Speak Your Clever Minds

The Economic Times     21st September 2020     Save    
QEP Pocket Notes

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.
QEP Pocket Notes