While the interview processes for various business schools may be different, what interview panels are looking for in a candidate is nearly identical - academic prowess, high EQ, and strong general awareness. The ideal candidate must have the knowledge and keen interest in what’s happening in India and across the world. So, what all happened since the start of 2020? There was the US-Iran conflict, US-China trade war, and the threat of coronavirus.
All of these global events will continue to have an impact on the Indian economy. However, surprises don’t seem to end. A few days before Trump’s visit to India, the US declared India as a “developed country” and took India out of the Generalized Preferences Scheme (GSP). Does this new development call for a celebration or deep worry? That is something we will try to find out in this article. To know more keep reading.
Why did the US declare India a ‘Developed Nation’?
- India and China are both considered to be two of the fastest-growing economies. This leads the US to demand the WTO (World Trade Organisation) to review the ‘developing’ status of the country. The US questions that in terms of economic growth, both the continues are leading then why do they continue to enjoy special trade benefits that come with a ‘developing country’ tag.
- Another reason for India being stripped out of the ‘developing’ tag* is also because it is a G-20** member and has more than 0.5% share of world trade. India crossed the 0.5% limit a few years back. As per 2017, India’s share in global trade was 2.1% for exports and 2.6% for imports.
* ‘Developing’ or ‘Developed Country’ tag: This is a kind of tag that can be self-declared, hence can also be contested by other member nations if found otherwise.
**G20 is an international forum of various counties, government institutions and a central band of 19 countries. It is a successor of the G8, an economic council of the world’s 8 wealthy nations. Collectively, G20 economies account around 90% of the gross world product (GWP), 80% of world trade, two-thirds of the world population, and half of the world land area.
However, the US claims don’t entirely make sense because a nation is considered a developed or developing country not just based on economic growth. Human Development Index (HDI), mortality rate, women empowerment, and other social and political factors also contribute to the ‘developed’ or ‘developing status’. And here is where India stands:
- Per-capita Gross National Income (GNI) of India is below $12,375. India’s current GNI is $1,800.
- In terms of HDI India ranks 103rd, which is very poor.
- 21.2% of India’s population is under the poverty line (living on $1.90 a day as per 2011 purchasing power parity).
What is the Generalized System of Preferences (GSP) Trade Program And Why Is India Out Of It?
There are a series of agreements that gives the signing nations preferential or special access to each other's markets and boosts the overall trade. In the US it is called the GSP or Generalized System Of Preferences programme. These trade agreements are designed to promote economic growth in developing countries (the beneficiary). The US provides duty-free entry of 4,800 products from 129 beneficiary countries and territories.
In return, the GSP programme asks the beneficiary nation to provide the US with -
- Equitable and reasonable market access
- Respect arbitral awards for US citizens or corporations
- Combat child labour
- Providing adequate and effective intellectual property protection
- Respect internationally recognised worker rights
The US President terminated India's designation as a beneficiary under the GSP trade programme. It will take effect from June 5, 2020. According to the White House, India has apparently not assured the US an "equitable and reasonable access" to its markets. And that is the first reason why the Trump administration has taken India out of the GSP program. The other reason is that India is a developed economy and does not need the US's preferential treatment.
Apart from India, US has also eliminated its ‘special preferences’ for other developing countries like - Albania, Argentina, Armenia, Brazil, Bulgaria, China, Colombia, Costa Rica, Georgia, Hong Kong, India, Indonesia, Kazakhstan, the Kyrgyz Republic, Malaysia, Moldova, Montenegro, North Macedonia; Romania; Singapore; South Africa; South Korea; Thailand; Ukraine; and Vietnam.
What Does The ‘Developing Country’ Tag Mean?
World Bank classifies countries of the world based on three broad categories:
- Developed Economies
- Economies in Transition
- Developing Economies
When a country has a ‘developing nation’ tag they become eligible for certain types of advantage in terms of subsidies, tax and tariffs reliefs that developed nations cannot enjoy. The developing countries are also shown leniency and flexibility in implementing global initiatives and adopting measures to boost international trade.
Despite the aggressive persuasion from the side of the US, China refuses to shed off the 'developing nation' tag. According to America, China has shown unprecedented economic growth since the past two decades and hence should not be categorised as a developing nation. China admits that it had risen up to $16,660 per capita GNI in 2017, but it’s still lower than the US (GDP per capita of $59,501), so the country will take some time before it fully accepts the ‘developed nation’ tag.
India, however, wants to achieve the ‘developed’ country tag as soon as possible. In fact, Prime Minister Narendra Modi, during the 2019 Lok Sabha elections urged people to provide the BJP (his party) 5 more years to set India on the "developed nation" track. But, does India have to give away the ‘tag’ at the cost of subsidies and trade benefits, is the question.
How Will It Affect India’s Trade And Economy?
People are in two minds about this -
- India exports products worth $6.35 billion that fall under the GSP programme. Thus, GSP plays a big role in the Indian economy. So, many believe that India getting stripped of the GSP program will have a big impact on the Indian economy.
- Others say that the $6.35 billion that comes under GSP covers only a small chunk. India’s overall exports to the US in the same period stood at $51.4 billion. Hence, the impact will only be minuscule.
- However, the minimal impact on India’s overall outbound trade with the US, specific exports from India such as jewellery, leather, pharmaceuticals, chemicals and agricultural products have faced higher costs and competition.
- The Commerce and Industry Minister Piyush Goyal says, “India does not need development assistance like GSP hitherto provided by other nations and should be able to become competitive on its own, the issue has continued to be part of trade talks between India and the US.”
- Meanwhile, the traders have pointed out Indian export has always remained under pressure because of increasing competition from low-cost rivals. And the surrender of the GSP claims might just make the matter worse.
What's To Be Expected Now?
India may decide to take a firm stance by imposing retaliatory tariffs on the US. If this comes to pass, a total of 29 items imported from the US, including walnuts, lentils, boric acid and diagnostic reagents, will face higher duties, cutting benefits to the US exporters. But things may not go to such extremes as President Trump is currently visiting India to strengthen the US-India strategic partnership and GSP program could be a part of discussion agenda.
While India wants to restore the benefits under the GSP and more access for its products, the US has plans to get away duty on American information and communication technology goods along with market access for its dairy products and duty cuts on Harley-Davidson motorcycles. The US is also keen to sell more almonds to India.
*This article will be updated as and when more news on the 24th-25th of February 2020 visit is released to the public. Keep revisiting this article for more updates!
GD-PI-WAT Questions That You May Be Asked
- What are the indicators that make a country developed and where does India stand? Is it developed or developing?
- Will India’s elimination from GSP lead to retaliatory tariffs on the US and start a trade war. How will that affect India?
- India is expected to get hit by the economic slowdown soon. Will the GSP elimination hasten the process?
- Trump has arrived in India. Will this meet improve the bilateral relations between the US and India. Is there a possibility of a trade deal?
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