Trading access vs preferred access
China accounts for 18% of global GDP, the United States 16% of GDP, and Japan and the EU together represent an additional 15%. Between these three, we are at 50% of world GDP. Given our need for export markets to provide jobs for our people, the first imperative is to preserve privileged access to the markets of China, the United States and the EU. Under no circumstances can we afford to lose access to these markets.
Note that privileged market access is different from access to opportunistic price-based trading. The latter is like tramp navigation where a ship competes only on price, often inactive for lack of opportunities. Preferential access is like a conference line, with regular calling ports and schedules, where rates are long-term and stable. Preferred access means your exporters build relationships and business partners for distribution, even have a brand, and are committed to supplying the market regardless of the price. This makes exports more stable, more profitable and attracts investments from the big players. It is a virtuous circle that you must create for export-led growth.
So, the first order of business should be to repair the business relationship with the RECP. We should fix our flawed exchange rate mechanism which inflates the INR value making protectionism necessary to protect domestic producers. Local producers must be assured that an adequate level of protection will be provided to them by exchange rates, regardless of hell or flood. A high-level committee within the RBI with industry representatives should be responsible for managing exchange rates, like the MPC, and this committee should be responsible for ensuring that exchange rates stay as close as possible to the REER.
The central government should provide the RBI with budget support to manage the exchange value of the INR, regardless of fluctuations in FDI and portfolio flows. Exchange rates must become a more important tool of economic management, like the interest rate, under a new political regime. And RBI’s claims about relative productivity gains vis-à-vis our top 3 trading partners should be scrutinized, using an independent panel of business and industry experts, every 5 years.
Once you have set your exchange rates at the appropriate level, detailed planning, industry by industry, should begin, to ensure that there are no disruptions and that everyone is on the same page. ‘wave. Agriculture, dairy farming, fishing,… everything must come under the new political regime. All export subsidies must be eliminated with the exchange rate ensuring that exports are not only viable, but also profitable, in terms of local currency.
This will ensure that we join RCEP without any interruptions. It will also resolve our trade dispute with the United States and restore our MFN status. It is not something new. A similar exercise was undertaken when we joined the WTO. The template is available for use. There is no alternative to such an exercise. It is a strategic imperative.
15% of the world cotton textiles market
Once we reestablish trade relations with China using RCEP and the United States, economic diplomacy must shift into high gear to open world markets to textile exports, as demand for cotton explodes. due to climate change. We should do everything – better seeds, better cotton varieties, targeting the best acreage, building production plants, modernizing spinning and weaving mills and moving to full VAT in the textile sector to eliminate conflicts of interest.
We should also discipline the monopolies in synthetic yarns, assigning a pro-rata export obligation [using capital employed as the base] so that they can either reduce monopoly margins or buy from small manufacturers of clothing for export. The idea is to bring big names to export. Our goal should be to capture 10 to 15% of the world market.
Armed with this, we should approach the US / EU with an offer. Remove export quotas on textiles for our exports because we have 50% of our workforce inactive. In exchange for your free access, we are committed to purchasing X number of commercial aircraft, Y number of 6th generation European fighters and Z number of submarines. We are open to entering into partnerships at the design and development stage. The same offer should also be made in the United States. Make such a deal, and the world will open with respect for you. It is not difficult, and the time has come for such a strategic agreement.
Strategic autonomy is always in relation to an overall strategy that makes the achievement of your objectives its centerpiece. Thus defined, it then becomes a means of protecting national imperatives, within a range of outcomes that cannot always be controlled. However, such an exercise is not blind. It can provide a realistic assessment of what other players will do and factor that into your strategy.