Kamal Nath on Doha round prospects, Indian reforms, export stimulus measures and more …

We still don’t know who will be given charge of India’s commerce ministry, but this announcement can be expected by Tuesday. My sense is that Mr Kamal Nath himself is keen on continuing as Commerce minister and conclude the unfinished Doha round as well as FDI and other industrial  sector reforms.

In an interview to CNN-IBN (see the text here) Mr. Nath spoke about the prospects of the Doha round:

Rajdeep Sardesai: Between 2004-09, Kamal Nath came to be identified with the World Trade Organisation (WTO) talks. Do you believe that with this clear mandate you will have a freer hand in the sense negotiating at the WTO you should be the commerce minister. Do you see a quick completion of the Doha round?

Kamal Nath: I think India needs to have a rule based multilateral system, we have a big stake in that. But today I think the Western countries who are bigger proponents of this are the ones getting cold feet and not India.

Rajdeep Sardesai: Yes, exactly that is why the US democratic administration seems protectionist.

Kamal Nath: That is what I am saying, they are getting cold feet not us.

On FDI:

Rajdeep Sardesai: Just before the elections, you had amended the Foreign Direct Investment (FDI) policy through a press note. Now investments made by a company registered in India in which a foreign company has a less than 50 per cent stake will not be considered as FDI. Some believe this has allowed foreign companies to breach sectoral limits, was this the objective to open up?

Kamal Nath: When we have a global recession, we have to make India a good investment destination. I want to separate ownership and control and this seeks to do that and get more investment.

On FDI in retail:

Rajdeep Sardesai: In your first tenure, between 2004-09 there was this ghost of Left which was always haunting you. This time it doesn’t even exist, will there be FDI in the multi-sector retailing or do you believe that this might affect the kiranewalla (small grocery shop) and that might be a concern that your fellow Cabinet Ministers will against you?

Kamal Nath: It is not FDI, it is big versus small and if it is big you can have a multi-brand Indian company, you have Reliance, ITC etc.

Rajdeep Sardesai: Will you allow FDI?

Kamal Nath: No, I am not talking about retail. As long as FDI doesn’t displace existing employment it is good but talking about the retail sector it is a very grey area.

Rajdeep Sardesai: You see it as a grey area, I thought at one point of time you believed that it would help Indian agriculture.

Kamal Nath: No, we cannot generalise on retail. Retail is not cement and motor, it is technology. If we can have access to retail technology and in fact we must not be looking at man at the moment, we must be looking for the niece and the son and the daughter. And that is the key thing to look at.

On liberalisation (FDI) in education:

Rajdeep Sardesai: The Commerce Ministry had also been wanting to liberalise high education but the HRD Ministry previously under Arjun Singh was not helpful. He is no more there but the fact is that will it happen now?

Kamal Nath: I can’t say that this will happen, I can only say that we have to ensure that our youngsters have the access to the best education in India. Why are we sending thousands of youngsters abroad, why can’t they stay here and study at a fraction of the cost?

On the need for export stimulus measures:

Rajdeep Sardesai: Exports, a critical area again. The export sector has been badly hit by recession. Your (Commerce) ministry had proposed a one year exemption in the payment of the fringe tax to these export oriented companies. Will we see that?

Kamal Nath: Exemption is about competitiveness and cost. Today, if the economy is in recession we can’t plan a package for Europe or the US. We are going to ensure that all levies and taxes are refunded and are not there for export.

Rajdeep Sardesai: But the aam aadmi is the one who is being hit. Do you think the time has come for a comprehensive package for the export sector?

Kamal Nath: There is a need for a comprehensive package to refund taxes, levies on anything that is being exported. Today you go anywhere in the world and you buy something from a shop, you refund immediately. So, you must have all taxes and levies because no taxes and levies are exported.

On differences between the Commerce and the Finance ministeries (in the previous administration the Commerce and Finance ministries had differed over SEZs and over sops for exporters):

Rajdeep Sardesai: Last time there was a feeling that the Commerce Ministry and the Finance Ministry were not on the same track. Will it be different this time with Pranab Mukherjee as the Finance Minister?

Kamal Nath: Well, I think the job of the Finance Ministry is to collect the revenue and see that they do resource management so any Finance Ministry would do that. But you need to weigh it off, you may not export and you may be having an economic impact because of that.

On financial sector liberalisation:

Rajdeep Sardesai: The new Government this time is largely free of the pressures of allies and therefore you will expected to push it with reforms. Last time, every time you were asked about reform you said look my hands are tide. Your hands are no longer tide, will it be different this time?

Kamal Nath: Let’s not say that there were no reforms in the last government. There were reforms in the financial sector which we didn’t do but let us recognise this. We should remember that the reforms that were asked by those financial icons of the Western world, the ones which were wound up.

Rajdeep Sardesai: So, are you among those who think that it is good to be cautious about financial sector liberalisation?

Kamal Nath: No, it depends which reforms we are talking about. We are looking at the reforms which are India specific; we can’t be talking about reforms all over the world. Today the most important reform is the reform in the governance. Reform in our Labour Act, the labour laws must be made employment generating.

On labour law reforms:

Rajdeep Sardesai: So, you would support reforms in labour laws which allow companies to hire and fire easily?

Kamal Nath: We must recognise this that for example if a textile company wants to hire some people to complete an order in four months but they can’t take that order because he can’t hire them for four months. So at that point of time, we are losing on that amount of employment.

Rajdeep Sardesai: But will the politicians allow this kind of labour laws reform? The problem is this is where the politics seem to clash with good economics.

Kamal Nath: No, I am all for the reform in labour laws which generate employment, provide employment security. We have to have this because employment generation is our No 1 priority with the young population.

On Special Economic Zones:

Rajdeep Sardesai: But let’s look at land because there has been controversy over Kamal Nath’s policies as commerce minister when it came to the Economic Zones. You were looked at someone who was liberally granting Special Economic Zones (SEZs), some suggested that it was little more than a land scam. And now you have got Mamata Banerjee who after Nandigram and Singur is going to get tough with any attempts made to liberalise land acquisitions.

Kamal Nath: Let us not talk in the abstract. There are SEZs today on the ground, you can measure easily how much investment is coming to the nearest rupee. We can measure how much employment has been generated, how much export has happened so all that are stories of the past. There are concerns in high density states.

Rajdeep Sardesai: But after Singur and Nandigram, won’t there be pressure to sort of modify your land acquisition policies, your own minister will suggest that.

Kamal Nath: I am all for that and that is what I am suggesting that there was a Cabinet committee, there was a group of ministers selected for that. That has moved the new land acquisition rehabilitation suggestive policy and that parliament had approved that and now this Parliament will take it up.

The videos of this interview (in 5 parts) can be watched here.

Trade/WTO issues in Sharad Pawar-led Nationalist Congress Party election manifesto

Continuing with my earlier posts about elections manifestos and trade policy issues in the 2009 Indian national elections, I looked at the NCP manifesto.

The 2009 NCP manifesto found here does not directly talk about trade policy or WTO issues. But there are some trade policy relevant promises.

The NCP will provide more subsidies for deep-sea fishing and exports. Wonder if they know about what has been going on in the Doha round fisheries subsidies negotiations?

Development of fisheries sector also will be intensified. Assistance will be given to the fishing community for deep sea fishing and processing and export.

The NCP is worried about job losses due to the current economic crisis and is especially worried about highly-skilled labor returning from home from foreign countries.

The global economic crisis that has caused collapse of the economy and retrenchment lakhs of employees working in financial and technical institutions and closing down hundreds of business firms in foreign countries. Though not in that magnitude it is having its effects on Indian economy as well.

Lakhs of Indians including skilled labours, who had been employed in various foreign countries, especially in the developed countries, who have lost their jobs are returning to India. Not only has this affected the contributions of the NRIs to our economy, but has created the problems of rehabilitating them.

The plight of Indian skilled workers returning home because of global meltdown deserve urgent attention. The skilled Indian workers in the past have remitted huge amounts of money, which has helped the country in swelling its forex reserves. Therefore, it is the duty of the government to help these personnel, small/medium scale enterprises by giving them liberal loans at a very concessional rate.

The mixed economy we pursue giving equal importance to public sector, private sector and joint sector has helped us to withstand the onslaught of the world economic recession. But it has slowed down our economic growth, increased our unemployment problems and other related matters. It has reduced export business and multiplied our problems in the sector.

Two packages have already been declared by the government and the banks and government has adopted some measures to ease the situation. But still the situation has not been brought under control.

The onslaught of the global economic recession has started affecting our economy also. Large-scale retrenchments, lay offs, causalisation of employees are creating serious employment problems.

Our economic reforms should necessarily be implemented with a human face. It shall not affect the employment sector negatively.

The NCP wants a boost for domestic consumption:

Under the circumstances, our industries have to concentrate on goods for domestic consumption. Domestic consumption should be encouraged for which the purchasing capacity of the people should be improved. Cheaper goods to meet market competition should be targeted. The growth in the agriculture sector will certainly contribute to the purchasing power of the people to some extent. More investment on infrastructure development, widening the scope of employment guarantee scheme and on other rural development activities would improve the purchasing capacity of the people.

The NCP spells out its concept of development:

By development, we mean overall development of the life of the common man including the weaker sections of the society in as much as it provides a better life for them, better housing facilities, better food, better clothing, facilities for giving better education for their children, and better health facilities. All these depend on more earnings or remuneration. So the economic development should provide for more employment opportunities and more employment generation schemes and projects.

Well, the manifesto seems to have been very hurriedly put together. I guess they don’t rely much upon their manifesto to get votes.

Indian WTO envoy challenges Lamy on Doha round benefit figures

The Business Standard has this rather wonderful report about the Indian Ambassador to the WTO,  Ujal Singh Bhatia, asking  Lamy and the WTO economists for an explanation on how they arrived at the prediction that Doha round tariff cuts would result in $150 billion gains to consumers. Here is the report on the exchange that took place on 14 April 2009 when Lamy presented his second report on recent trade and trade-related developments associated with the financial and economic crisis at an informal meeting of the WTO’s Trade Policy Review Body. My comments follow the report:

India doubts Lamy figure on stimulus

D Ravi Kanth / Geneva April 15, 2009, 0:40 IST

India today asked the World Trade Organization (WTO) chief to explain how he arrived at the figure of $150 billion as “being the Doha Round’s contribution to the global stimulus”, a demand that was supported by the United States.

New Delhi also pressed for addressing “the gaping holes in disciplines on subsidies services”. Several industrialised countries, including the US and other major European countries have provided subsidies to their ailing banking and insurance companies without any regard to the distortions they created in the marketplace.

Intervening at a special meeting on WTO’s report “on the financial and economic crisis and trade-related developments”, India’s trade envoy Ujal Singh Bhatia cautioned about the dangers of dishing out figures prepared by economists without any evidence. Though the latest WTO report was “comprehensive and balanced than its predecessor”, it still contained “figures” which are not supported with hard data, he said.

“Today, economists, especially the forecasters among them, enjoy a social status somewhat below a used car salesmen and perhaps at the level of investment bankers,” Bhatia told the trade body’s chief Pascal Lamy.

Over the last several months, Lamy repeatedly quoted the figure of $150 billion as gains to consumers from the anticipated Doha cuts in agriculture and industrial tariffs. Lamy canvassed support for the Doha Round based on this estimate even though several economists have challenged the veracity of such a claim. The just-concluded G-20 leaders communiqué also mentioned the $150 billion figure without any estimate.

“In the last few years, I have seen numbers ranging from $400 billion to $40 billion in this regard,” said Bhatia, citing Kenneth Galbraith’s famous statement that “the only function of economic forecasting is to make astrology look respectable”. The US trade envoy, Peter Allgeier, said he supported India’s request for more “details” from Lamy.

In his response, the WTO chief defended his claim of $150 billion, saying it was neither “rocket science”, nor based on “astrology”. He said it represented “the revenues foregone” from the tariff cuts proposed in last year’s July proposals, maintaining that the developed countries would incur most of the cuts. “The director general was exposed for making audacious claims without evidence,” said a trade envoy, suggesting there was no truth that the Doha Round would result in such large gains.

Referring to the distortions caused by subsidies doled out to banks and insurance companies in several industrialised countries, India said: “With disciplines in manufacturing already in place and those in agriculture being negotiated, there is no reason why there should not be such disciplines in services as well.”

Therefore, a discussion on “definitions as well as an exchange of information on subsidies in services” is a must, the Indian trade envoy said, calling for a deeper analytical study on a range of trade restrictions that are not properly reflected in the WTO report.

Several members, including India, called for an earlier return to competitive conditions in auto and steel industries by withdrawal of these subsidies as quickly as possible, stating that continuation of such subsidies would adversely impact developing countries.

I like this exchange. It is time that data put out by WTO economists is subjected to scrutiny and analysis. The figures on gains from the Doha round have as Bhatia said, fluctuated between extremes. Sometime back, the International Economic Law and Policy blog discussed this. I can’t find that thread now, but I had posted there about the wide difference in opinion among economists about who would gain most from Doha. At various time various studies have indicated their preferred candidate for who will gain most from Doha. These have included the United States, China, Africa, developing countries and developed countries. 

This exchange once again shows the growing confidence of Indian negotiators. Bhatia is quite acerbic – see his comment about the status of economists.

Tough posturing on trade agreements in BJP manifesto

A follow-up to my earlier post on election manifestos and the WTO:

The 2009 election manifesto of the BJP released yesterday includes a paragraph on international trade agreements. The message is of a tough negotiating stance that will challenge protectionism, safeguard national interest, and renegotiate past commitments if necessary. Food security, health, and interests of workers in technology-based industries are flagged as important issues. Reciprocity and market access is emphasized. All this is of course only election rhetoric, as no positions on substantive issues (except retail trade, see below) are laid out.

International Trade Agreements

The BJP shall fight against the protectionist trend which is emerging in some developed countries. We will safeguard the country’s interests in all bilateral and multilateral trade agreements by avoiding to accept any new unilateral or less than reciprocal commitments. Our Government will renegotiate all such past commitments that are inconsistent with national interests, especially to ensure food security and affordable health care. We will not hesitate to roll back any concessions and facilities not reciprocated by the counterparts. The BJP will safeguard the interests of our vast technical manpower and ensure maximum market access in future agreements depending upon the offers made by the trade partners.

The manifesto has a separate section on retail trade. No foreign investment in retail trade if the BJP comes to power in New Delhi. 

The BJP understands the critical importance of retail trade in the context of employment and services provided by them, and thus favours a dominant role for the unincorporated sector in retail trade. Towards this end, it will not allow foreign investment in the retail sector. After agriculture, the retail sector is the largest employer of nearly four crore people.

We will:

1. Adopt all necessary measures to safeguard the interests of small and tiny retail vendors.

2. Ensure availability of working capital needs for such vendors through credit at not more than four per cent interest.

3. Study the feasibility of a slab-based ‘Compound Tax’ for traders to free them from needless harassment and end corruption.

4. Set up an empowered committee to recommend welfare measures, including a pension scheme, for small traders.

Other items that are interesting from a WTO/ international trade perspective are the promises on labour:

The BJP will holistically address the long-pending issue of labour reforms, bearing in mind the long-term interests of the working class. It will do so through close consultation with representative bodies of labour and employers. We are committed to ensure the following:

1. Making secret ballot compulsory for trade union elections, by suitably amending the Industrial Disputes Act.

2. Launching a training programme for trade unions to play an effective and positive role.

3. Setting up a ‘Workers Bank’ to deal with the banking requirements of labour in the organised and unorganised sectors.

4. Ensuring adequate compensation for any labour that may be retrenched, with the first option being redeployment.

5. Setting up a National Child Labour Commission.

6. For labour in the unorganised sector, revise minimum wages; expand safety net.

And a special mention for the diamond industry that has been hit by the global economic crisis:

Hindustan Diamond Corporation will be provided full support to help the diamond industry tide over the crisis caused by the global economic slump. It will provide raw diamonds to the cutting and polishing units and bank them for future trade.

The BJP manifesto can be downloaded here.

Where will cars get made?

In his speech to Congress, Obama made the following statement on bail-outs for the US automobile industry:

As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink.  We should not, and will not, protect them from their own bad practices.  But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win.  Millions of jobs depend on it.  Scores of communities depend on it.  And I believe the nation that invented the automobile cannot walk away from it.

None of this will come without cost, nor will it be easy.  But this is America.  We don’t do what’s easy.  We do what is necessary to move this country forward.

This immediately brought back to my mind, somewhat “undiplomatic” comments made by Indian trade minister Kamal Nath last year when he declared during the July Doha talks that "The future of automobiles is not in Detroit or Stuttgart, it’s in Asia.". Apparently, Nath had once stated in an interview to Outlook Magazine:

The developed countries must understand that the rules of trade and the leverage that they got from trade have always been in their favour. And these countries, which are the champions of globalisation, are now realising that they are no longer globally competitive, whereas countries like India, which are becoming globally competitive, have started demanding that there should be no curb on globalisation. So they (the developed world) are looking at various ways and means to ensure that there is no change in this balance of leverage. So I said where industrial products are concerned, I am going to protect my infant industries, protect my automobile industry because no more can you make automobiles in Detroit and Stuttgart and sell them in India. You have to make your automobiles in India.

A time will come when the automobiles will be made in India and sold in Stuttgart and Detroit. This is how the trade winds are changing. So my position on industrial products is clear: tell me how much of your duties and tariffs you will reduce and as per the WTO principle, I will reduce it slightly less. If they say they will reduce it by 50%, then I will do so by 40%. But it can’t be that they do (reduce their tariffs) by 20% and expect us to reduce it by 70%.

Watch out for some big battles over where cars will get made – in the land that invented them or where they can get made cheaper! Politics often trumps economics and therefore I think cars will continue to be made both in the US and in India and elsewhere. Who will own the car companies is quite another question of course.