Enhance ease of doing business to check the flight of businesses

The vicissitudes of geo-economics are not confined to the tariff turbulence that nations across the globe are facing; the world has become so interconnected that developments in one part directly and indirectly impact the economies in another part. The push by the United Arab Emirates (UAE) to become an attractive destination for investment is negatively affecting India. Around 45 per cent of the around 6,500 companies registered at the Ajman NuVentures Centre Free Zone (ANCFZ) in the last one year are Indian, points out the CEO of ANCFZ Rishi Somaiya, who added, “Many Indians are opening manufacturing in the UAE.”

Also, some companies, which are fully dependent on US exports for their businesses, have shifted their base to the UAE. The reason is that Indian companies can use the UAE as a gateway for expanding to Europe, Africa, and the other Gulf countries. The Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE, which became effective in May 2022, has facilitated Indian companies to set up businesses in the Gulf Emirate given that ‘the CEPA has made things much easier.’ Four points need to be made to highlight the ground reality. First, our policy makers must take into cognizance of the fact that trade pacts with countries or groupings of countries can have a flip side if we are not properly prepared for their implementation.

Evidently, we did not foresee, or were not ready for, the eventuality of Indian businesses shifting to the UAE. Otherwise, such an exodus would not have happened. Second, this disheartening development should not become a pretext to go back to protectionist policies. We should not lose sight of the fact that international trade is good for any economy. But then, international trade is a tool or vehicle: correctly used, it can make our lives easier, but it can also cause grief if badly handled. One’s endeavour should be to leverage it to boost economic growth and development. Third, policy and decision makers must strive to keep international trade insulated from the lobbies of sector-specific traders and industrialists. Frankly, the desired insulation is impossible in a democracy, so those who matter should not be overly influenced by a particular set of stakeholders.

These pressure groups often become so influential that they shape foreign trade policy. The tensions between India and the United States are an example. India’s resistance to the latter’s pressure to lower tariffs on staples like rice and wheat was understandable, given the number of farmers growing these crops. But New Delhi is opposing the import of soybeans, soymeal, and corn because of the activism of the domestic soybean industry and ethanol producers. Besides, there are the ideologically motivated (read saffron) groups like the Swadeshi Jagran Manch.

They are doctrinally opposed to genetically modified (GM) food crops, despite the fact that scientific experts approve such crops. India is also deficient in corn, which is needed to boost ethanol production, but our regulations don’t allow ethanol made from imported grains. Also, there is mainly GM corn grown in the US, whereas we prohibit GM food crops. This brings us to the final point: if we want to avoid the ANCFZ-like fallout and benefit from international trade, we must enhance the ease of doing business dramatically for our enterprises, especially those involved in manufacturing, India’s Achilles’ heel.