India should advocate trade optimism in Manmohan Singh’s honour

Both the earlier moves were in favour of a freer market. So was India’s opening up. That remix of our ‘mixed economy’ marked a reduced role of the state, designed to let resources be allocated more efficiently, directed less by the Centre and more by free interactions of demand and supply.

It also opened our borders to capital and trade, exposing India Inc to global rivalry. These would combine to spell the idea whose time had come: the rapid rise of our economy.

For those familiar with Singh’s academic work and advocacy of export-led growth, a big hint of it was dropped ahead of his 1991-92 budget in the rupee’s two-step devaluation, done to re-price exports. While internal liberalization yielded quick results, globalization, alas, has not panned out satisfactorily.

But then, across the world, economists struggle to explain the virtues of free trade to others. In 2009, when Singh as prime minister reprised Keynes for the G20 to fend off a financial crisis, rich-world leaders were all ears. In 2025, a fitting tribute to Singh’s legacy would be for us to convince the globe to reverse its rising trade barriers.

Also read: A trade policy for Viksit Bharat: Let’s reduce tariffs and rethink pacts

The basic rationale of world trade rests on elementary economics. As with Adam Smith’s imaginary pin factory, where much more is produced if workers do what each is best at, it works to everyone’s benefit if producers specialize and then exchange.

The part that’s not so obvious is that trade partners can make mutual gains even if one of them is better at everything. In theory, it’s win-win if each partner focuses on its comparative advantage—by specializing in what it does best, thereby gaining a sharper market edge.

Signs of such trade patterns go back to Harappan times in history, and the math that backs this theory still holds up. So, why does trade theory fail to survive its first contact with the real world so often? At home, politics: the imperative of jobs can overcome the prospect of distant gains.

Globally, geopolitics: a barrier-free planet needs mutual trust as a basis. Here, we all face a ‘tragedy of commons’: all must play fair for it to work. And make it work, we must. As China and the US face off in Cold War II, globalization going awry would expose not just prosperity but also world peace to risk.

Recall the role that tariff battles played in the run-up to World War II.

Also read: India should rethink its stance on trade policy barriers

India’s own effort to globalize, with export optimism the post-91 bet, has faced headwinds that threaten to worsen now. We achieved foreign-exchange sufficiency long ago, and with trial and error, we got our macro balances broadly right.

But our partially afloat rupee rises and falls on flows of capital more than trade, which warps global price signals. Plus, India Inc’s exposure to foreign competition has been patchy. Today, our share of world trade remains tiny and an asymmetry of the autarky era still persists.

If what we export is broadly more price-elastic than the bulk of what we import (think crude oil), then pain tends to loom larger than gain, making it harder to align policy knobs for an export thrust. Should we sign bloc or bilateral deals? It’s up for debate.

What’s clear is that 1991 was a historic inflexion point for our economy. It reset policy and set the stage for Viksit Bharat. To get there, we need trade peace—not war. In Manmohan Singh’s honour, New Delhi should play peacemaker.

Also read: Mint Primer | The fallout of India’s unpredictable farm trade policy