Impact of deglobalization on global trade post COVID-19, amid rising protectionism

With modernisation of armed forces and indigenous manufacturing emerging as focus areas, defence is another sector with huge potential for growth.

Theodore Levitt, former professor at Harvard Business School, credited with coining the term 'globalization' will surely be dismayed by the rise of protectionism and with the sentiments of insularity gaining ground.

The roots can be traced back to Brexit, US-China trade war, US pulling out of trade blocs such as North American Free Trade Agreement (NAFTA) and Trans Pacific Partnership and recently, India doing a last-minute volte-face with the Regional Comprehensive Economic Partnership (RCEP).

The current economic scenario is threatening to redraw business linkages between nations and trade blocs in entirety, with emphasis on bilateral trade rather than trade blocs.

A creeping mistrust over the last few years has snowballed into grave geopolitical tensions and the effect is apparent on global trade and commerce. Fourteen years after professor Levitt's death, many nations across the world are on the verge of de-globalizing, bordering on protectionism or to say the least, and enforcing 'gated globalization'.

With developed nations impugning China for the coronavirus pandemic and seriously contemplating a shift in manufacturing bases and supply chains elsewhere, is it India's time to shine in global trade? Plans are afoot to accommodate the same.

India — a re-emerging leader?

Going by history, India could re-emerge as a land of opportunity. According to a recent report by Jones Lang Lasalle, "India has witnessed a 257 percent growth in GDP between 2004-05 and 2018-19, emerged as the 6th largest consumer market globally with 49 percent workforce participation, ranked among the top 10 recipients of overseas investments in 2019, attracting $49 billion in inflows (16 percent increase from previous year)".

The cumulative total FDI inflows received from April 2000 to September 2019, aggregate to $642.36 billion and just in the half year period between April - September 2019, aggregated to $34.90 billion.

India, while protecting its national interests, has an opportunity to redefine the contours of global trade.

With the novel coronavirus pandemic taking a toll on trade and economy, our Prime Minister Narendra Modi gave a clarion call to citizens and businesses, to look at the current situation as an opportunity for an "Atmanirbhar Bharat (self-reliant India)".

The possibility

The numbers offer myriad opportunities. India's coastline of over 7,500 kms serviced by 200 odd ports of various sizes, well connected by the second largest road network and fourth largest rail network in the world offers conducive logistics infrastructure and connectivity dotting the numerous industrial corridors and special economic zones.

India is endowed with rich natural resources – coal, iron ore, copper, zinc, etc. being among the largest in the world — offering immense potential for mining and related activities. A large work force and a younger demographic provide a perfect stage for India to emerge as a producing and a consuming market for global companies.

Back to the basics

From being an agrarian economy since ages, over the last two decades, services sector stood out as the main contributor to India's growth and exports.

As part of the Rs 20 lakh crore economic package, the government refocused its priorities back to agriculture and the manufacturing base of India.

Agriculture as a sector took centre stage, marked by reforms in marketing, contract farming and food processing, aimed at putting the decision-making power back in the hands of every farmer. Year 2019-20 is expected to be a year of record production, with latest production estimates of 296 million tonne of food grains, 33.5 million tonne of oil seeds and 36.05 million bales (170 kg per bale) of cotton.

India already is the largest producer of milk, pulses and jute. Food processing, Dairy, FMCG and related industries are expected to reap the benefits of this focus.

The government has provided Rs 3 lakh crore to rescue micro, small and medium enterprises from the negative effects of the pandemic and is continuously announcing additional measures to enable manufacturing sector to regain their lost footing in a post COVID-19 world.

Another sector with huge potential for growth is defence, with modernisation of armed forces and indigenous manufacturing emerging as focus areas.

The government is hoping to achieve a revenue of Rs 1.7 lakh crore in military goods and services by 2025, with an export contribution of Rs 35,000 crore.

The current pandemic has put focus on the healthcare sector. Per capita government spending over the last five years has doubled from around Rs 1,000 to Rs 1,945 and in FY20, the total expenditure accounted for 1.29 percent of the Gross Domestic Product (GDP). This is insufficient in the current context and provides opportunities for investments from government and private players.

Indian government is keen to develop infrastructure, to aid India's growth story but will need the support of global investments. The Rs 100 lakh crore-infrastructure plan is still on the table and provides gateways for domestic and international businesses to be part of India's progress.

In a world where global trade and commerce is inevitable, protectionist policies of a few nations will only cause severe inequality. A middle ground is the need of the hour and a gated globalization could be the preferred option, with India paving the path for other nations to follow, in the decades to come.

Source: Money Control