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Critical time for globalisation
This month marks the 25th year of economic reforms and the beginning of the era of globalisation in India. It has benefited millions and has also resulted in malls full of goods. Many people have managed to get jobs at salaries undreamt of in the past. Thus few would wish to see liberalisation, privatisation and globalisation reversed. Imported fruits to fancy cars, appliances and cosmetics are available in India for those with money. But the ills of globalisation in the form of growing inequality of incomes, and relentless stream of benefits accruing to people with education, skills and assets are becoming sharper also. Only one percent of India has it all.
Through globalisation however, India has made its presence felt in the world. Indian textiles, jewels and crafts can be found all over the world as well as Bollywood movies. Indian pharmaceutical and software industries have flourished and India’s big cities have a modern edifice. People are aware of India’s great strengths, but also its weaknesses. Despite its long list of dollar billionaires and millionaires, there are many things missing in India which make it a third world country. Though Prime Minister Modi has been trying to amend these, India still remains a country needing better sanitation, health, education, power, gender equality and low cost housing.
For sometime, however, there is talk of a decline in globalisation worldwide, and after the recent Brexit vote, many have pronounced the death of globalisation. This is because UK’s withdrawal from one of the greatest projects of economic integration shows that for globalisation to proceed there will have to be a greater harmonisation of laws and regulations across countries. This is difficult to achieve because countries want to remain independent in their monetary, fiscal, immigration and labour policies.
Globalisation has brought higher living standards in many developing countries like Bangladesh, which produce goods for industrial countries with their cheap labour, but it has also led to stagnating wages and unemployment in the US and Europe, job insecurity and discontent. Unsurprisingly, the protests against globalisation are coming mostly from developed countries.
During this era of globalisation, many new regional blocs have been formed to allow free trade in goods and services. But there are limits to these agreements. For example, if there are differences in rules of employment contracts or product safety requirements, these will act as barriers to trade. That is why one of the newest trade blocs — Trans Pacific Partnership (TPP) between the US and 11 countries — focuses on non-tariff barriers than on tariff protection because tariffs have been reduced in any case.
In their bid to form a trans-Pacific common market, the TPP proposes to have same rules of intellectual property rights protection in all member countries and that is why India should be hesitant about joining it because it will impact our pharmaceutical industry adversely. India is able to produce cheap drugs which it supplies to other developing countries of the world. In joining the TPP, stringent intellectual property rights relating to big pharmaceutical company monopolies will be extended to Indian drug manufacturing and will lead to the hiking of drug prices.
China is not a member of the TPP and has turned away from dependence on trade. It is focusing increasingly on domestic consumption and boosting domestic demand. India’s imports and exports together account for 34 percent of its GDP and foreign investment is only 10 percent of the total investment. India should focus more on domestic investment, but policy makers are obsessed with FDI. Domestic demand remains weak leading to sluggish private investment.
Indirectly, however, when the global outlook remains uncertain, India cannot prosper. Our export industries are languishing since the last 18 months because of a sharp fall in exports. The service sector growth has slowed down for the last seven months, and was at its lowest in June. Job creation is also stagnant because of low manufacturing growth and the fact that savings are not being invested into new enterprises that will create jobs and wealth.
In the era of globalisation, can leaders solve domestic problems and fulfil the aspirations of the people with their domestic policies alone? No, it is not possible because the world is interconnected in finance and trade in goods and services. Moreover, there is soaring growth of data and information. This is why nationalist forces are gathering momentum and people are seeking less and not more globalisation. They want countries to have their own rules and domestic policies on immigration, as in the case of Britain. Sovereignty and nationalism are becoming important and protectionism is surfacing in many parts of the world.
The poor and the marginalised, who have been losers from globalisation, are increasing in number around the world and their leaders are favouring more protectionist policies. Many countries are taking stock of what is wrong with their current policies. In the US, Donald Trump is cashing in on the protectionist sentiments and wants to build a fence between Mexico and the US and impose heavy import duties on Chinese imports. India should also take stock of what was right and wrong about the liberalisation policies of the past. The number of losers is growing and they are showing discontent. It is thus important to have social safety nets so that people most vulnerable do not sink into poverty due to job loss, illness or old age. The extant schemes for pension and health insurance should be strengthened.
The rural population, which has lost out during globalisation of the past 25 years, has to be looked after through poverty reduction programmes like MGNREGA. If poverty reduction is not continued, there will be greater inequality and social unrest, despite the fact that India’s growth rate of 7.6 percent is one of the highest in the world. Around a quarter of Indians are still poor, defined by a poverty line which is low by world standards. Job creation is an important aspect of poverty reduction and so also better healthcare, housing and education. With jobs growing at a snail’s pace, the government is faced with many problems of fulfilling people’s aspirations and keeping its promise of inclusive growth.
This commentary originally appeared in The Tribune.
25 July 2016