Indians believe in cyclical concept of time. Like the Law of Conservation of Mass, we believe, nothing is created or destroyed but changes its form and comes back to haunt us precisely when we are gearing up to lampoon it.
The economic liberalization of 1991 in India and the subsequent formation of World Trade Organization (WTO) at the global level ushered in the second wave of globalization that was disrupted by the Second World War, COLD WAR and the rise of Communism in the early 20th century.
Politicians and public intellectuals hailed the new era of peace and prosperity as the golden age of humanity and philosopher Francis Fukuyama went so as far as to suggest that the liberal western democratic values have won and the world is on an irreversible path to greatness in his book The End of History.
Initially it seemed right. Democracies bloomed world over, the European Union became a powerful entity and WTO took root. Meanwhile, the world saw the trade grow at a rapid pace and statistics, at least, suggested millions were moving out of poverty in traditional poverty hotspots of Asia that included countries like China and India.
The Polarity of Globalization
However, within a short span of 25 years the carefully crafted image of a global village that worked on a rule based system unraveled. China entered the WTO in 2001 and quickly started gaming it for its own advantage. The top economies in the world, led by the US, moved their manufacturing bases to China, log, stock barrel. China became the factory of the world at the cost of manufacturing bases in all other countries.
The globalization saw the phenomenal rise of global capital and digital industry. The professionals in both the sectors became international citizens zipping around the globe.
Every economist worth his salt quoted GDP figures and average per capita GDP earnings to suggest millions have moved out of poverty. The United Nations’ Millennium Development Goals set a benchmark of earning $1.25 per day in the year 2000 as the baseline to consider people who are not desperately poor. Slowly this number was increased and today it stands at $2. But these were exercises in statistical jugglery amounting to nothing. On ground two varied trends were growing.
Some countries were becoming export superpowers. They included China and South Korea. In terms of textiles Bangladesh and Sri Lanka emerged as the rising stars. Their rise came at a cost of millions of jobs in the US, Europe, South America and India.
So now on the one hand the world market was glutted with cheap goods from China, the cost that every other nation was paying was closure of their own manufacturing base and rampant unemployment.
Those who threw numbers at the critics about the rising per capita income and millions moving out of poverty never had the time to visit the hinterland where unemployment and underemployment had assumed epidemic proportions. Social fabric was under strain. To paper over it people would throw statistics about mobile phone ownership, ownership of automotive vehicles per thousand of people etc. No one cared to know that averages are the biggest lies. Suppose in a village with 40 families, the village head, a rich man, can own 20 vehicles. Twenty vehicles divided by 40 families within the village will give a picture that the vehicle ownership is fifty percent in that village, whereas the reality is completely different. Most of the so-called India middle class for most part was just a salary away from starvation. One hospitalization or one bad monsoon would throw it back in the throes of poverty.
It’s not that the world leaders weren’t getting signals from the people. The first warning shots were fired in Russia when Vladimir Putin, the strongman, was elected as the president of the country. He was everything that a democratic leader is not. He pursued and propagated a strong Russia policy with iron hand. It emboldened many strongmen around the world and the second such leader to emerge was Recep Tyyip Erdogan in Turkey. The story was repeated with alarming regularity in East Europe and other parts of Asia. However, the rise of strongmen was dismissed as a phenomenon of underdeveloped or troubled economies.
Meanwhile, the floods in Bangkok in 2011 showed the limits of wisdom among the global businessmen who pursued the policy of putting all the eggs in one basket. Bangkok has emerged as the global hub of car spare parts and computer hard disk manufacturing. The intense floods, the worst in half a century, had a cascading effect on supply of these two components for the next whole year.
Even with WTO in place powerful countries were misusing the non-tariff barriers to tilt the trading balance of power in their own favour. To counter this trend many other countries were raising anti-dumping duties and the appellate tribunal in the WTO was filled to the brim with complaints and pending hearings.
However, in the second decade of the 21st century the 25-year-old neo-globalization push led by WTO finally hit the wall of hinterland resistance. The Brexit was the ultimate slap by the millions of citizens from the English hinterland who had been economically disenfranchised by the process of globalization.
Within no time the United States, the greatest champion of globalisation chose a president (Donald Trump) who embodied McCarthyism (a concept whereby America would confine itself to the affairs within the American continent and retreat from global affairs) to the core. Those voters, who steadily lost their jobs to low paying labourers in China over the last 25 years, chose him.
The US flagged its trade deficit with China and while the trade war was heating up the corona pandemic unraveled the entire globalization construct.
It opened the chink in everyone’s armour. Those who depended on China for every small thing realized they were over-dependent to the point of being vulnerable. China on the other hand realized over dependence on foreign trade as the only card to ace the economic game was fraught with its on vulnerabilities.
Everyone realized, a reasonable manufacturing base within the country and an economy based on local consumption is a much better bet than unsustainable practice of creating over capacity to feed the world or forfeiting every capacity for the sake of price differentials. Germany, that retained the wisdom of resisting the lure of cheap but low quality labour, has been able to meet the Cornoa challenge with far greater success than those who were swept away by mere profit motive.
The Road Ahead
It’s in this regard that we should see Prime Minister Narendra Modi’s call for Atmnirbhar Bharat. The global conditions today are as tenuous as they were during the times of Pandit Jawaharlal Nehru. His concept of mixed economy is today as relevant as it was, when first propounded.
Dr Manmohan Singh (our former prime minister), at that time a young economist, lamented the lack of a clear foreign trade component in Indian economy and later tried to introduce one when he became the Prime Minister himself. But all the efforts towards plugging India into global economy have now come to a naught. Indian data is hostage to tech firms in China and the US and our manufacturing base lies in tatters. From the point of view of national security as well as long-term economic health of a nation, it’s unsustainable.
So we should begin by two or three simple but core premises. The idea of unbridled privatization and global trade without sufficient safeguards is counter productive in the long run.
Secondly the idea that exports oriented growth is the only way to achieve material wealth is also unsustainable.
We need to understand that India with its large population and relatively less natural resources needs to pursue a longer, slower and a more sustainable path to economic well being and not just mindless material prosperity. It should not emulate China’s path of economic miracle and environment disaster.
We should concentrate on our own market and meet its needs. Secondly, all the statisticians and economists should take the parameters of Human Development Index (HDI) as the basis to decide which policies are right for poverty alleviation. They should move away from that quick fix and actually a misleading figure of $2 per day of earning as a benchmark of India’s push for poverty reduction.
India should also accept and vigorously implement a new system based on our priorities to manage our trade imbalance. We can’t substitute everything by resorting to import substitution and we shouldn’t. But there should be a robust industrial base. Our trade relations should be based on mutual respect and it may happen that with some partners we will still have trade imbalance but it should never exceed 10 to 15 percent. The moment it does it should be automatically flagged and resolute action should be take to address this lacunae. The days of five to six times trade imbalance is over. It’s neither good for the economy, nor society and not for the national security.
The Role of The Government
For the advocates of privatization and minimum governance, Corona crisis is a wake up call. World over, it’s the national and provincial governments, which are at the forefront of leading the fight against the pandemic and economic revival. The private sector with all its “professionalism” and billions of dollars at its disposal is at best playing a marginal role. So governments in the new normal will keep playing an important role. In India they should assume the role of facilitators and a watchdog.
At the policy level the government needs to put a slew of measures in place for the new industrial base to jumpstart in next one to three years. The good news is many of these initiatives have been made.
Surprisingly the most enthusiastic response has been from the traders and not the manufacturers. The trader body Confederation of All India Traders (CAIT) has released a list of 500 categories of products and within them 3000 products that we import from China. They can be further divided into four major categories – finished goods, spare parts, raw material and technology products.
According to them in the finished goods category Indian manufacturers can quickly replace products from China as their own base and trained manpower is still available which has been lying idle for the last decade. In terms of spare parts and raw material the capacity generation will take two to three years. CAIT started replacing Chinese products after the Doklam standoff and has been able to bring down the import from $76 billion to $70 billion in a span of three years (a claim made by its all India president in a TV channel). But they are confident with the anti-China sentiments at an all time high they would be able to replace import of goods worth $17 billion by December 2021.
In case of technology products, with international finance and complex ownership processes it will be the government that will have to come up with a long-term strategy. Even here the Government has initiated three major move, automatic investment by Chinese firms in India has been stopped. A total of 59 Chinese apps have been banned and non-tariff barriers like scrutiny and anti-dumping duties are being levied on Chinese products. It offers Indian manufacturers a window of opportunity to gain the ground they ceded to the cheap Chinese products.
However, the government will have to be ever watchful of our own manufacturers lest they fall into the trap of producing crappy products at an inflated cost. “Be Indian buy Indian”, shouldn’t end up being “Bleeding Indian” or “Conning Indian” by unscrupulous elements. Pandit Nehru had a visceral dislike bordering on suspicion towards these profit predators and though he is said to have mellowed in his old age, he, to a degree, was right in entertaining this view. A lot of consumer products Indian companies were making in 1970s weren’t up to the mark. On this count the government will have to maintain healthy suspicion of the profit-at-any-cost variety of business people.
As globalization sputters and countries turn inward the mixed economy concept of Pandit Nehru once again gains traction. It’s a sound base to move on keeping an eagle’s eye on those who try to game the system and degenerate it, a vigil his own daughter failed to keep.
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