India can say no on trade. Here’s how to get to yes

By Mihir Sharma

India’s approach to free trade can appear contradictory. Officials insist they are serious about closing new deals with the UK and the European Union and improving older ones with countries such as Australia. But they also complain that free trade deals in the past have “hurt” India or that they serve as a backdoor for unwelcome Chinese goods.

This makes it hard to interpret news that the Ministry of Commerce, which handles trade talks, plans to seek cabinet approval for a new negotiating strategy. The loud grumbling from trade bureaucrats suggests India may soon back even further away from open markets.

There is also, however, an optimistic case to be made for a new trade roadmap. India’s negotiators have been stuck in the 20th century. New rules of the road might drag them into the 21st.

Indian officials still tend to think of trade as a zero-sum game, with tariffs as the only real levers. They are legendarily defensive: Global counterparts often wonder at how India can produce new “red lines” out of nowhere, aimed at protecting one sector after another.

The potential gains from new markets are rarely considered — perhaps because, deep down, the bureaucracy doesn’t believe that Indian entrepreneurs have the nous to turn new free-trade agreements into attractive export opportunities. The deal that New Delhi signed with the Association of Southeast Asian Nations in 2011 left a particular scar: Imports from Asean have grown much faster than exports from India to the bloc.

If officialdom is so full of pessimists, then what good can a new strategy do? Negotiations with the EU suggest one plausible answer.

Talks were reopened in recent years — after collapsing dramatically over a decade ago — because leaders in both Europe and India believed closer economic integration was strategically necessary. Economic security drove the decision, not optimism about export-driven growth.

A fresh mandate from Prime Minister Narendra Modi’s cabinet might serve to remind negotiators to evaluate trade from a wider perspective, one which prioritizes access to strategically important supply chains, finance and technology.

And that isn’t the only way in which India’s approach to trade needs could usefully be broadened. A narrow focus on tariffs ignores the numerous additional domains that make up modern trade agreements — from transparency about labor regulations to environmental rules and the role of civil society.

Here I have some sympathy for officials. Ministries are naturally protective of their turf. Why would one allow staff from another to encroach on its domain? As a consequence, while everyone else wonders how best to embed environmental principles into trade rules, India still insists, as it did 30 years ago, that these are two completely different conversations.

Yet this leads to odd and counter-productive situations. It makes no sense that India — where workplace regulations are famously among the most restrictive in the world — is scared of discussing labor rules with potential trading partners.

Here’s a useful shortcut to understanding the Indian state. If a bureaucrat says “no” to something, it’s not necessarily because she doesn’t want to see it happen. Most likely, it’s because she’s not sure of what will happen to her career if she says “yes.”

Any official will ask the following questions of any decision: Are there unforeseen consequences for which I might be held responsible? Am I stepping on someone else’s toes? Is this a new precedent I will have to defend to my superiors?

Worst of all, the generalists who staff the civil service tend to be transferred to other jobs the moment they begin to develop enough confidence to say “yes” instead of “no.”

A new strategy for negotiators might go some way toward addressing these problems. It could allow, for example, for a permanent cell of negotiators, or the addition of outside expertise. It might empower trade negotiators to discuss issues and regulations that normally are the bailiwick of other bureaucrats.

It’s a pretty paradox: The absence of rules has long meant that Indian negotiators were notoriously inflexible. Giving them a new set of guidelines might allow them to cut a deal or two.