Yet the actions of Modi’s government seriously undermine his case. India reacted to rising world commodity prices by unexpectedly blocking sugar and wheat exports; some expect rice to be next. These are products for which India plays a major role in world markets; the country is the world’s second largest exporter of sugar and the second largest producer of wheat. World wheat prices rose 6% following the announcement of India’s export ban.
Certainly, for India, food prices are of particular importance. It is one of the few countries in the world where food products represent more than half of the consumer price index. If you don’t control food prices, you risk skyrocketing inflation expectations and years of macroeconomic instability.
But export bans are not the only way to manage food inflation. Besides, what is the excuse for all the other New Delhi anti-trade measures? The Indian steel industry is still reeling from the unexpected and arbitrary increase in export taxes on finished steel products imposed last month. Share prices of Tata Steel Ltd. fell by 15% and those of Steel Authority of India Ltd. even more.
The arbitrariness of India’s trade policy is even more evident in the way the government has treated the country’s paper industry. After two years of rising global prices, officials recently said all imports of paper products would now require “pre-registration” – dangerously close to a 1970s-style license. This, according to the government, ” would go a long way in promoting “Make In India” and “Atmanirbhar” [self-reliance].”
So, rather than arguments detailing how a coherent trade policy contributes to productivity and investment, we are left with empty slogans. Every bad anti-trade decision is presented either as supporting Modi’s “Make in India” and “self-reliance” efforts or as necessary to control inflation. And the slogans can happily point in opposite directions: two years ago, India imposed tariffs on steel imports to protect domestic producers; now it has an export tax to protect domestic consumers.
India’s trade policy is not only inconsistent over time, but contradictory at one time. For example, steel producers are rightly complaining that new export taxes mean they will not meet the export targets set by the government under an incentive subsidy scheme launched as recently than last year. To sum up: first the government raised steel tariffs, then it subsidized exports and set strict targets for the steel industry, then it imposed an export tax on steel products to control domestic prices, all in just a few years.
These are not, to say the least, the kind of decisions that build trust. Who will sign a long-term contract for Indian steel under such circumstances? India cannot hope to steal investment from China as long as its trade policy is so unpredictable.
Moreover, Indian protectionism is not only hurting Indian producers; it hurts the world. As my Bloomberg Opinion colleague David Fickling has pointed out, the global hunger safety net depends on major global food producers – including India – avoiding disruptions such as export bans. If India, which will assume the presidency of the G-20 later this year, expects to be treated as a world leader, we must begin to consider the global effect of our policies.
Modi himself is intensely sensitive to international perceptions of India. Yet he continues to be forced into embarrassing raids by his own government. Last year he promised India would vaccinate the world – only to end vaccine exports after the Delta variant arrived. In April, he promised to “feed the world” and “send relief from tomorrow”; within weeks, his government shut down the wheat trade.
Judging by his words, Modi certainly understands how essential trust is. Now he just has to build some.
More other writers at Bloomberg Opinion:
• Heat waves, wheat and the Chapati crisis in India: Andy Mukherjee
• Is Sri Lanka’s big sellout about to begin? : Ruth Pollard
• Joe Biden’s big Asian trade deal is just a small step: editorial
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Mihir Sharma is a Bloomberg Opinion columnist. A senior researcher at the Observer Research Foundation in New Delhi, he is the author of “Restart: The Last Chance for the Indian Economy”.
More stories like this are available at bloomberg.com/opinion