India among the hardest hit by protectionism in G-20 club
India has been hit hard by the rising tide of protectionism, followed by the US and China, and could be one of the major casualties of a global trade war
Mumbai: Among the largest economies in the G-20 group, China, the US and India have been hit the hardest by protectionist measures in 2017, according to data from the Global Trade Alerts (GTA) database. Among emerging economies, China faced the greatest number of protectionist interventions in the past year (403), followed by India (236). Recent developments—including US tariff actions against India—suggest that India could be hit hard by the growing tide of protectionism in the coming months as well.
India was affected by protectionist interventions implemented largely by rich economies, the data shows. Within the G-20 club, fellow emerging economies have been less unkind to India compared to the advanced economies.
The magnitude of loss in export earnings for India might be relatively smaller than in the case of China because of India’s lower share in global exports. Nonetheless, the rising tide of protectionism threatens India’s trade surplus in the services sector and will hit export earnings of Indian firms.
The GTA database is a trade policy monitoring initiative by Simon Evenett and Johannes Fritz, economists with the University of St. Gallen, Switzerland. The database attempts to record all unilateral actions by governments, including those by public institutions such as the central bank, which affect trade. The countries affected by each such action are identified on the basis of existing trade pattern between the countries concerned.
The data shows that protectionism has been on the rise ever since the global financial crash of 2008 shook the world, and disrupted trade and financial flows. The ongoing skirmish between the US and China over tariffs only marks a new phase in the global lurch towards protectionism. Protectionism appears to have been more enthusiastically adopted by advanced countries, which have struggled to grow their economies in the wake of the global financial crisis.
Between 2004 and 2008, the global trade-GDP ratio rose 6.6 percentage points to reach a peak of 60.8% in 2008. The slowdown in global growth and the rising spate of protectionist interventions have brought down that ratio to 56.4% in 2016.
Indian firms, which witnessed a significant rise in export earnings in the years leading up to 2008, have witnessed a steep decline in such earnings since then, data from the Centre for Monitoring Indian Economy (CMIE) shows.
The tariff threats by the US and China against each other suggest that protectionist interventions will only increase in the months to come, even if a full-fledged trade war does not break out. This will hurt the balance sheets of Indian corporations.
Services sectors such as IT may be among the hardest hit. India’s trade surplus in services is already under pressure. Rise in protectionism will crimp the services trade surplus even further.
While import tariffs have been governments’ most preferred tool to restrict movement of goods, qualitative restrictions have been used to dissuade services. For instance, the US has tightened H-1B visa norms, making it more difficult for other countries to export services supplied through the temporary movement of persons. The OECD’s Services Trade Restrictiveness Index (STRI) report released in January said that 2017 was a far more restrictive year for services trade than 2016.
India should ideally have served as a bulwark in the fight against protectionism, and could have worked to further the agenda of globalization, given the huge benefits the Indian economy has reaped from it. But India’s own protectionist tendencies have precluded such a role for the country.
In fact, among major economies, the US and India imposed the most number of restrictions in 2017, according to the GTA database.
India followed it up with even more import duty hikes in the Union Budget presented in February 2018. The budget substantially raised tariffs across a range of products, from fruit juice to mobile phones. Finance minister Arun Jaitley cited the goal of job creation and ‘Make in India’ to justify the move.
These measures might not only be counter-productive but could also invite further backlash. The US has already challenged India’s export subsidy programmes at the World Trade Organization (WTO). The US contends that the Indian government is providing $7 billion worth of benefits to Indian companies which have allegedly created an uneven playing field for US companies and workers. India has a trade surplus of around $30 billion with the US.
Although most US trade interventions were directed against China in 2017, the GTA database shows that India was also a top target of those interventions.
The data suggests that the coming months are not going to be easy for India’s trade officials and export-dependent firms.
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