In a global trading landscape that is being increasingly influenced by protectionist narratives, the approval of the landmark European Union-Canada trade deal Comprehensive Economic and Trade Agreement (Ceta) by the European Parliament comes as a breath of fresh air. Trade between the two economies amounts to about $63 billion presently, and reports say Ceta could increase this by 20% to as much as $76 billion.
Realizing these gains from trade would require dismantling not just tariffs but also non-tariff barriers as envisioned in Ceta. While the former has finally been voted upon in the EU parliament and about to be enforced after more than seven years of negotiation, the latter still hangs in the balance. Reducing non-tariff barriers would require ratification by EU member states, a task that is both formidable and time-consuming. Last year, the tiny Wallonia region of Belgium, with a population of about 3.5 million, held the entire deal hostage to its concerns about the loss of welfare due to trade. Foreign competition induced by Ceta was particularly feared to hurt Wallonia’s farmers, who were increasingly facing higher production costs in their region. To be sure, such concerns are legitimate and are shared by a host of countries, including the US.
But that narrative fails to take into account the huge welfare gains that accrue to consumers of cheaper imports. A 2016 paper by economists Holger Breinlich, Swati Dhingra, and Gianmarco Ottaviano of the London School of Economics analysed the effects of free trade agreements (FTAs) negotiated by the EU in the past two decades. They concluded that these agreements not only improved the quality of the UK’s imports by 26%, but also lowered the quality-adjusted price of those imports by 19%. For EU-12 countries, which include Belgium, FTAs enhanced the quality of imported goods by 28%, while reducing the quality-adjusted prices by 11%.
In value terms, cheap imports resulted in savings of as much as $5.6 billion for UK consumers every year. Furthermore, the authors also predict that treaties such as the Transatlantic Trade and Investment Partnership between the EU and the US could save EU consumers $4.45 billion, while the Economic Partnership Agreement between the EU and Japan could save them $2.23 billion by way of lower import prices.
Even among those consumers, the poor tend to gain more through freer trade. This is because tradable goods constitute a large portion of their overall expenditure, and lower import prices of these goods feed into greater savings for them. A 2014 working paper by Pablo Fajgelbaum of the University of California and Amit Khandelwal of the Columbia University, published in the National Bureau Of Economic Research, found that the “real income loss from closing off trade is 63 percent at the 10th percentile of the income distribution and 28 percent for the 90th percentile.”
In simpler terms, trade has a pro-poor bias, and any barriers to trade can quickly degenerate into barriers to reducing poverty. That is not to downplay the distributional consequences of trade or engage in trade fundamentalism. Trade hurts uncompetitive businesses and causes unemployment. But as long as the losers are compensated from the aggregate welfare gains resulting from trade, there is a strong case to be made in favour of liberalizing restrictions. This compensation should be in the form of robust safety nets—such as unemployment insurance benefits or income support payments—that are combined with skilling programmes to retrain displaced workers for new employment opportunities.
There could also be a legitimate argument in favour of imposing anti-dumping or countervailing duties on certain items if the cheap import happens to be a result of market distortions created by the foreign trade partner in its home country. In its high growth years, for example, China witnessed heavy state-led investments in its steel industry. This led to industrial overcapacity in the subsequent low growth years when domestic demand faded. Consequently, Chinese producers engaged in price discrimination by exporting steel to foreign markets at prices far lower than those prevailing domestically. The importing countries naturally witnessed damage to their domestic steel industries, but not necessarily due to their own inefficiencies or weaknesses. They lost out owing to market distortions or failures induced by their foreign trade partner’s state policy. This could justify appropriate domestic measures.
The problem with such measures, however, is that it is often difficult to distinguish clearly between cheap imports induced by market distortions and those taking place as a result of genuine comparative cost competitiveness of the foreign producers. And the result is a flagrant misuse of anti-dumping measures to thwart even genuine imports. A 2015 working paper by economists Chad Bown and Rachel McCulloch of the European University Institute found that even though anti-dumping measures in the 1980s were originally employed to prevent anti-competitive behaviour, they gradually ended up being misused to create collusion and cartelization by domestic producers.
Given their potential for misuse, protectionist measures should be avoided or limited to exceptional situations only. Where such effects are unclear, trade should be allowed to take its own course
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- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)