Indian Prime Minister Narendra Modi was elected on the promise of uplifting India’s sagging economy. He presented himself as ‘pro-business’, promising jobs, trade, and an end to the ‘Licence Raj’, India’s labyrinthine bureaucracy that has hindered corporations from investing, and companies already in India from growing. Modi appeared to backtrack pretty hard on these promises when his administration scuttled a landmark WTO agreement that would have reformed customs rules, streamlining trade for all member states. The FT has the report.
The collapse of the agreement to reduce red tape at borders around the world immediately drew a concerned response from business groups and came just seven months after it was reached by WTO members in Bali.At the time, the trade facilitation agreement was celebrated as the first in the Geneva-based body’s almost two-decade history, which would provide a way forward for multilateral trade negotiations.Roberto Azevedo, the WTO’s Brazilian director-general, told members on Thursday night that his efforts to overcome Indian objections had failed before the expiry of a July 31 deadline set in Bali.
The decision highlights India’s economic reality: a mostly rural population overwhelmingly dependent on, and expectant of food and other subsidies from the government. Despite criticizing the previous Congress government for the handouts, it seems Modi’s government is eager to keep them. By coupling food security with the trade facilitation agreement, Indian representatives said they cannot move on the latter without guarantees for the first.In fact, it has been defiant in its response. “We will not compromise on national interest,” Jayant Sinha, a lawmaker from the ruling Bharatiya Janata Party (BJP) told Reuters. “That is the way (a previous BJP-led) government operated between 1998 and 2004 and this is how this government will operate.”That sounds odd, because it seems that boosting trade and cutting red tape—also in effect, fulfilling Modi’s campaign promises—was precisely in India’s national interest. Harking back to the BJP’s last stint in power is also instructive. Serving the ‘national interest’ back then resulted in international isolation and a resounding defeat in the next elections.The breakdown of the deal also had awful timing. John Kerry was in New Delhi to revitalize American-Indian ties, which had cooled ever since an Indian diplomat was arrested for visa fraud in New York last year. He mentioned that blocking the trade agreement was sending the ‘wrong signals’.In any case, the ghost of Indira Gandhi must be smiling somewhere. Modi’s first major act of economic policy is to defend the worst and most damaging set of misguided policies that hinder India’s progress—and to weaken the global institution that offers India the most hope.