Domestic reforms offer bigger economic gains than trade pacts: Shanker Singham

Shanker Singham, CEO of consultancy firm Competere, emphasizes that India’s most substantial economic progress hinges on reforming domestic regulations rather than pursuing additional trade agreements.

In a discussion with Financial Express’s Manu Kaushik, Singham explained that India has the potential to unlock around $174 billion over the next five years by relaxing investment constraints and avoiding the introduction of a separate digital competition law.

Basis for the $174 Billion Economic Gain Estimate

When asked about the basis for the $174 billion figure, Singham described using an econometric model analyzing 13 years of data from 130 countries. This model correlates GDP per capita with three main factors:

  • Trade openness
  • Domestic competition
  • Property rights

India demonstrated exceptional improvement between 2010 and 2023. The $174 billion estimate represents the additional economic output achievable over five years by addressing persisting distortions—especially those involving foreign investment restrictions and competition barriers.

Priority on Domestic Regulatory Reforms Over Trade Liberalization

Regarding which reforms offer the greatest benefits, Singham noted that domestic regulatory improvements have a more significant impact on GDP per capita than simply expanding trade liberalization.

Past reforms such as the Goods and Services Tax (GST), insolvency legislation, and trade facilitation have already contributed notably to growth.

He advocates focusing the next wave of reforms on enhancing the domestic regulatory environment.

Sectoral Focus for Regulatory Reforms

Singham highlighted specific sectors where regulatory constraints still exist, including retail, e-commerce, telecom, media, and space.

E-commerce is particularly critical given its role as a major driver of global trade. He pointed out that regulations favoring certain business models over others reduce competition and economic efficiency.

Concerns About India’s Proposed Digital Competition Bill

Singham expressed reservations about the proposed Digital Competition Bill, emphasizing that digital markets differ fundamentally from traditional ones.

He warned that excessive regulation could stifle innovation prematurely.

Citing Europe’s experience with interventionist policies that have hindered the development of globally competitive tech companies, he argued that India—with its robust AI and digital strengths—should avoid creating a regulatory framework that deters innovation.

Trade Agreements Versus Domestic Reforms

Regarding India’s recent free trade agreements (FTAs) with countries like the UK and UAE, Singham acknowledged their importance and potential to bolster trade over time.

However, he reiterated that the largest economic gains stem from domestic reforms rather than trade agreements alone.

Impact of US Tariffs and Trade Openness

On the topic of US tariffs imposed on several countries including India, Singham recognized that tariffs reduce trade openness and have economic costs.

The US justifies these tariffs as measures to address distortions in other markets.

Singham emphasized that tariffs should be directly linked to these distortions and be removed once such issues are resolved.

For India, minimizing domestic regulatory obstacles would not only enhance its economic strength but also ease trade tensions with international partners.

Key Takeaways

  • India can unlock approximately $174 billion in economic output by reforming domestic regulations over the next five years.
  • Domestic competition, trade openness, and property rights are crucial drivers of GDP growth.
  • Regulatory improvements have a greater impact on economic gains than expanding trade agreements alone.
  • Sectors such as e-commerce, telecom, media, retail, and space require regulatory easing to boost competition and efficiency.
  • Excessive digital market regulation could inhibit innovation; caution is needed with the proposed Digital Competition Bill.
  • Recent FTAs are important but secondary to the economic benefits of domestic reforms.
  • Addressing domestic issues can reduce trade tensions, including the impact of US tariffs.