Relevance : GS Paper II
Theme of the Article
US concern on trade imbalance with India is misplaced — it is hardly the result of deliberate policy.
Why has this issue cropped up?
Recently, US accused India of following policies leading to “trade imbalances” and “significant market access barriers” for American businesses.
Basis of US’ allegations
The argument given by US was the fact that while the US was India’s biggest market, accounting for a fifth of its total exports, India was only the 13th largest market for US exports.
Is argument given by US justified?
- Trade imbalances in today’s world are rarely a result of deliberate policy. Rather, they have more to do comparative advantage, wherein every country produces goods and services that it can supply relatively cheaper and imports those that are better left to others to deliver at a lower cost. The beneficiary is the consumer.
- The bulk of India’s exports to the US — textiles and apparel, gems and jewelry, IT services, generic drugs, marine products or even steel, organic chemicals and refined petroleum products — comprise things where India definitely enjoys a comparative advance.
- The US, on the other hand, mainly exports aircraft, medical devices, patented drugs, telecom equipment and other high-tech goods plus assorted high-value agri-commodities such as dry fruits and apples to India.
- Moreover, it is an exporter of capital, which takes the form of foreign direct as well as portfolio investments by American companies. They, in turn, remit dividends, interest, royalty and other income from their operations in India.
- Simply put, there is nothing immoral or unnatural about rich countries running merchandise trade deficits with the likes of China and India. They may well offset that with surpluses in goods and services embodying proprietary technology and brand value.
US concerns that India need to address
- There is no justification in import duties of 50-60 per cent on motorcycles and cars. The Indian auto industry certainly does not require so much protection today.
- Equally silly are the restrictions on foreign e-commerce players — their being allowed to operate only as “marketplaces” and not as “retailers”. The losers from this aren’t just Indian consumers, but also the many employed in warehouses, delivery stations and logistics networks established by Amazon or Flipkart.
Conclusion
Trade is ultimately about give and take. Some ‘give’ on the part of India is unavoidable.
