India Must Embrace Competitiveness

Protectionism in response to trade deficits only worsens outcomes by reducing competitiveness and disincentivising its enhancement

- ANUP WADHAWAN

AS THE POST-1991 Indian experience reveals, an open trade and investment environment is indispensable to achieving key economic goals such as GDP growth, external sector stability, and a welfare-enhancing diversified consumption basket. With country-specific endowment constraints in a scenario of complex manufacturing processes and diverse consumer preferences, no country can optimally fulfil all prerequisites for a thriving economy in isolation.

Notwithstanding recent reordering, the vertical disintegration of manufacturing across global value chains reflects this. As we saw in pre-reform India, policies that curtail cross-border integration result in inefficiencies, a vitiated investment climate, and stunted domestic capacities by limiting access to the productivity embodied in high-quality imports, and curtailing overseas market access.

Why then is the adoption of open trade so controversial and challenging? The answer lies in the fact that while global integration is beneficial overall, it creates both winners and losers. Sectors that can compete and exploit expanded global opportunities gain, while those that cannot, lose. This gives globalisation its detractors, whose organised protests tend to drown out the less voluble winners, including millions of silent consumers benefitting from a more diverse and affordable consumption basket. This makes policies aimed at minimising the pain through enhancement of competitiveness, economic restructuring, social safety nets, etc., critical while pursuing trade openness. The mixed impact of trade does not, however, merit forgetting the harsh pre-1991 lessons of shortages and consumer deprivation and painfully relearning them.