Trade push with UK may revive job growth

Sushma Ramachandran

Senior Financial Journalist

In the midst of the third Covid wave fuelled by the Omicron variant, India and the UK are launching talks to finalise a trade deal. It may not be the most auspicious of timings, but both sides are clearly keen to engage and tie up the deal by the end of the year. The anxiety to make this trade pact a success is shared by both countries which have deliberately put sensitive issues aside in a bid to ensure the early harvest agreement gets underway as soon as possible.

The push for a trade deal comes in the backdrop of India’s merchandise exports rising sharply to $299.74 billion over the first three quarters of the current fiscal. It is evident that despite the gloom over the latest wave having put brakes on the nascent economic revival, there remains one bright spot in the economy. And that is trade. Exports have been rising consistently in 2021, though comparisons to the previous year would be unbalanced given its low base. But even compared to 2019, export growth from April to December 2021 was about 26.5 per cent higher in value terms. In fact, the rise in exports is unprecedented, with an expectation that these will reach a record level of $400 billion in the current fiscal.

Obviously, there is need to ensure this is not just a flash in the pan. The momentum in trade growth must be sustained over the long term. This can be helped by entering into more free trade agreements with key markets. The problem is, most of our major trading partners are simply not interested in such tie-ups. The US has already indicated its disinterest in any trade pact for the time being. And the proposed free trade agreement (FTA) with the European Union has been languishing for nearly a decade. The reasons are partly India’s rigidity on tariffs on key products and partly the EU’s reluctance to delink the FTA with an investment pact. The UK’s enthusiasm is thus bound to come as a soothing balm to this country which urgently needs to stitch up such pacts in a hurry.

One of the reasons for doing so is the hard reality that India is losing out on the trade front to many others due to its failure to enter into any major regional trade agreements. It took a conscious decision not to become part of the Regional Comprehensive Economic Partnership (RCEP), on the ground that it might hurt some segments of domestic industry. But it has also not been able to finalise any other major trade deal, leaving it vulnerable at a time when most dynamic economies are getting preferential access to their trading partners. India, in contrast, is only entitled to most favoured nation (MFN) status under the rules of the World Trade Organisation (WTO). But this is not available from countries which have concluded bilateral trade pacts of their own choosing.

India is thus on a weak wicket right now on this front. It already has some FTAs with countries like Japan and Korea but these have so far not brought much tangible gains. Hence, the anxiety to seal the deal with the UK as quickly as possible. The UK, on its part, is equally eager to conclude the agreement without any roadblocks as Brexit has left it rather high and dry on the trade front. Tying up an agreement with the EU right now is problematic, while the US is just not interested. From the British point of view, India would be a big prize as a preferred trade partner, given the prospect of it emerging as the world’s third largest economy by 2050. Its huge market is appealing to British trade and industry which has already made sizable investments here.

Even India’s reputation as a tough, virtually intractable negotiator has not put off the UK which may actually provide some concessions on visas for professionals and students. As for other countries, some progress seems to have been made in finalising trade pacts with Australia and the Gulf Cooperation Council, a six-member grouping of countries including the UAE. And talks may begin soon with Canada and Israel while reports indicate the ice has finally broken on resuming India-EU FTA negotiations.

The focus on trade is not misplaced at a time when unemployment levels are rising due to the disruption caused by the pandemic. Some of the biggest foreign exchange earning sectors provide millions of jobs to both skilled and unskilled workers. The gems and jewellery industry, readymade garments, textiles and handicrafts are among the sectors which can push jobs growth in case export volumes continue to grow at the current pace. In fact, small and medium-sized enterprises that comprise export-based industries employ many times more personnel than large formal sector industries. Economist Arvind Panagariya once estimated that apparel export units employed about 250 times the same personnel for the same amount of investment compared to large-scale units.

A similar rationale applies in rural areas where support to export-linked sectors like agro-processing units will not just push up the export of value- added fruit and vegetable products, but also boost employment in these areas. The need for a better quality of jobs in rural areas has become more urgent following surveys showing that post-pandemic job growth has been largely in the unskilled or semi-skilled category schemes such as MGNREGA.

Trade thus needs to be seen as more central to economic policy than it has been till now. Giving sops and incentives in the forthcoming budget to export-based industries actually provides a helping hand to innumerable MSMEs that are now on the verge of closure. Many migrant workers who marched back to their rural homes after the lockdown in March 2020 were employed in small export units all over the country, from Surat to Jodhpur to Tirupur. These units have been facing a roller-coaster ride during the pandemic. Despite their travails, they have managed to push exports to unprecedented levels. It is time for these export industries to be taken more seriously and given the much-needed support for recovery and revival.

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