India needs to strengthen its economy so that it can cope with the rapid global economic changes, especially the challenges posed by the Trump administration.
 |
| Photo (https://unsplash.com/photos/YvZKRE9VFVE) |
The US House of Representatives (USTR) has warned that India and Turkey will be stripped of their status as Developing Beneficiary Countries (BDCs) under the General System of Preferences (GSP). The GSP stipulates that developed countries should grant tax-free entry to goods manufactured in these less developed or developing countries in order to contribute to the development process of less developed or developing countries. Accordingly, it is the responsibility of developing countries to produce raw materials for high quality goods and to see how these goods can enter the competitive market with minimal barriers.
However, the Trump administration may have been forced to question India's BDC status at the request of the National Federation of Milk Producers and the American Milk Export Council and the Advanced Medical Technology Association in the wake of technical hurdles being imposed by that country in trade with India.
India has been blamed for failing to provide "fair and reasonable market access" to the United States, which has been blamed on "rate control" and "heating needs". Nonetheless, countries with market-based economies such as the United States have always used the extended benefits of GSP to expand their influence in developing countries.
India has been blamed for failing to provide "fair and reasonable market access" to the United States, which has been blamed on "rate control" and "heating needs". Nonetheless, countries with market-based economies such as the United States have always used the extended benefits of GSP to expand their influence in developing countries. Therefore, it was expected that the US would also pull the trigger.
If India really loses its BDC status in the coming days after going through the legal process, more import duty will be levied on Indian products exported under the scheme. Indian products will be subject to MFN or similar taxes applicable above BDC. The biggest concern in such a situation would be the competitive prices of these items. This is because the competition for these goods will be with the countries exporting the same products under the GSP scheme. In the case of Indian exporters, this would be clearly detrimental. While most products have a higher payout, the impact on products such as leather goods, textiles and upholstery, carpets, metal and stone retail, plaster, cement, asbestos, mica or similar materials and expensive jewelry should be taken into consideration.
This approach, which should be viewed using trade deficit parameters to assess the health of the economy, is misleading and could have the opposite effect. Excessive tariffs on these products could increase the cost of production of U.S. goods and affect global competitiveness. Therefore, US efforts to reduce the trade deficit could be thwarted.
GSP : market, employment and comparative advantage
Most of the products exported under GSP belong to micro, small and medium enterprises which are labor intensive. These industries are a great source of employment for the lower middle class sections of the society. Trade tensions between India and the United States are set to affect a large segment of society, especially the semi-skilled and unskilled workers. These semi-skilled or unskilled workers belong to the same field. If the products of this sector become less competitive in the global market, their prices will go down and the neo-classical theory of value addition suggests that this situation will lead to a reduction in the wages of semi-skilled workers employed. The underlying rationale behind this system is that as demand declines, so does production, forcing workers to face temporary layoffs. Which at other times could have been easily accommodated in other areas of the economy. If there is an over availability of workers, then the wage rate of semi-skilled workers decreases. This widens the gap between the wages of skilled and unskilled or semi-skilled workers
 |
| Photo Source : (Trading Economies) |
Therefore, even if India's GSP status is withdrawn, it will not make any difference to the Indian economy, this argument should be re-examined or carefully observed. International trade is a wonderful thing that involves different sectors and social factors. The components of the product include the extremely surprising behavior of various policy changes. External shocks such as the ban on tax-free entry into the US market are sure to have an impact on the Indian economy. Failure of this export-oriented sector to compete with other countries globally could result in employment and the risk of rising unemployment.
External shocks such as the ban on tax-free entry into the US market are sure to have an impact on the Indian economy. Failure of this export-oriented sector to compete with other countries globally could result in employment and the risk of rising unemployment.
Due to the huge population and growing workforce, the issue of employment in India is always on the rise. Unemployment figures for 2018 show a significant increase over the previous year. In such a scenario, the adverse effects that come through GSP can have no ghost, no future, effect on the economy.
India's competitors in the US market and GSP beneficiaries include Bangladesh, Indonesia, Brazil, Egypt, Cambodia and South Africa. These countries will continue to have tax-free entry into the US market, while India will have to face heavy import duties. If Indian goods are really relatively good in the US market, they will have to lose their competitive status due to the new sanctity of the US. Bangladesh excels in the textile and textile market. Although both the countries are relatively good in terms of exports in this industry, Bangladeshi products are relatively more competitive. There is fierce competition between India and South Africa in the precious and semi-precious metals market. If the BDC status is removed, India will have to face competition from non-BDC countries like Vietnam and Canada. Indian exporters will be most hurt by this situation as the US ranks second in the list of the top two countries to which Indian goods are mainly exported. This situation will undermine the economic goals of a major player in world trade.
Preparing for the future
India has the option of appealing to the World Trade Organization against the US decision. However, times have changed, especially since the past, as India took a stand against the European Union (EU) in 2006. However, India is in a good position to protect its own interests. The focus should be on resolving the dispute with the United States through dialogue, taking a pragmatic stance.
At the same time, the Government of India should pursue an incentive policy for exporters, emphasizing that the competitiveness of exporters in the global market will not diminish. It is important to encourage small and medium enterprises (SMEs) to export by providing goods and services tax (GST) exemptions or concessions to protect their competitiveness.
It is also necessary to examine alternative markets such as the EU and the UAE. India should immediately take the initiative to set up an Export Promotion Council to discuss with these countries in that direction, as well as place additional emphasis on the medium-sized commodity sector. It is the responsibility of the state governments to ensure that small and medium enterprises get the right infrastructure, including financial resources, promptly.
From the very beginning, India must be prepared to face international political and economic instability, especially the Trump administration. The policy objective should be to develop a strong domestic economy with world-class infrastructure and investment. In addition to guaranteeing all this, the subtle waves created in the global economy, as they are now created, are enough to have a significant impact on the domestic economy.
Post a Comment