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Mainstream, VOL LV No 41 New Delhi September 30, 2017

Bracing Up for the Future

Friday 29 September 2017


by Anshuman Gupta and Anju Jain

India is facing challenges at the international front as a result of the protectionist policies of President Donald Trump. This anti-globalisation spree is going to strengthen in the near future as the ultra-Right parties are making their strong presence felt in many countries of Europe (though recently they faced a setback in France’s election). This politics of identity and protectionism is going to stay for a long time. There has been a strong logic behind this phenomenon. In a competitive political stage, it is the electorate which decides the political agenda. It works like a competitive market, which is a buyer’s market. The buyer is the king and he decides what he wants. The suppliers just supply accordingly. In the same manner, it is the majority of voters who decide the political planks on which political parties fight elections. The adroitness of the political leaders lies in sensing the prevailing popular emotions of the majority of voters. This is the reason as to why today political parties have a wide range of issues in the political agenda along with their main ideologies. This is testified by Indian politics too. Fighting corruption, clean governance and inclusive development are now almost every party’s issues. The recent clean sweep by the BJP in Uttar Pradesh and its reasonably good performance in other States (except in Punjab) can be explained by this trend.

Similarly, identity politics is also the new theme of the political parties in many countries the world over of late. Identity politics generally takes the central stage when the economy is taking the downward journey and the total economic pie is shrinking. The political parties take the shield behind inconsequential issues like identity politics. This is facilitated by the people left behind in cashing on the bonanza offered by the liberal economic policies, including globalisation and market-oriented policies. As long as the economic pie is increasing, every strata of society will be benefiting, albeit disproportionately depending upon the skill and resources they possess. Even the lowest strata would benefit through the trickle-down effect and redistribution of income by the government. However, when the economy is shrinking, all fissures in the society become wide enough to attract the attention of the ultra-Right political parties. It is the fertile land now for these parties. They ride on the back of issues of identity, including anti-migration, globalisation, outsourcing, etc., to grab power. This is what explains the victory of Donald Trump in America, ‘Brexit’ and prominent presence of ultra-Right parties in many countries of Europe. Now the billion dollar question is: what should India do to tackle this problem? It would have a major impact on the external economic front of India, as India is majorly dependent on the American and European markets for merchandise and services exports. The proposed revision of H1 B visa provisions by the US, its anti-immigration and anti-outsourcing overtures in general, its anti-generic drug proposal and its proposed environmental tax would all have a negative impact on India’s current account and foreign investment. They are all going to dry up a significant source of growth from the external sector. These protectionist policies would also trigger the other countries to follow the same footsteps as and when they feel the pinch from the US actions. India needs to devise a befitting strategy to tackle this extraordinary situation.

There is a need to take recourse to Keynesian economics in a given scenario. Now we are returning to limited globalisation from ultra-globalisation. Ultra-globalisation is being criticised for its ill-effects after the 2008 recession. This process would be expedited with the arrival of Donald Trump. In ultra-globali-sation, floating exchange rate, capital account convertibility, no or minimal intervention by government, etc. are the norms of the game. The main sufferers of this game are the poor and developing countries, whose policy-space has been squeezed. They cannot have their industrial policies to promote the industries of their interest. They cannot increase their fiscal deficit or adopt expansionary monetary policy beyond a limit to keep their exchange rate stable. Otherwise they would face the wrath of the rating agencies and foreign investors.

In the case of limited globalisation, India, along with other developing countries, can have an active industrial policy to promote industries. It would work like a catalyst for the Make in India mission of the Modi Government. It can deviate from the fiscal consolidation path, as it did this year to a limited extent, without worrying about the rating agencies and increase the role of the government in infrastructure investments. It would have a crowding in impact on private investments. However, since the government now would soon have the requisite numbers in the Rajya Sabha, it should take bold steps to improve the domestic business environment. Secondly, there is a need for better usage of hard-earned foreign reserves by the Asian countries, most affected by anti-globalisation policies. China, Japan, India and many other countries of this region collectively hold approximately $ 7.3 trillion. A major chunk of it is invested in the short-term US treasury bills to keep the reserve currency in semi-liquid form. It earns them very low rate of return. There is need for a paradigm shift. The Asian countries should prepare the list of worthy infrastructure projects and invest their major shares there. This would provide the win-win situation for all stakeholders. The investor countries would have a better rate of return. The recipient country would have better infrastructure, new growth drivers with less dominance of the US and crowding in impact in the economy. However, there is need to develop the Asian financial intermediaries to channelise such savings into worthy projects in the region.

The countries of the region can also make a consortium and invest in the research and development of green technologies to make them competitive to conventional technologies. Though the green technologies are out of focus in the US currently as a result of Donald Trump’s denial to acknowledge climate change as a problem, they are surely the future technologies. India along with other countries can take the lead in this area. Though the cost of renewable energies, especially solar and wind, are coming down substantially of late as a result of technological advancement, the availability of cheap finances and economies of scale, they still supplement the conventional source of grid-based electricity. There is a lot of scope for technological advancement in storage technologies and all sources of renewable energies, ranging from solar to wind, to off-shore wind and other ocean energies, to further reduce their costs and make them economically viable.

The authors belong to the University of Petroleum and Energy Studies, Dehradun.

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