By Dr Arjun Kumar, Ritika Gupta and Anshula Mehta
Impact and Policy Research Institute (IMPRI), New Delhi
COVID-19 has impacted all our lives and livelihoods as restrictions have been imposed on mobility and movement to check the spread of the virus. International trade is one of the activities which has been deeply affected, especially for those countries that are deeply dependent on imported goods and services.
Several countries, including India, proactively played an important role in facilitating the exports of medical supplies, personal protective equipment (PPE) kits, ventilators, facemasks, etc., but on the other hand, countries also adopted export restrictive measures and policies to fight the global shortages.
Prof Manoj Pant pointed out that there are some similarities but very subtle differences between the recessions of the 1930s, 2008, and the current COVID-19 pandemic. The striking similarity is that there are no multilateral responses to combat the recession, as each country seems to be fending for itself. Employment rates are similar, whereas the output is worse than the recession of 2008.
During the pandemic, there was a ban on the export of medical hardware and complete zero duty and liberalization on the import of medicines. He highlighted that the response is only to the crisis and not broad-based as in previous recessions. Further, there is no effect on the exports of agricultural goods. In the 1930s and 2008, the recessions were due to the financial crisis and the issues were endogenous, but COVID-19 is an exogenous crisis, Prof Pant suggested.
There was no build-up to this recession. He opined that amid COVID-19 there is a fear of the unknown related to the longevity of coronavirus pandemic, whereas, in earlier crises, we knew there was a failure of expectation and asymmetric information.
Prof Pant stated that the recession is not due to COVID-19; India was in recession as early as January 2020, and the expectations of people need to be addressed. He highlighted that injecting money in the economy will not be of much help, as in India most of the sectors are dependent on labour and to restrict the spread of the coronavirus, physical interactions need to be stopped. Since the 1960s, there have been major changes in trade policies.
Trade policies today comprise tariffs, foreign direct investment (FDI), and trade agreements. Tariffs are no longer an indication of protectionism because the nature of the commodities in the world has changed dramatically from the 1950s and 1960s, Prof Pant suggested. The trade today is dominated by intra-industry trade. The relevant concept of protectionism is not nominal tariff but the effective rate of protection (ERF), and protectionism is taking the form of non-tariff barriers.
After the 2008 recession, the world output fell by 1%, yet, the countries raised tariffs unlike in the 1930s. Prof Pant highlighted the need for an effective ecosystem for technology, research and application towards reaping the benefit of trade for New India and AtmaNirbhar Bharat.
Prof Sugata Marjit, Distinguished Professor, Indian Institute of Foreign Trade (IIFT), New Delhi, chaired the deliberation and said that humankind is resilient and will continue to survive even in this constrained environment. He emphasised the importance of understanding that the agricultural sector is doing well, growing at a rate of over 3%. The average percentage of fallow land has gone down drastically which means agricultural efforts are being sustained.
There is an opportunity for more interest in private investment in agriculture. Prof Marjit pointed towards the badly affected tourism sector. He underscored that the government needs to figure out how to develop tourism within the country. The booming of e-commerce is a good thing for India as the ‘online syndrome’ would be more intensified in the post-COVID world independent of whether a vaccine is developed or not, Prof Marjit suggested. He added that India needs to find ways to make its workers more skilled, semi-skilled, and adaptive, as in the post-COVID world more industries will depend on technology.
Mr David Rasquinha, Managing Director, Export-Import Bank of India (EXIM Bank), suggested that just as the monetary policy committee looks through current spikes in prices and inflation, we need to similarly look through COVID-19. Between 2016-2019, India’s exports grew at a CAGR of 8%. Mr Rasquinha said that exports need to be looked at from other frames of reference, for instance, how the country is doing vis-à-vis the potential for exports, where India is not doing well and trade deficits have been widening.
Due to the pandemic, the global demand for exports has reduced. He also mentioned that India is not spending enough on Research and Development (R&D) and that technology exports flow from the R&D base which develops new products that both the local and international markets will demand. Mr Rasquinha highlighted that India needs to have greater participation in global value chains for which it will have to build its manufacturing sector ecosystem. India also needs to give credit to its services as the trade of services is narrowing its current account deficit.
Mr T K Arun, Consulting Editor, The Economic Times stated that the large-scale relocation of supply chains is not viable. He added that COVID-19 has shown us that geography does not matter, most of the people are working from home, which can increase the outsourcing of work.
The largest pool of people who can be trained in STEM subjects is in India and it is very important to invest excessively in our education and healthcare infrastructure, Mr Arun suggested, as ultimately it is human potential that is articulated as economic and production capabilities. All policies regarding trade are made at the Union level but are implemented at the state level. Therefore, the Union-state problems need to be resolved, and the ecosystem would then be conducive for trade policy to flourish.
(Read more on the event here.)