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EAM's Address to Geo-Economic Conference of the Pune International Centre on ''Asia and the Emerging International Trading System''

February 28, 2020

  • It is a great pleasure to address the Geo-Economic Conference of the Pune International Centre on "Asia and the Emerging International Trading System”.
  • In the course of the last few decades, there has been a visible rebalancing of the global economy. A primary characteristic of that has been the emergence of more diverse production centres and consequently, of different patterns of trade. In due course, this has also led to the growth of new centres of consumption. These developments are reflected in a broad spectrum of other activities, going well beyond the domain of trade. In fact, they directly impact both its enabling and derivative activities, ranging from banking and skills development to logistics and connectivity. The gradual transformation of the global landscape that all this represented eventually resulted in a political rebalancing. The turning point in this regard was the 2008 global financial crisis, whose strategic outcome was the creation of the G-20 as the premier politico-economic forum of our times. Today, as conversations about trade between nations get more animated, there is less pretence that we are also talking about the parallel exercise of political influence. It is, therefore, important that any debate about Asia and the emerging international trading system factor in this reality. Trade has never been politically neutral; it is even less so now.
  • The two striking developments of our times – the rise of China and the nationalism of the United States – are both inextricably tied to their performance in trade. The first captures the challenges of accommodating state capitalism in the current framework of international trade. The second reflects the debate about fair market access, terms of trade and the merits of protectionism. Both not only impact directly on the other economies of Asia, but pose conceptual and practical challenges to them. One part of that is the stress generated by a sharper dichotomy between the two leading economies of the world. But there is also a larger adjustment challenge posed by both of them, each in a different way. While some have come to terms with these new realities, others find it harder to do so. Economies with a lower per capita income and large numbers whose livelihood is affected by policy changes are particularly vulnerable in this context. The changing trade scenario is expressed today in the forging of new partnerships, dependence on sourcing, and mapping of supply chains. The increasingly heated arguments on connectivity and technology underline the complicated era in which we now live. An erosion of globalization will certainly influence the trading habits of many societies. Their implications for rules, regimes and mechanisms cannot be overstated.
  • Reaching international understandings on issues of trade against this backdrop is naturally more challenging than in the past. As economic thinking has narrowed in many societies and trade interests more sharply defined, there is obviously a greater element of a zero-sum game. Linkages to non-trade issues, whether of a social nature or a security concern, have added further to the challenge. Nevertheless, the perception of convergences and the reality of transnational supply chains do make a powerful argument for limited frameworks such as FTAs. For a nation like India, this raises a number of issues that constitute an ongoing debate. Much of that centres around how well prepared we are to engage the global economy more openly. The past record shows that lack of adequate homework and absence of effective standards ended up hollowing out many sectors. Competing against those with structural advantages cannot be a casual decision justified by political correctness. Many trade-related decisions have direct livelihood and social stability consequences. This is obviously not unique to India but it is paradoxical that those who urge us to be more open are even more sensitive themselves on this score. Whatever the choices we make in terms of compatibility and balance, there are some issues which we cannot duck. One is to undertake the changes that enable India to be a more effective player in global supply chains. The other is the unfolding of the knowledge economy and its implications in terms of mobility and migration. These challenges, amongst others, will shape our thinking in the coming years.
  • It was said earlier that trade leads the flag. Today, there is more truth in the obverse proposition. Many of the industrial economies of Asia were built as a result of political choices. The rise of China, perhaps more than any other contemporary example, was influenced by the strategic calculations of others. To some extent, India finds itself on a similar cusp. There is interest in the world to create additional drivers of growth while ensuring a global strategic balance. Trade and other forms of economic growth are critical elements of creating more effective multipolarity. Responding to opportunities means creating a strong-enough pull factor, and that is why the task is not just of diplomacy but equally of governance.. To that end, making it easier to do business or to ensure easier living can make some difference. But evolutionary change may not be enough in transformational times. Each of us has to devise their own course and India’s prospects are heavily focused on the improvement of infrastructure. At the end of the day, this may be one of the defining element of comparative advantage. Getting politics, economics and governance all right at the same time is therefore particularly important at this moment.
  • Let me conclude by underlining that the pulls and pressures of the international system are today most evident in the trade domain. This very centrality underlines the extent of polarization in what was largely perceived as a more inter-dependent existence till recently. Linkages to non-trade issues have complicated matters even more. As we contemplate this scenario, a dispassionate assessment of how to reconcile such divergent positions is necessary, more than ever. I am confident that this Conference would address itself to this challenge very seriously and wish it all success.
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