The world is moving from globalisation to nationalism and protectionism. The resultant contraction in economic activity is getting reflected in increasing unemployment. Due to the previous wave of globalisation under the coordination of the World Trade Organisation (WTO), the manufacturing sector in several countries has been badly affected due to dumping of goods by countries which have benefit of lower cost of production due to availability of cheap labour and at times availability of raw materials. This has translated into stressed assets in those countries causing crisis in the financial and banking sectors. Growing unemployment in such countries is a sure shot recipe for social unrest and revolution. Several economists have predicted such discontentment resulting from globalisation.
China had a trade surplus of USD 375 billion with the US in 2017. In view of several factors President of USA Trump had imposed 25% tariffs on 200 products imported from China. In retaliation, China had also imposed on many products imported from USA. USA would be saving USD 60 billion every year. Cost and prices of some products in USA would increase.
USA’s overall trade deficit stood at USD 796.2 billion in 2017. It is close to US$ 800 billion in the last financial year. China is not the only factor for USA’s mounting deficit. Trump’s administration had also imposed tariffs on import of steel and aluminium from Canada, Mexico, India and other countries to narrow the widening deficit. With USA planning more tariffs on Chinese imports, China is bound to retaliate. This can have serious repercussions on global trade and smaller economies will become unfortunate victims in this crossfire between two giants. Trump does not believe that trade war would lead to depression. Trump feels happy as the US economy is doing well and unemployment is decreasing.
While some experts believe that Indian exporters can take advantage of the trade war between China and USA, the reality is not that optimistic. China’s exports consist of more advance and finished products.
While India’s exports are raw materials and semi-finished goods like electrical goods and machinery, India has large trade deficit with China. India has imposed minimum tariff price and dumping duties on Chinese imports on steel. India’s steel industry was bleeding on account of cheap import of Chinese steel. Several big, large and medium and small industries’ assets have become stressed. They are under process of insolvency. After imposing of dumping duties, steel industries have been reviving. Every nation has to save its assets, manpower and must boost its economic growth. So, imposition of tariffs to safeguard domestic industries is now more or less essential.
India has trade surplus of about USD 20 billion with the US in 2016-17. It is eyesore for the US President Trump. India is the 9th largest trading partner of USA. India’s investment in USA is USD 12.1 billion generating 56500 jobs.
Due to rising prices of crude oil, outflow of capital and other factors, rupee has been depreciating. India’s need is to be more global-cost effective for global and domestic consumption. International Labour Organisation has predicted India’s unemployment rate to stay at 3.5% in 2018. However, a worrying 77% of employment in India would remain vulnerable, it says. High wages not only affect the global and domestic competitiveness, but also lead to shrinkage of jobs, leading to stressed assets.
Bangladesh has become a textile manufacturing hub. Many reputed brands of inner-wears are manufacturing their products in Bangladesh. There is no duty on import. Globally, Bangladesh has benefit of higher quota, no duties or lower duties. Western countries, markets are flooded with textiles made in Bangladesh, China, Taiwan, Vietnam, but not from India.
However, trade wars will not have much impact on India. It can wisely use the opportunity of trade war between the USA and China.
The Government of India and the RBI realised the supremacy and autonomy of each other. By following the prudent practical norms for stability of financial sovereignty of the nation and to keep the economy growing, most of the disputes have been resolved, however the more difficult issues have been referred to an expert committee which is yet to be set up. Government has to allow adequate reserve and contingency reserve as per global standard, may be little more, but not to have idle reserve, which like pond water get stagnant and dirty. Money should be used for creation and generation of wealth for employment and growth. Government must not use the fund for populist measures for influencing election outcomes, but use it judiciously for sustainable productive purposes. The Governor of RBI has told the Parliamentary Committee of Finance that reserves are meant to be used during period of stress and not for meeting normal needs.
India exports approximately 7500 commodities to about 190 countries and imports 6000 commodities from 140 countries. However, Indian manufacturing is unable to compete with products from other developing Nations as interest rate is quite high in India compared to most Nations. Government has to find practical solution. Lower interest can make these industries more viable. Prime Minister Modi’s campaign to promote Make in India in order to boost employment, growth and to narrow the current account deficit (CAD) cannot take off unless domestic issues are sorted out. Though India has advanced 23 positions (from 100 to 77) in the Ease of Doing Business ranking by World Bank, but the reality on ground is quite different. So many changes, amendments and new laws and rules are making doing business in India quite challenging. Business men are migrating to western countries and other countries.
Business failure is like death of a living being. In many countries normal failure and default in payment or bounce of cheques are not considered as willful fraud until and unless proved by investigation. Regulators, political, legal environment need to be favourable to business and not be biased. Servants of democracy should not throw mud on the face of businessmen at large. Punish the culprit after proper investigation. Strengthen the investigation machineries. Jurisprudence of law says that ‘Let a hundred guilty be acquitted, but not one innocent should be convicted’.
Stock market will remain volatile on account of ensuing election. Many analysts feel fundamental is robust, with temporary global factors will impact. Cloud on non-banking financial companies is getting cleared. Government has realised their importance for macro-micro, real estate, housing finance and more so for small and medium contractors.
Globalisation has created a trade paradox and serious imbalances. A few multinational companies have garnered immense economic power, e-commerce giants like Amazon and others are revolutionising door-step product delivery. The business model for shopping malls and thousands of retailers and the employment that they create are under serious threat. Food delivery business has started challenging restaurant and eatery business. The likes of Netflix and Amazon Prime are redefining the rules of entertainment. A prolonged slump for commercial real estate is very much on the cards.
Bharatvasi have to awake, arise and work hard with devotion to keep pace with global competitive-ness, letting go of the bias, prejudice, economic and caste based divisions. The servants of democracy have to work for the welfare of the children of Bharat Mata.
Dr. H.P. Kanoria
Editor in chief
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