India is being continuously hit by the US President Donald Trump’s withdrawal of Generalised system of preferences (GSP) on 5,111 items as is the latest. Trump says, “It is appropriate to terminate India’s designation as a beneficiary developing country effective June 5, 2019.” Thus, the second term of Prime Minister Narendra Modi may have to contend with tightening of the Trump’s policies towards Iran, Venezuela, Syria, Iraq and the Gulf region.
New External Affairs Minister S Jayashankar and Commerce Minister Piyush Goel will now have to look for policies to counter the US move. India has not been able to take retaliatory steps, as Trump says India is a high-tariff nation. It is now mulling a ban on $10.6 billion worth imports from the US.
Trump is targeting not just oil that India prospects from these countries but also its sale of steel and other commodities. The Indian steel sector is facing difficulties as the US announced high tariff. India has moved the World Trade Organisation (WTO) against 25 per cent hike in duties on steel and 10 per cent on aluminium. As the US plans replacing over 500 bridges, the tariff barriers are bound to hit the Indian steel industry.
In 2017, India increased steel exports by 87 per cent in volume and 74 per cent in value terms. But in 2018, the US Congress reports note it has fallen by 49 per cent to $372 million and aluminium 58 per cent to $221 million. Both the countries are also in several other disputes in WTO, including poultry, export incentives that the US considers subsidies and solar.
India has been enjoying the GSP benefits since 1974. Out of $6.35 billion exports GSP benefit is about $260 million. Federation of Indian Export Organisation says that exporters may find it difficult to absorb GSP loss.
The sudden move by Japan to drag India to the WTO, over duties on electronics in the wake of ‘Make in India’ campaign, has surprised the diplomatic circle. Japan has alleged that these import duties are in excess of bound rates, which is a ceiling of import duty beyond which a WTO member cannot go. Japan has also sought removal of duties on cellular phones and printed circuit boards.
The Samsung producing cellular phones is specifically under challenge by Japan. The country has either to be given tariff concession or a similar treatment to its phone makers in India. It might hit viability of such projects and some, as Nokia did, may be forced to pack off. Thus, every policy has a counter.
Undoubtedly, post-Obama lukewarm US approach is hitting India’s energy security. The sanctions on Iran are a double whammy. It makes India look for more expensive energy sources as also in a quandary about its diplomacy with Iran. The country has emerged as a key route to Afghanistan and Central Asia. The US for now has not put checks on the Chabahar port as that helps it too. A threat, however, looms large.
Former Chief Economic Advisor to Government of India Arvind Subramaniam had dubbed the use of access to energy as “carbon imperialism”, be it hydrocarbon, coal or nuclear energy. That is dubbed as neo-imperialism. Each denial raises cost of energy and hurts India.
Political hugs apart, a financially troubled US tries to hit the world equilibrium. The military warning to Iran to toe its line is a clear move to crush the only non-conforming country. It is also aimed at India subtly. The US wants Indian involvement in Afghanistan but does not want her to become a real power or axis of global economy as it is trying to woo BIMSTEC — Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan or Shanghai Cooperation Council or BRICS.
Prime Minister Narendra Modi indeed has a challenging time ahead. His government had expected a favourable treatment on oil imports from Iran. But the US obstinate stance is causing much problem. India has been forced to open its market to innocuous imports of California almonds, Washington apples, and chicken legs from Middle America. For Trump, it is chicken feed, but India has to buy over close to $25 billion in trade deficit.
India’s posturing as a global power and developed economy apparently is hitting it hard. While these are more political in nature, hyping some economic gains has its own problems. India suffered in a major way when around 2000, the WTO cancelled exports quota on textiles over budgetary projections that the country was doing well.
Now the International Monetary Fund (IMF) is likely to declare that India, instead of being a developing nation, is the fastest growing economy. This means more denials of sops. In reality, the country is still developing, and maintaining a practical posture at international fora would be wiser, instead of projecting unreal statistics, for avoiding such policy traps.
The country is in a critical economic and technological evolution phase. It has to do the rope trick and keep different powers on its right side. Plus, it must start looking for a middle path to keep the US happy and at the same time not annoy Iran. The US is now also a key strategic partner. So the US cannot be ignored. The balancing act is not easy. Strategically, India can chose to be an interlocutor between the US and Iran to resolve Iranian approach to its nuclear tech.
Iran has been exporting around 1.1 million barrels/day of crude and 200-300,000 barrels a day of condensates to China, India, Japan, South Korea and Turkey under the existing sanction waivers. The US has so far not relented on pleas by these countries. Prospecting oil from Latin America is possible. But the distance has an economic cost.
The Modi government has to go for bold reforms. It’s a political commitment and such international nitpicks shouldn’t deter it. The government has to overcome problems in the neighbourhood, fighting an international tariff war, hike in oil prospecting costs, and consequent inflationary situation. These affect the budgetary and other policy options as the Government would now require more finances for welfare and boosting the economy in all fronts.
The government has functioned intelligently in the past. Now New Delhi has to have a sharper policy so that international situation has the least impact on its domestic economy.—INFA