The Economic Impact of India Being Declared A 'Developed Nation' | Important GD-PI-WAT Topic

**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?