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‘Make in India’ a work in progress



Dressmaker making a garment in his workshop, Amritsar, India, 18 March 2019 (Photo: Reuters/Christopher Bellette)

Author: Aasheerwad Dwivedi, Delhi University

Historical experience presents ‘structural transformation’ as a necessary condition for achieving high economic growth in any country. The typical transformation path involves people moving from agriculture towards industries and then services, from low to high productivity sectors, and from villages to cities. To the sorrow of millions, India missed the bus in the 1960s and — unlike its Eastern neighbours such as China — followed its own atypical path.

India’s latest attempt to move up the value chain is the ‘Make in India’ initiative introduced in 2014, which emphasises creating world-class infrastructure, minimising red tape, promoting innovation-friendly policies and improving the ease of doing business. Its timing was seemingly perfect amid the trade opportunities ostensibly created by souring China–US trade relations.

Seven years after its introduction, the euphoria is low. The manufacturing sector’s share of Indian GDP is merely 15 per cent, despite the initiative targeting 25 per cent by 2022. The growth rate of manufacturing averaged 4.5 per cent from 2014–2021 — meaning the scheme is similarly unable to deliver the 100 million manufacturing jobs promised by policymakers. Although FDI has doubled since 2014 (US$81.72 billion in 2020–2021), most investment has flown into services and computer software or hardware.

Indian exports increased from US$310 billion in 2014 to just US$313 billion in 2020, with their composition largely unchanged. The EU-28 is still India’s main export destination, followed by the United States and other Asian countries (together comprising one-third of the total exports).

While failing to produce any significant result on the trade front, the scheme has had some success in attracting investment in mobile manufacturing, automobile and pharmaceuticals. Global brands like Samsung, Hitachi, Kia, Apple and PSA have started manufacturing in India, with India’s share of smartphone manufacturing doubling from 10 per cent to 20 per cent between 2017 and 2020.

To provide additional thrust to the ‘Make in India’ initiative, a ‘production-linked incentive’ was introduced in March 2020 to improve local supply chains and spur investment in high-tech production. To increase economies of scale, the government is subsidising manufacturers to invest in technology and supply chain improvements if they produce above a certain threshold.

The scheme covers 13 sectors, including pharmaceuticals, mobile phones, auto-components and textiles, with a total outlay of US$26.48 billion. Since the scheme is aimed at making domestic producers competitive and reducing import dependence, it is tailor-made for a post-COVID-19 world in which the benefits to a diversified manufacturing base are amplified.

Yet the hurdles to government-led manufacturing lie in policy inconsistency and poor sectoral targeting. Once the state provides protection, it is difficult to withdraw and difficult to discern what will happen in the absence of protection. India’s protectionist past is evidence of this difficult balancing act.

While the Indian government has rolled out policies to promote exports, trade policy is more inwardly oriented. The ‘Make in India’ initiative ignores the decades-long geographical fragmentation of the global production process, a reality that increases the import dependence of exports. The correlation between Indian imports and exports in the post-reform period stands as high as 0.75. Export growth requires India’s greater integration into global value chains — a feat achieved by China and Vietnam, where there is 40 per cent foreign value added in garment exports.

India’s average MFN tariff declined from 125 per cent to 13 per cent between 1991 and 2014, then increased from 13 per cent to 18 per cent from 2014 to 2018. This inward outlook can be explained by India’s signing of 11 free trade agreements between 2004 and 2014 — but none since then. India did not join the Regional Comprehensive Economic Partnership (RCEP), but is actively consulting with the United Kingdom over a free-trade agreement and is in advanced trade discussions with Australia, the UAE and Canada.

While it is too early to draw firm conclusions about the production-linked incentive scheme, an initial assessment indicates it suffers from poor targeting. There is enormous potential to increase labour-intensive exports in India, but only three out of the thirteen sectors targeted by the scheme — automobiles and auto components, mobile…

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Fixing fragmentation in the settlement of international trade disputes



Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes



The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track



Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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