1

Mainstreaming Trade into National Development Strategy

Feb 7, 2007Veena Jha,

Coordinator, UNCTAD India Programme

Organised by CUTS

2

Structure•Introduction to UNCTAD Program in India•Background – Trade & Indian Context•Poverty•Agriculture•Manufacturing and Industrial Goods•Services•Trade and Gender•Free Trade Agreements and South South Cooperation

3

Introduction to UNCTAD Program in India

4

Title- Title- Strategies and Preparedness for Trade and Globalisation in India

COMPONENT I Assisting negotiators in understandingdevelopment and pro- poor dimensions ofkey trade issues

COMPONENT II Strengthen human and institutionalcapacity of stakeholders through TradeRelated Capacity Building (TRCB) activities in sectors

which affect the poor.

5

Background – Trade & Indian Context

6

IImportance of Trade / MDG 8

•Trade can be a powerful driver of economic growth - indispensable to reduce poverty and foster development.

•If developed countries open their markets significantly more to developing countries, poverty would fall faster.

•Other areas of development importance also regulated by international trade regime eg. IPRs under TRIPS , Trade Facilitation

•Target 12 under MDG 8 to further develop “open, rule-based, predictable, non-discriminatory trading and financial system”

7

Global Interdependence

• Growth engines may be shifting from developed countries to developing countries such as India and China.

• Perspective of global interdependence should guide adjustment of global imbalances:– Ensure further economic catch-up by

China and India and its expansionary effects for most other countries;

– Increase global demand stimulus from Euro area and Japan through better market access for developing countries.

8

IImportance of Trade in India

• Trade now constitutes 30% of India’s GDP and many employment intensive industries/services depend on trade. Eg Leather (3 million) Textiles and Clothing (20 million)

•Trade policy also important to guard against global price shocks in agriculture sector – more than 60% of population dependent for livelihood.

•India now a major player in trade and multilateral trade negotiations, for other developing countries as well.

9

NNational Development Targets Related to the MDG

•The 10th Plan (2002) recognised the importance of Trade in National Development strategies. Strategies were articulated more in macroeconomic terms

•National policy concerns articulated on trade in goods and services, balance of payments, investment and competition policy, General Concerns on Issues in Doha Round and on RTAs

•Projections made for exports of ($80 billion by 2006_07) – This target has been achieved and surpassed in 205 (2005-06 exports at about $ 102 billion)

10

NNational Development Targets Related to the MDG

•India’s share in Global Exports targetted at 1% by 2006-7. Achieved. 0.9% of world trade in 2004-5 and nearly 1% by in 2005-6.•Recognition of need to reduce transaction costs simplify procedures.•Later policy statements reflect MDG concerns more specifically e.g National Common Minimum Program and National Trade Policy documents in recent years.

11

NRelevant Common Minimum Program Targets of Present Government

Growth Rates at 7-8% to generate “employment so that each family is assured of a safe and viable livelihood.”

Modernisation of traditional employment intensive industries like coir, handlooms, powerlooms, garments, rubber, cashew, handicrafts.

FDI in “infrastructure, high technology and exports and where local assets and employment are created on a significant scale”

Protection of national interest, particularly of farmers and vulnerable industry, in all WTO negotiations.

12

FForeign Trade Policy (2005)

“doubling our percentage share of global trade within 5 years and expanding employment opportunities, especially in semi urban and rural areas, certain special focus initiatives have been identified for the agriculture, handlooms, handicraft, gems, leather and Marine sectors.”

13

SSummary of policies and programmes that address this issue

Export Promotion Schemes

Negotiating positions taken in Doha round and in RTAs to take care of defensive concerns

Calibrated liberalisation of investment and services regime to attract FDI.

Autonomous measures in trade facilitation, IPRs.

14

PPolicy / Knowledge Gaps

Lack of exposure to Inclusive Processes / Objective

Consultative Techniques

Inadequate Exporsure to Technical Skills to Analyse and Respond in

Clinical Manner

Process & Substantive Knowledge Gaps Substantive Knowledge / Conceptual Gaps

Capacity Gaps in National Trade Policy Making

Inability to effectively engage with globalization.

Low General Awareness of

Issues and Implications

15

Trade and Poverty

16

How it Affects Poverty

• Opening Agricultural Markets• Raising Wages of Unskilled Labor • Boosting Productivity• Inducing Investment• Possible Head Start through Immediate

Free Access for the Poorest Countries• Moving competitiveness in low value

added products

17

Trade policy and overall economic impact.

Trade Policy

Flanking domestic policies

Geography

Direct effects

on trade flows and

poverty

Indirect effects through

Economic growth

18

UNCTAD’s work

Book on Trade Liberalisation and Poverty, 2005

• Trade Liberalisation can have either a positive or a negative effect on poverty

• Depends on whether the economy is able to use its dynamic comparative advantage to push itself on a long-term growth path

• Too much noise in this linkage• Ultimately this linkage must be vindicated empirically

19

Empirical analysis• Evidence on either side• Most studies show that open economies more likely to

experience growth and poverty reduction than closed ones• However studies do show short-run costs especially in

terms of increased inequality which could negatively impact poverty

• Difficult to establish causality because of the noise• Further complicated by limited factor mobility as well as

different degrees of specialization• Effects better if domestic reform and stable

macroeconomic policies and institutional reform accompany trade liberalisation

20

Effects on India

• Effect on the head count ratio positive

• Mild rise in inequality both inter state and amongst rural- urban

• India a labour abundant country with relatively minor effects on wages in traded goods sector and more significant effects on employment

21

Poverty Trade Linkages in Indian Context

• Poverty is connected to the slow rate of growth of important labour intensive sectors like agriculture, handlooms & handicrafts.

• Small share of such high employment sectors in export and therefore inability to benefit from otherwise robust export growth

22

Agriculture

23

Trends in Agricultural Trade

• India by and large net exporter in Agri Products

• Imports concentrated in Edible Oils and Pulses for which growing demand in India and growing per capita consumption

• Liberalisation as per Uruguay Round Commitments accompanied by significant increases in exports and imports

• Edible oils account for nearly 50% of all Agri Imports

24

Government has to Balance Interests of Consumers and Producers

• Ensure Remunerative Prices to Farmers

• Control Inflation especially on products which affect the poor

• Palm Oil Tariffs Classic Example – Bound Tariff at 300 whereas Applied at 70 (80 in case of crude oil).

25

Exports show erratic growth with exception of Horticulture and Tobacco

0

500

1,000

1,500

2,000

2,500

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Processedrice

Wheat

Vegetables,fruit, nuts

Crops n.e.c.

Vegetableoils and fats

Foodproductsn.e.c.Beveragesand tobaccoproduct

26

Non – Agricultural Market Access

(NAMA)

Industrial Goods

27

Trade liberalisation and impact on productivity

• During 1990s export promoting industries gained in importance compared to import competing industries.

• The increase in labour productivity, in conjunction with the overall annual growth rate of over 9 percent in the output of capital goods during 1980s and 1990s, suggests a move towards increased capitalization of the Indian manufacturing industry

28

Trade liberalisation and employment generation

• The growth in export oriented sector has not necessarily led to employment generation*, subject to some important caveats– Exception to this trend: textiles and clothing– Growth of informal sector could answer for this

anomaly ( see next chart)

____________________________________________

*The employment elasticity of output growth has fallen from0.52 to 0.16 during 1993-2000.

29

Trade liberalisation and impact on wages

• Wages as a proportion of total value added have gone down for all manufacturing – Due to increased casualisation of labour

• The counterfactual in terms of reduction in head count ratio of poverty suggests that the informal sector absorbed unemployed labour thus contributing to a reduction in poverty, even though inequalities may have increased.

30

Key Inferences on NAMA - 1

• Soft landing of trade reforms so far

• Further tariff liberalisation could result in adverse effects for output and employment, particularly skilled employment

• Need for safety net for unemployed

• Competitiveness of industrial products in selected sectors remains a major challenge

• Trade policy must go hand in hand with domestic reforms

31

Services

32

Services Sector and Poverty

• Services constitute the backbone of the economy– Input services (e.g. energy, banking and insurance, IT, etc)– GDP growth in countries with fully liberalised telecom and

financial services 1.5 % higher than other economies. (World Bank)

– Inefficiencies in these sectors add more to export costs than foreign trade barriers.

– Provision of several services themselves a MDG– Direct and indirect employment and GDP effects

33

Challenges and opportunities

• Share of services 1.4% vs 0.9% of goods in global trade

• In 2004/5 services exports doubled and over the past years growth over 40%.

• Service exports driver of services growth and poverty could decrease by 1.6mn per year if growth continues at present trend.

• Employment and wages also likely to increase

34

Challenges and opportunities

• Trade adjustment costs as relatively jobless growth on account of concentration on few sectors. Multiplier growth effects higher.

• Legacy costs of public sector service providers making services reforms difficult.

• Little diversity and difficulties in implementing Universal service obligations

• Huge infrastructural constraints and regulatory capacity deficits

35

Role of NGOs

• Trade issues are complex and technical• Many players (countries / constituencies)• Globalisation is more real than ever before

because of technology• Trade policy formulation has assumed an

important part of national policy (economic policy and others) and seen more debate

36

Contd.

• National trade policy to protect or liberalise based on assessment influenced by various actors (domestic and international)

• Under-representation in coverage Intl Trade Negotiations.

• Media perspectives in DCs still dominated by traditional sources (wire services etc.)

37

Role ofNGOs

• Bring the debate on trade policy to ordinary people – coverage of views

– assessment of impact especially human impact– easy to understand – breaking down technical language –

make boring interesting

On farmers, consumers, entire set of interest groups/value chain

• Investigate claims of links and non-links of local with international issue (to go beyond reporting rhetoric and finding the truth)

38

Role of NGOs in the Process of decision making

– Does govt. have appropriate consultative processes? Is there debate in legislative bodies ?

Are they implemented? – Do they represent local, state and sectoral interests?

What about interests of special groups like women?– What are the ways in which concerns of poor and

vulnerable are reflected?– Can you discern who are the interest groups and

how they articulate interests?

39

Thank YouIndia Programme

United Nations Conference on Trade and DevelopmentUNCTAD, Room No. 421The Ambassador Hotel

Sujan Singh ParkNew Delhi-110003

Phone: 011-24635036/24635054/24635055 Fax: 011-24635000

Email: unctad@unctadindia.org ]veenajha@unctadindia.orgWeb: www.unctadindia.org