Ministry heads need to work together and move cautiously to mend trade issues with US

Major challenges await for the second term of the Modi government. The country’s economy is not in a good shape. Joblessness has reached a 45-year high at 7.8% for urban areas and 5.3% for rural areas. Though the government has dismissed the comparison of the data with the previous years saying it is a new matrix for estimation and cannot be compared with the previous years, the seriousness of the problem cannot be denied.

Added to this is the recently released GDP figures showing a slowdown in the economy. The inflation-adjusted GDP grew at 6.8% in 2018-19 as against 7.2% in the previous year. The figure of the last quarter of the current year shows that the slowdown persists. In the last quarter the economy grew at 5.8% as compared to 6.6% in the previous quarter in the current fiscal year.

National income data shows that gross value added (GVA), which is GDP minus, taxes, grew at 5.7% in the last quarter of the current fiscal year which is lower than 6.3% of the last quarter and 7.9% of the same quarter in the last year. In 2018-19 GVA grew at 6.6% as against 6.9% in the previous year. GVA is considered as more realistic in measuring the health of the economy.

Also the fourth quarter corporate results confirm a slowdown in the economy across all sectors. The problems of farmers still remain unresolved. Both domestic and foreign investments are not taking place at the pace needed.

India’s trade deficit has reached a record high of $176 billion in the current year despite exports and imports growing at the same rate of about 9%. The state of world economy and trade is also not encouraging. There is a deadlock in the global trading body, World Trade Organisation (WTO). Rivalry persists amongst US, Russia and China.

The onus for remedying the situation falls mainly upon three newly appointed ministers – finance minister Nirmala Sitharaman, commerce and industry minister Piyush Goyal and foreign affairs minister Dr Subrahmanyam Jaishankar.

Dr Jaishankar, who is a former foreign secretary and former ambassador to US, China and Singapore, can through his experience be able to resolve the complex and dynamic global situation. The Trump administration in US has recently announced that it would withdraw the Generalised System of Preferences (GSP) in trade practices given to India since 30 ago.

Trump’s decision is based on what he called India’s inability to assure the U.S. “that it will provide equitable and reasonable access to its markets”, keeping in view its policy of “America First”. India-U.S. trade relationship had been strained for the past year, over what the Washington calls unfair trade restrictions on sale of dairy products and medical equipment, as well as proposed Indian regulations on data localisation and e-commerce companies operating here.

U.S. Special Representative for Iran, Brian Hook, said plainly that the U.S. would sanction, without exception, any country that buys or has bought Iranian oil after the May 2 deadline. Though India has not brought Iranian oil since that date it has say categorically that it would nor purchase oil from Iran.

Washington has also said it would also bring sanctions under the Countering America’s Adversaries Through Sanctions Act, CAATSA, against India, if it goes ahead with its purchase of the S-400 Triumf missile shield from Russia. India plans to get its first Triumf system by October 2020 and the $5.5 billion contract will be completed by April 2023.

Similarly the US Acting Secretary of Defense Patrick Shanahan made it clear that the U.S. wants its partners to join in the ban on Chinese telecommunication company Huawei for its 5G technology. The US further cautioned that it may cut intelligence sharing with countries that choose telecom companies the U.S. doesn’t trust. India has so far declined to ban Huawei from its process for 5G telecommunication network.

New Delhi has a strategic partnership with US and robust defence cooperation. Trump Administration has supported India’s effort to counter terrorism. It needs India’s support in counterbalancing China in Asia and in the Indo-Pacific. The new foreign affairs minister Jaishankar need to use his diplomatic skills to navigate the US-China and US-Russia rivalry and get out much in the interests of the country. He also needs to work out a better relationship with Europe.

Prime Minister Modi and Jaishankar will be meeting US President Trump, Russian President Vladimir Putin and Chinese President Xi Jinping this month at the SCO summit in Bishkek on June 13-14 and G-20 summit in Osaka on June 28-29. It is expected something may be worked out.

Following Modi’s “Neighbourhood First” policy this time for the swearing-in ceremony leaders of BIMSTEC countries, Prime Minister of Mauritius Pravind Kumar Jugnauth and President of Kyrgyz Republic Sooronbay Jeenbekov, who is the current chair of SCO. In the last swearing-in ceremony in May 2014 SAARC leaders, representing South Asia were invited. In 2019 swearing-in ceremony. The invited BIMSTEC leaders not only represent parts of South Asia but also ASEAN as well. Keeping in view the “Neighbourhood First” policy the Prime Minister of Mauritius who represent the Indian Ocean on the western side was invited. Similarly in tune with the “Neighbourhood First” policy the chair of SCO representing the central Asian neighbors was invited. This “Neighbourhood First” policy is intended to develop harmonious relations and trade and economic cooperation in the region.

Modi’s “Neighbourhood First” policy is to secure the region and play safe in the rivalry between three major powers – US, Russia and China.

Overall the Modi’s second term is an opportunity to turn around the economy for which the onus falls upon the newly appointed finance minister Nirmala Sitharaman and commerce and industry minister Piyush Goyal. The role of foreign affairs minister is pivotal in navigating the situation in the complex and dynamic world particularly the rivalries amongst US, Russia and China. Therefore the three ministers should work in close cooperation in positioning India not only as an economic powerhouse but also as strategic power centre.