The Indo-US trade deal has been rightly criticised as an ‘unequal treaty’ imposed by the Donald Trump administration on India. First, it enjoins India, not the United States of America, to buy specific amounts of goods over the next five years; and, second, in return for reducing the American tariff on Indian goods to 18% (in the original agreement), it makes India adopt near-zero tariffs on American goods. Focussing on this deal, however, has meant that the recent free trade agreements signed by India with the European Union, the United Kingdom, the United Arab Emirates and others have not received due attention. True, the details of these agreements are not yet clear, but they indubitably represent a basic shift, wholly unwarranted and on entirely spurious theoretical grounds, in India’s development strategy. It is this shift which I shall discuss.
These agreements are typically justified on the grounds that they promote ‘export-led growth’. But ‘export-led growth’ in a world economy where the rate of growth of aggregate demand is determined by exogenous factors necessarily means that one country’s success can only be at the expense of another country. A strategy of ‘export-led growth’ by all countries, as is recommended by the Bretton Woods institutions, by proponents of free trade, and by neoliberal spokesmen, pits them in a Darwinian struggle against one another, which is ethically repugnant and economically unwarranted (as we discuss below).
Indeed there has been much talk about how India can increase its garment exports at the expense of Bangladesh and others through such FTAs; a development strategy that can ensure the growth of one country only at the expense of another should be revolting for any sane person. Proponents of ‘export-led growth’ gloss over this fact through a dishonest theoretical manoeuvre: they assume each country to be a ‘small country’ that can sell as much as it can in the world market without impinging on others (because it is ‘small’). In the aggregate, however, it is a bogus argument.
This strategy is also unwarranted. Nicholas Kaldor, the well-known economist, had drawn a distinction between one type of “export-led industrialization” where exports were external, from industry to other countries, and another where ‘exports’ were internal, from industry to agriculture. Under the latter strategy, the State can promote the development of peasant agriculture through innovating and disseminating land-productivity-raising practices (giving this role to agribusiness giants means pushing peasants into thraldom to multinationals); the ensuing growth in agricultural incomes provides the market for industry and other non-agricultural sectors to grow within a setting that is generally protected (so that the increased demand from the agricultural sector does not ‘leak out’ abroad).
True, no country can be fully autarkic; it will have to buy some essential goods from abroad which it cannot produce. But these can be obtained through bilateral trade arrangements with other countries, along the lines of the Indo-Soviet bilateral trade in the old days, without resorting to either free trade or FTAs.
This development strategy, based on a protected home market, apart from its avoiding undermining other countries’ growth prospects that a conventional external ‘export-led-growth’ strategy involves, is superior to the latter in two other respects.
First, it necessarily brings about a more balanced growth between the sectors and, hence, between classes because of which it is associated with a more egalitarian distribution of income compared to the latter. External ‘export-led growth’ can mean a flourishing and successful export sector co-existing with a stagnant or shrinking sector that is getting competed out by foreign goods; the idea that labour from the latter sector would get absorbed in the former, which is what proponents of this strategy argue, is another dishonest suggestion based on the absurd, and demonstrably false, theory that the spontaneous operation of capitalism always ensures full employment of labour.
Second, the external ‘export-led growth’ strategy is fundamentally anti-democratic, unlike the protected home-market-based one. This is because to be a successful exporter, a country, especially one in the Global South, will have to invite multinational corporations to set up plants employing up-to-date technology within its borders, for which it has to provide incentives to these companies and keep government interference in their operations to a minimum. It cannot pursue egalitarian distributive policies or socio-economic measures that seek to spread the prosperity of the successful export sectors to the economy at large. Indeed, for the sake of promoting ‘growth’, different political formations vie with one another in rolling out the red carpet for MNCs while, at best, giving some ‘freebies’ to people at large which they feel compelled to do within a formally democratic set up. Of course, for the MNCs, the whittling down of formal democracy and the ushering in of authoritarian or even fascistic governments becomes particularly attractive; the upshot is that even if a country achieves high ‘growth’, its working people are pushed into increasing poverty.
India’s post-Independence development strategy had been essentially a protected home-market-based one. There had been a progressive withdrawal from it under the neoliberal regime, which has now gathered great momentum under the neo-fascist, Hindutva-espousing government.
The immediate response to my argument would be that India’s growth rate has accelerated greatly under the neoliberal regime; so why complain? But acceleration of the growth rate was also possible under the old regime, by increasing the growth rate of agriculture through appropriate land reforms and other measures; it did not require
a change of regime, let alone a headlong plunge into free trade. Predictably, we now have, accompanying higher growth, the highest share in national income of the top 1% of population than at any time during the last century and a sharp increase in absolute nutritional poverty.
Prabhat Patnaik is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi