Last week, senior ministers in India made the significant decision to increase the level of foreign ownership of sensitive sectors such as telecommunications and single-brand retail like IKEA. One of the more substantial signs of liberalization by the Indian government in years, India also announced that it would raise the limit on foreign ownership of defense manufacturing, another good sign.
Unfortunately, this decision was not greeted with great excitement or sighs of relief. Instead, major companies with a historically optimistic view of Indian investment like Wal-Mart and Posco announced that they would begin to pull back on investments. With the rapid decline of the rupee over the last month and the broader economic slowdown in India, even this signal was interpreted by many as too little, too late.
The rest of the world is experiencing the most significant period of globalization in world history, and India is being left behind. The first of what will be multiple rounds of the Transatlantic Trade and Investment Partnership (TTIP) began in Washington the week of July 8, with both sides promising a comprehensive agreement that touches on historically sensitive sectors such as agriculture. The same week, the Strategic and Economic Dialogue included productive conversations on hot-button issues like cyber theft and intellectual property, and ended with China’s announcement that it would pursue a bilateral investment treaty (BIT) with the United States. And in Malaysia the very next week, the Trans-Pacific Partnership (TPP) began its 18th round of negotiations. These trade deals will easily account for the majority of world GDP (just the U.S. and EU together make up almost half).
While countries in every continent but Africa are included, South Asia, and India in particular, is notably absent. Where is India in all of this? Does the government lack the political will required to push through tough agreements?
Of course, there are signs of cooperation. India participated in the U.S.-India Business Council’s 38th Annual Leadership Summit, which included an address by U.S. Trade Representative Michael Froman. He noted, for example, the promise of the Defense Trade Initiative (DTI). But this does not even begin to compare to the likes of the TTIP or TPP, or the extreme ambition and dogged determination that participating countries have to push through on tough issues such as textiles and intellectual property to make meaningful trade happen.
While DTI is certainly a small gesture in the right direction, it is time for the Subcontinent to get serious about economic liberalization. The world’s largest democracy (and the nation with the highest number below the poverty line) should be a champion of trade, not an opponent. To strengthen its economy and stabilize its role as a major global power, India must soberly focus on a three-pronged approach to encourage trade and foreign investment—one that includes bilateral, multilateral and regional components.
Bilateral. We can hope that U.S. Vice President Joe Biden’s visit to India this week will have provided the shot in the arm needed to get an impressive trade agreement started between the United States and India. As a decades-long supporter of the country, through several ups and downs, it was a more than appropriate time for the vice president to call on Indians to seize opportunities, with an “open and fair” investment partnership and a liberalized economy, as India “builds the largest middle class in human history.”
Multilateral. India would be well-served to learn from massive trade negotiations like the TTIP and TPP, and seek to join. India is not precluded from a role in the TPP, although its geography could raise some eyebrows. The nations currently involved, including the bulk of Southeast Asia, are well connected to India with robust economic and cultural links. Even if India cannot jump into the TPP, it should closely monitor the outcomes and take note of the groundbreaking trade and investment standards being put in place. This will prepare it for negotiations with these countries (or blocs) in the future, particularly as the U.S.-EU FTA has ambition to be the measuring rod against which all future agreements are considered.
Regional. India has an opportunity to lead regionally as well. It would behoove the government to first begin with its neighborhood and foster robust trading agreements with Bangladesh, Nepal, Bhutan and, yes, even Pakistan. The Bangladesh textile factory tragedy could have been an opportunity for India to lead in trade practices and standards. If a structure was already in place between the two countries, an appropriate forum to address such standards would be available. Regardless, to lead globally means to first lead regionally.
Few in Washington will remember that in the summer of 2013, India’s government announced historic liberalization in foreign investment. Instead, Americans will remember the massive inroads made by the Europeans, the Chinese and partners around the Pacific in Southeast Asia and Latin America to work towards meaningful trading agreements. As the world rabidly pursues greater cooperative growth, India must prioritize foreign investment and greater regional and bilateral trade. Now, two decades after India first liberalized its economy, it’s time for another liberalization renaissance in India.
Riley Barnes is a Member, Young Professionals in Foreign Policy.