential trade agreements (PTA), with Asia and the Pacific, contributing to almost 63 pc of world PTAs, curbing a momentum towards region-wide free trade. In this context, the report underscores that more efforts must be made to consolidate pre-existing bilateral agreements among members who are also part of free trade agreements.

“Trade is the key tool that governments should utilize to ignite growth and efforts must be increased in implementing trade liberalization policies and deepening regional integration if we are to ensure that the region’s growth maintains an upward trajectory, and that the development gains we have worked so hard to achieve continue unimpeded,” said Akhtar.

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