Trade openness and globalization

Context- India’s External Affairs Minister believes that the economic growth that has accrued from globalization is not a good enough outcome for India.

What are the views of External Affairs Minister on globalization and trade pacts?

1. Trade pacts and globalization have allowed other countries ‘unfair’ trade and manufacturing advantages “in the name of openness”.
2. The effect of past trade agreements has been to de-industrialize some sectors.
3. The consequences of future ones would lock us into global commitments, many of them not to our advantage.
4. Employment challenge was created by trade.
5. Trade agreements have made India over-dependent on imports.

Views of critics-

• Between 1995-2018- India’s overall export growth averaged 13.4 percent per year.
• India’s manufacturing exports (in dollars) grew on average by 12.1%, nearly twice the world average.

What are the proposed reasons for India’s slowed down exports?

1. Strong rupee approach – The current government “strong rupee” approach is among the chief causes that have been shown to have slowed down exports. The real effective exchange rate has appreciated by about 20% since 2014.
2. Low export competitiveness– India’s own supply side constraints and bottlenecks, i.e., its difficult regulatory environment, poor logistics quality, inadequate and inefficient trade infrastructure, and high transactions costs, among others, all of which hurt export competitiveness.

• This low ease of doing business relative to other exporting countries has further eroded the competitiveness of Indian exports.

3. Policy errors– India’s share in industrial production and manufactured exports in the world economy has declined steadily in last six years, coinciding with the phase of corruption scandals, a severe banking crisis, demonetization and a badly designed GST.

How trade openness and globalization can solve these problems?

1. Generating employment– Openness to trade is important to India for generating employment in the post-COVID-19 world.
2. Globalization and India

• India has been one of the major beneficiaries of economic globalization — a fact attested by IMF.
• Post-1991, the Indian economy grew at a faster pace, ushering in an era of economic prosperity.
• Poverty in rural and urban India, which stood at close to 40% in 2004-05, almost halved to about 20% by 2011-12.

Way forward-

• To denounce trade openness and globalization at this point is also poor timing.
• Strong rupee policy– led to the surge in imports of goods and services preferred by non-rich Indians, and a measurable loss of competitiveness in labor-intensive exports. On the flip side, the disadvantages Indian exporters have long struggled against the substantially higher logistics remain as burdensome.