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Global factors are yet to stabilise since the financial crisis hit the developed economies. Recovery among these economies are getting tough job—even unconventional monetary policies have been tried (pursuing for negative
interest rate regime). Meanwhile, several of these economies have signalled ‘protectionist’ rhetoric—the Brexit. The new government in the USA has already taken various protectionist measures by now and many more are supposed to come in the coming times.
Besides, in past few years the world has seen increased debate on the drawbacks of the globalisation process. Among experts as well as several nations, a general feeling looked evolving against globalisation. The negotiations related to the WTO look almost stalled. At the end of the tunnel, by late 2016, the world witnessed rise in the ‘protectionist sentiments’ among important economies.
The above-given two events show as if the world (or at least the economies which matter most) has started to move slowly away from the much- celebrated idea of globalisation—de-globalisation taking over the world— shrinking scope for multilateral trade and economic inter-dependence. Again, this lack of willingness towards globalisation among different economies is not of the same degree nor universal to every economy—better say it looks selective.
India’s prospects of export growth depends on its trading partners’ carrying capacity of globalisation to it. Today, for India, three external developments are of significant consequence—
(i) In the short-run, global interest rates (as a result of the US elections and the implied change its fiscal and monetary policy) will impact on India’s capital flows and exchange rates. Experts are already expecting high fiscal stimulus, more dependence on unconventional monetary policy, etc. to follow in the developed world.
(ii) The medium-term political outlook for globalisation and in particular for the world’s ‘political carrying capacity for globalisation’ may have changed in the wake of recent developments. A strong US dollar and declining competitiveness might incline many countries to follow protectionist policies. This will result into declining global trade hitting India hard.
(iii) Developments in the US, especially the rise of the dollar, will have implications for China’s currency and currency policy which will impact India and the world—if China is able to successfully re-balance its
economy, the spillover effects will be positive; otherwise quite negative. China with its underlying vulnerabilities remains the country to watch for its potential to unsettle the global economy.
India’s trade in goods and services both will be important in this case. India’s services exports growth will test the world’s ‘globalisation carrying capacity’ in services—depending on the restrictions in developed countries on two variables—firstly, the labour mobility and secondly, outsourcing.
It is possible that the world’s carrying capacity will actually be much greater for India’s services than it was for Chinese goods. After all, China’s export expansion over the past two decades was imbalanced in several ways
—
• the country exported far more than it imported;
• it exported manufactured goods to advanced countries, displacing production there, but imported goods (raw materials) from developing countries; and
• when it did import from advanced economies, it often imported services rather than goods (though capital goods is a major exception).
As a result, China’s development created relatively few export-oriented jobs in advanced countries, insufficient to compensate for the jobs lost in manufacturing—and where it did create jobs, these were in advanced services (such as finance), which were not possible for displaced manufacturing workers to obtain.
In contrast, India’s expansion may well prove much more balanced:
• India has tended to run a current account deficit, rather than a surplus; and
• while its service exports might also displace workers in advanced countries, their skill set will make relocation to other service activities easier; indeed, they may well simply move on to complementary tasks, such as more advanced computer programming in the IT sector itself.
• on the other hand, since skilled labour in advanced economies will be exposed to Indian competition, their ability to mobilize political opinion might also be greater.24
Precisely speaking, the political backlash against globalisation in advanced countries, and China’s difficulties in rebalancing its economy, could have major implications for India. And it will be advisable for India to close track of the changing global dynamics.
1. Based on J.E. Stiglitz and C.E. Walsh, Economics, (New York: W.W. Norton & Company, 2006), pp. 757-58.
2. Based on P.A. Samuelson and W.D. Nordhaus, Economics, (New Delhi: Tata McGraw Hill, 2005),
p. 604.
3. Ibid., pp. 605–07.
4. Ibid., pp. 610–11.
5. Ibid., pp. 611–15.
6. Ibid., p. 615.
7. The discussion is based primarily on Samuelson and Nordhaus, Economics, 613–15 and D. Salvatore, International Economics (New Jersey: John Wiley & Sons, 2004) pp. 717–22.
8. Ministry of Finance, LERMS, Union Budget 1992–93, (New Delhi: Government of India, 1992).
9. Stiglitz and Walsh, Economics, p. 757.
10. Samuelson and Nordhaus, Economics, p. 604
11. D. Salvatore, International Economics, p. 7.
12. Ministry of Finance, LERMS.
13. D. Salvatore, International Economics, pp. 235–36.
14. Samuelson and Nordhaus, Economics, p. 601.
15. It means that each external transaction is recorded/entered twice—once as a credit and once as a debit of an equal amount. This is because every transaction has two sides—we sell something and we receive payment for it, similarly we buy something and we have to pay for it (See Salvatore, International Economics, p. 432).
16. Ministry of Finance, LERMS, Union Budget 1992-93, GoI, MoF, N. Delhi.
17. Ministry of Commerce and Industry, Government of India, N. Delhi, March 2017.
18. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 151-153.
19. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 23-25.
20. Ministry of Commerce & Industry, Government of India, N. Delhi, March 2017.
21. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 25-26.
22. We find a very detailed discussion on it in the Economic Survey 2015-16, Government of India, Ministry of Finance, N. Delhi (Vol. 2, pp. 76-78) which quoted several international studies in this regard.
23. Based on the several issues of The Economist, London, UK from 2013 to March 2017.
24. Based on the discussion given in the Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 6-9.