The Long-term Impact of Trade Wars and ‘Make in India on the Indian Economy

• Main Authors: Sen, Rahul, Narayanan, Badri, Srivastava, Sadhana, Khorana, Sangeeta, Iyer, Chidambaran
• Format: Conference Proceeding
• Language: English
• Published: 2020
• Edition: 2457
• Subjects: Asia (South-Central); Baseline development; Domestic policy analysis; Dynamic modeling; Economic development; Economic growth; International Relations/Trade; Preferential trading arrangements

It is a well-known fact that India’s rapid growth in recent decades has taken place in spite of an almost stagnant contribution of an average of 16% in manufacturing sector to its GDP over 2000-2018. In order to address this constraint and develop India as the next global manufacturing hub, 'Make in India' a flagship program for industrialization, has been launched by the Government of India since 2014. This has two broad types of features first being business-friendly to reduce transaction costs while the second involves protectionism against import competition for domestic manufacturing firms. The combined effect of these two features on the expected success of this programme has been ambiguous, partly because these are not very clearly laid out in one document but instead they have been captured by a slew of policy measures and announcements over a period of the past four years. In the above backdrop, our study explores the effects of Make in India and the global trade war in a combined way utilizing an applied general equilibrium analysis based on 2017 data utilizing the GDyn database. The study aims to first analyse the Macro effects: GDP, Investment and Trade effects from Make in India and Trade War, to understand the overall effect on the Indian economy. Further, sector specific Export, Import, Prices, Output and Employment (skilled and unskilled labour) effects for the chosen 14 Make in India (MII) sectors are analysed, based on their concordance with 20 GTAP sectors. Our initial results based on the static model suggests that the combined impact of both policies, while being beneficial for the Indian economy as a whole, yields negative ramifications for exports, jobs and investment growth. Specific sectors are also unable to increase domestic output even in spite of Make in India, such as Chemical, Rubber and Plastics industries, and those that use it as raw materials, which has ramifications for India’s trade integration with global value chains (GVCs).