India’s Trade Deficit Skyrockets: Are Foreign Corporations Squeezing Our Economy Dry?

If ballooning trade deficit isn’t an urgent national crisis, then what is? (Pixabay)

An Empire Diaries Special Report

Around the time India was gearing up last year to celebrate the 75th anniversary of its independence from British invaders, a development came to light that should leave you worried – the country’s trade deficit had ballooned to a record $30 billion as of July 2022.

With exports (outbound shipment of goods) growing at a very sluggish pace compared to imports (inbound shipments), data released by India’s commerce ministry revealed a worrisome contraction in some of the key drivers of export growth. Engineering goods shrunk by 2.08%, gems and jewellery fell by 5.2%, and pharma and readymade garment exports contracted by 1.05% and 0.6%, respectively.

The rot continued in the following months, albeit with only minor improvement. In September last year, the merchandise trade deficit reached a high of $25.71 billion and soared to $26.91 billion in October.

The latest international trade data released on January 16, 2023 showed that India’s merchandise exports contracted 12.2% year-on-year in December 2022. The negative balance of payment widened to $23.76 billion, against $21.06 billion in November last year.

EXPECTED OUTFLOW OR
WORRISOME SIPHONING?

These recent revelations about the trade-related blow that the Indian economy is being dealt brings us to a disturbing question. Why does India, despite being an independent nation for three quarters of a century, still find itself in a situation where its import bill emphatically overshoots export remittances? After all, it has resulted in an accelerating drain of the country’s financial wealth – financial resources that could otherwise have been spent to feed millions of undernourished children, or upgrade our healthcare services.

The term ‘drain of wealth’ is all too familiar to any student of Indian history who has studied in detail how the subcontinent was bled white by opportunist British colonisers through a ruthless and well-calibrated policy of economic exploitation that de-industrialised India, killed its bustling commercial sectors, and destroyed any semblance of self-sufficiency in infrastructure.

The point here is that 75 years of freedom has failed to alter the script. Why are we freely importing more than what we are exporting, and hence, continually leaking our financial wealth like a sieve? We are truly independent in so many ways. Our political leaders are elected locally, those who run our bureaucracy, policing and defence are from among ourselves, our judiciary’s composition is indigenous. But is it a completely different story when it comes to the national economy? How come the economy and our markets are not self-sufficient just like the other areas in which we are fiercely independent?

A FAVOURITE DUMPYARD

In its seventh Trade Policy Review of India, the WTO (World Trade Organisation) – the global trade regulator often criticised for shifting the goal posts to favour influential export-centric nations – reportedly noted that India is the world’s most attractive destination as a dumpyard of products.

Here’s a look at a detailed report compiled independently by the WTO Secretariat regarding the seventh Trade Policy Review of India. “Anti-dumping duties may not be levied on goods imported under the Advance License Scheme
(Advance Authorisation Scheme) or on imports by EOUs/export processing zones (EPZs) units, even
if such imports are from trading partners that are dumping or are under investigation,” the report says on Page 63.

A handout from India’s PIB (Press Information Bureau) on January 7, 2021 says that economically powerful countries have been keen on New Delhi taking its foot off the pedal regarding anti-dumping measures. “With an eye on the rapidly expanding size of the Indian market, leading industrialised and developed countries sought greater liberalisation of India’s trade policy, especially in the area of agriculture, harmonising its standards regime with international standards as well as reducing anti-dumping and other trade-remedy measures,” according to the PIB handout on the seventh WTO Trade Policy Review.

In 2016, at a conference organised by the Australian National University, Dr. Assa Doron of the ANU School of Culture, History and Language, said, “India has become the dumping ground for our e-waste. Everything from computers, phones, televisions, and white goods are illegally being exported to India.”

According to the 2015 UN Environment Programme, up to 90% of the world’s electronic waste was being illegally dumped in India at that time; this was on top of the estimated 1.8 million metric tonnes of e-waste produced domestically each year. The UNEP disclosed, “The INTERPOL estimates the price of a tonne of e-waste at around $500. Following this calculation, the value of unregistered and informally handled, including illegally traded and dumped e-waste ranges from $12.5 to $18.8 billion annually.”

WTO: WHO IS IT FOR?

The WTO has time and again come in for sharp criticism for submitting to the diktats of geopolitically influential industrialised countries such as the US, and giant corporations from these nations. These corporations use trade negotiations to wring the economies of targeted nations such as India dry.

There’s an interesting economic theory – less discussed in mainstream circles – that explains what is happening with India. It’s called Dependency Theory, which exposes the root cause of why countries such as India perpetually suffer trade deficits. The Dependency Theory has its beginnings in two papers written in 1949. They were authored by Hans Singer, a German-born economist from the UK, and Raul Prebisch, an economist from Argentina.

According to the theory, some countries remain financially troubled because vital resources always flow from the ‘margins’, which are poorer and diplomatically weaker nations, to the ‘core’, which are affluent and geopolitically powerful countries.

The theory says that this imbalance of powerful countries dominating less influential countries and siphoning their money is possible primarily because the two contrasting parties are too deeply integrated into a common global system. As a result of this excess geopolitical integration or connectedness, weak countries are unable to break free from the influence or orbit of powerful countries, which then exploit them financially through economic tools such as trade.

Coming back to the WTO, its agenda, modus operandi to implement agreements, and the dispute redressal system all seem tailor-made to cater to the interest of economically and militarily powerful nations. Countries whose economies are targeted by these influential nations, such as India, find themselves at the wrong end of the skewed rules of the game.

Aileen Kwa, writing for the US-based Institute for Policy Studies, says, “The least developed countries (LDCs) are marginalised in the world trade system, and their products continue to face tariff escalations.”

It is no mere coincidence that the world’s second most populated country has an enormous consumer base, with the numbers steadily rising daily. Naturally, behemoth businesses headquartered in countries such as China, US, Britain, Japan, France, Germany, Singapore, South Korea, Australia, just to name a few, try all strategies, fair and unfair, to game the system designed in their favour. The result? India’s import bill keeps creeping up with the country’s mainstream media hardly ever flashing it in primetime headlines, unless there’s the occasional shallow political agenda to do so.

THE NEXT AFRICA?

This brings us to a most crucial issue – how does the rising import bill or the trade deficit impact the lives of India’s common people, particularly the most vulnerable sections? An answer was provided by economists Janak Raj, Sarat Dhal and Rajeev Jain, who found a linkage between imports and prices.

In the paper ‘Imported Inflation: The Evidence from India’, the economists concluded that inflation in India is influenced by import price, capital flows and the exchange rate. “…import price inflation on average accounts for about 1 to 2 percentage points increase in domestic inflation. …about 5 percentage points increase in import prices contribute to 1 to 1.5 percentage points increase in domestic prices,” the study said.

The ballooning financial miseries of India’s poorest people often makes connoisseurs ponder if the country will someday slip into the bracket of impoverished African nations. Well, that might become a reality sooner than later, if the unchecked outflow of India’s finances through international trade isn’t plugged – which is something that the geopolitically powerful countries do expertly to keep their trade record and economies clean.

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