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`Let us take a leaf out of China's book in WTO'

We should have a similar strategy as China and quietly advance our interests instead of mouthing collegially on behalf of people who may or may not want us to represent them.


There is no doubt that the US slowdown will have an impact on India. But compared to China, where more than 60-65 per cent of its GDP is trade, for us, it is still 35 per cent on goods plus another 5- 10 per cent on services. We are less relatively exposed than China.



PROF. T. N. SRINIVASAN, OF THE YALE UNIVERSITY ECONOMIC GROWTH CENTRE

G. Srinivasan

Prof. T. N. Srinivasan of Yale University is a person familiar with global trade policy issues, though he has his theoretical underpinnings on econometrics with his early grounding in mathematics at the Madras University. Over the last four decades, he had taught at various academic institutions of repute, including MIT, Stanford University and Indian Statistical Institute, Kolkata.

A recipient of Padma Bhushan award in 2007, Prof. Thirukodikaval Nilakanta Srinivasan was also a former Chairman of the Department of Economics at Yale University where he was teaching since 1980 and is currently in the Yale University Economic Growth Centre, holding the Samuel Clark Jr. Professor of Economics chair.

Recently in the capital to take part in a half-day symposium organised by the civil society, CUTS, on Preferential Trading Arrangements (PTAs), Prof. T. N. Srinivasan spoke to Business Line at the sidelines on a range of issues that have a bearing on national and international trade policy.

While Mr T. N. Srinivasan does not see any major slowdown in the Indian economy in the shortterm, he has doubts over its sustainability beyond the next three or four years, depending on how infrastructure and other constraints are addressed.

Describing the current slowdown in India's second generation of economic reforms in the words of the Finance Minister, Mr P. Chidambaram, in another context (FRBM Act) as a "temporary pause", Mr Srinivasan said that this is not surprising. "I am hopeful that reforms will continue, regardless of who wins the elections and regardless of positions they take in electoral competition. Once they are back in power and are reasonably sure that they can stay for five years, reforms will go on".

Excerpts from the interview:

Excerpts from the interview: On rising global food prices and food subsidies by the rich world: It is well known that if some countries in the world trading system subsidise foods and that results in lowering the world prices, food-importing countries will gain and food-exporting countries will lose.

That is a standard argument. But what you have to distinguish is whether one is talking about temporary fluctuations in food prices due to circumstances of that particular period - for example, in 1974, world food prices went up because of concatenation of circumstances, with the Soviet Union suffering a major failure of harvest and so on and so forth.

Since then, food prices have come down. So if you take a longterm perspective of the trend in food prices relative to manufactured prices or services prices, the trend has been downward.

So, one should not make a trade policy judgment based on shortterm fluctuations, but should look at it in terms of long-run perspective.

India is right in saying that the intervention policy by the US and the EU in agriculture is deleterious to the global trading system and that it should go.

It is fine. But we should apply the same principle to ourselves. What do we do?

In 2001, there was a huge buildup of food stocks in the public distribution system (PDS) and we allowed exports of food by private traders and subsidised some of the exports.

Now, wheat prices are high and we import it. What we are doing is responding to short-term exigencies about rising domestic stocks/ prices in deciding our trade policy - whether we are going to allow import or export. This is not a policy that is enunciated or dictated by our long-term comparative advantages in agriculture.

There are many areas where significant comparative advantages have to be exploited. That is what we should look at, and set up an enabling environment for these advantages to be exploited. Sometimes, it is believed that the government gives support price to foreigners which is much higher than what it gives to domestic farmers.

But after the harvest, giving farmers higher prices is not going to bring more food into the market. Right now, we need more food in the market and we have to get it from elsewhere; this would add to the supply in the shortterm.

So you have to think in terms of what kind of intervention brings in the long-run beneficial results. Our agricultural trade policy is based on short-term domestic considerations rather than longterm ones.

On resumption of Doha Trade talks under WTO umbrella:

Unless there is a change in the position of major actors, particularly the EU and the US, as well as Brazil and India, there is unlikely to be any progress in talks.

But one glimmer of hope is with the possibilities of recession looming on the horizon, the US producers might want to have a global market and trade liberalisation done elsewhere would be beneficial to them.

Their lobbying might lead the US to reconsider some of its positions to get a deal in Doha. It is likely that the prospect of a US recession might also lead others to reconsider their positions.

On India's move in WTO:

Don't you notice that China has not been saying anything? All the noises have been made by Brazil and India.

We should have a similar strategy as China and quietly advance our interests instead of mouthing collegially on behalf of people who may or may not want us to represent them anyway.

So we must tone down the rhetoric and not beat too loudly the drum of special and differential treatment; let us take a leaf out of China's book by adopting quiet diplomacy in the WTO.

On services liberalisation: India has a number of advantages in services and we should press for opening up labour-intensive services in GATS negotiations. We should also be willing to open our services sector.

Right now, construction contractors such as Larsen and Toubro do not want to compete for the major infrastructure projects because they cannot find adequate number of needed workers.

I understand that the Chinese bid was the lowest for one of our port projects because China wants to bring its own labour to do the work as they are sure of what they can get from the labour, which is more productive than India.

We have qualms about letting the Chinese labour work on the construction contracts. To change this requires political will and rethinking.

Our reservations are based on the fear that we have no instrument to monitor labour and ensure that all the Chinese labour does not disappear into the Indian economy.

But the potentials from a liberal regime for labour-intensive services are enormous.

In services negotiations, we will have to give as well as take. Simply harping on what we want to take is not going to get us anywhere - whether it is NAMA (nonagriculture market access) or services or agriculture. I would like to see India more forthcoming in opening up its economy.

On US slowdown and India's prospects: There is no doubt that the US slowdown will have an impact on India. But compared to China, where more than 60-65 per cent of its GDP is trade, for us, it is still 35 per cent on goods plus another 5- 10 per cent on services. We are less relatively exposed than China.

Whether the US recession will be short and revival will take place soon is difficult to predict.

By and large, given our large reserves and our situation, we can tide the crisis of a recession but, on the other hand, what is of concern to me is whether the turmoil in the global financial market reflects something deeply wrong that is yet to come out. If it is, it can put an entirely different complexion.

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