Mainstreaming Trade into National
Development Strategy
Feb 7, 2007
Veena Jha,
Coordinator, UNCTAD India Programme
Organised by CUTS
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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
2
Introduction to
UNCTAD Program
in India
3
Title- Strategies and Preparedness for
Trade and Globalisation in India
COMPONENT I
Assisting negotiators in understanding
development and pro- poor dimensions of
key trade issues
COMPONENT II
Strengthen human and institutional
capacity of stakeholders through Trade
Related Capacity Building (TRCB) activities in
sectors which affect the poor.
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Background – Trade
& Indian Context
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•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, rulebased, predictable, non-discriminatory trading and
financial system”
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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.7
• 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.
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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 (200506 exports at about $ 102 billion)
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to the MDG
•India’s share in Global Exports targetted at 1% by 20067. 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.
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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.
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“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.”
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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.
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Capacity Gaps in
National Trade
Policy Making
Process & Substantive
Knowledge Gaps
Lack of exposure
to Inclusive
Processes /
Objective
Inability to effectively engage
with globalization.
Substantive Knowledge / Conceptual Gaps
Inadequate Exporsure to Technical
Skills to Analyse and Respond in
Clinical Manner
Low General
Awareness of
Issues and
Implications
Consultative
Techniques
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Trade and
Poverty
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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
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Trade policy and overall economic
impact.
Trade
Policy
Geograph
y
Flanking
domestic
policies
Direct
effects
on trade
flows
and
poverty
Indirect
effects
through
Economic
growth
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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 longterm growth path
Too much noise in this linkage
Ultimately this linkage must be vindicated empirically
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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
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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
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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
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Agriculture
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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
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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).
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Exports show erratic growth with exception of
Horticulture and Tobacco
2,500
2,000
Processed
rice
1,500
Wheat
Vegetables,
fruit, nuts
1,000
Crops n.e.c.
Vegetable
oils and fats
Food
products
n.e.c.
Beverages
and tobacco
product
500
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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Non – Agricultural Market Access
(NAMA)
Industrial Goods
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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
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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.
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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.
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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
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Services
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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
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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
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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
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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
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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.)
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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)
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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?
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Thank You
India Programme
United Nations Conference on Trade and
Development
UNCTAD, Room No. 421
The Ambassador Hotel
Sujan Singh Park
New Delhi-110003
Phone: 011-24635036/24635054/24635055
Fax: 011-24635000
Email: unctad@unctadindia.org ]
veenajha@unctadindia.org
Web: www.unctadindia.org
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