Speak Your Clever Minds

CONTEXT: Recent Atmanirbhar Bharat policy has led to a debate among economists about India’s approach towards Globalization.

Impacts of Globalisations:

• Benefits: 

• Surge in productivity;
• Increase in income and growth.

• Pitfalls: 

• Cross Border capital flows could unsettle economies with weak institutions;
• Killing old jobs without creating new ones;
• Deepening inequality with the government unable to transfers gains made from liberalization.

India’s recent outlook towards Globalization:

• Supporting Local Manufacturing: Using policy measures such as Atmanirbhar Bharat and by putting up trade restrictions. 

• Increasing Foreign Investment: Recent steps taken such as ease for foreign investor in capital and equity markets, setting up new ventures or buying existing ones.

Issues with India’s Policy of Atmanirbhar Bharat:

• Uncertain and Hybrid nature of policy: While India has imposed some trade restrictions, but is keen as ever to invite foreign investors to invest in India.

• Restriction placed on FDI from China has not affected the inflows since clearance is provided in most cases if 10-25% of beneficiaries are not Chinese entities.

• Putting curbs on ‘current account’ (coupled with free domestic trade), but keeping a near-free ‘capital account’.

• Effective only in the medium term: As the export market sinks, several local companies would compete for the captive home market and providing protection to them is helpful in the medium term but it has following concerns:

• A decade of trade curbs (since 1991) make India less attractive to foreigners.
• Rising trade protectionism will restrict investments.
• Selective investment in few industries 

• No guarantee of efficiency: Year of protection has led to a decline in efficiency and productivity slowly shrinking the purchasing power of local buyers.

• Rising power of the corporates: While the corporate world is busy staying afloat while the power of trade unions has waned.

• Failure to acknowledge the changing realities by the economists would leave a dangerous void, that interest groups and crony capitalists would occupy with the help of pliable bureaucrats.

• Threat to free trade: Rising protectionism, nationalism and pandemic has paved path for powerful politicians to change the global narrative around free trade by capturing the imagination of voters.