Financial Daily from THE HINDU group of publications
Tuesday, Jun 22, 2004

Cross Currency

Group Sites

Opinion - Economy

Globalisation gets a riposte in India

S. Sethuraman

POLITICAL analysts have been attempting to delve deeper into the outcome of Elections-2004 that led to the downfall of the BJP-led NDA Government and the emergence of a stronger countervailing (secular) force in the shape of the Congress-led United Progressive Alliance with a commitment to implement "inclusive" policies of economic and social development.

Whatever the interpretations of the verdict, there is no mistaking the central fact that the electorate, overwhelmingly poor, was desperately seeking a better life than what had they had experienced in the era of liberalisation since l990s.

Significantly, the Prime Minister, Dr Manmohan Singh, the architect of liberalisation, himself said while assuming office that India would pursue an economic reform programme that would become "a model for the rest of the world." This is timely, for, whatever the champions of globalisation might aver, its touted gains have bypassed, if not worsened the plight of, the vast mass of the poor in two-thirds of the world. That India is no exception was well reflected in the voting pattern in most regions in the Lok Sabha elections.

Far from the "disparate forces" against globalisation having been subdued, as claimed by its ardent advocates, there is a rising tide of antagonism in the developing world to the dictates of richer countries for opening up of developing countries' markets for freer trade and capital flows while keeping intact their own trade barriers for goods and services and failing to contribute a reasonable share to the transfer of concessional resources for growth and development of the poorer nations.

The recent elections may well be the turning point in the global quest for a more equitable international economic system in the areas of trade, finance, investment and technology flows. Relatively higher economic growth in India, attributed to reforms, has not resulted in spread of employment or in the delivery of basic services to the people at large.

India and China, the two most populous nations, are regarded as strong emerging economies but privatisation and reliance on market forces cannot mitigate the problems of large-scale under-development, rural and urban.

It is therefore that emphasis is now shifting to "reforms with a human face", and the path that India henceforth adopts is less likely to be in tune with the classic "liberalisation, privatisation, globalisation" model that is being pushed by some of the developed nations.

Most developing countries have fared much worse even with trade liberalisation and other policies of market-led growth prescribed by lending nations and institutions like IMF and the World Bank. The United Nations Conference on Trade and Development (Unctad), in a report to its recently held Eleventh Session at Sao Paulo, Brazil, says trade and liberalisation have meant solid economic growth for some but the majority of developing countries have experienced fall in incomes and employment, and greater poverty.

"The one-size-fits-all approach to development has failed, multilateralism is in crisis, and there is a profound mismatch between the pursuit of national interests on the one hand and the broader goals of an international trading system on the other."

This was seen in the stubborn resistance by developed nations to any lowering of their domestic support to agriculture or enlarging market access for developing country farm products which led to stalling of Doha Development Round negotiations though lately the European Union has offered to soften its stand on export subsidisation.

In an environment of slow and erratic growth of the world economy, Unctad said, the benefits of globalisation have been distributed unevenly among and within countries. The income gap between rich and poor has widened, and poverty has increased in many developing countries.

The average GDP per capita in developed countries was 17 times that of the developing countries in the early 1990s, and this ratio rose to 20 to 1 in the year 2000. Unctad has questioned the assumption that trade liberalisation directly boosts growth which in turn reduces poverty.

In the case of less developed countries, it said, the links between trade expansion and poverty reduction are neither simple nor automatic. Also, there are large numbers of countries lacking goods and services to compete in world trade, which have little to gain from the multilateral trade negotiations.

The share of developing countries in world trade had risen from 24 per cent in l990 to 32 per cent in 2000 but this growth, the report points out, is concentrated mainly in East Asia which accounted for over 75 per cent of manufactured exports. South Asia and Sub-Saharan Africa saw their trade share go up by only two per cent in this period.

Unctad data show that over 80 per cent of world exports are by only 10 countries with only three cents of every dollar earned going to low income countries where nearly half of the world's poor live.

The pursuit of globalisation by advanced nations has also overlooked the scale of indebtedness of several African nations which needs to be written off and provided only grant assistance, especially that they also get negligible foreign direct investment or other capital flows.

The Group of Eight Summit, held at Sea Island (US) ignored the African debt problem while the US advocated the cancellation of almost the entire Iraqi external debt, estimated at $120 billion. But other industrial nations favoured only a part write-off and even questioned why Iraq should be treated more favourably than other developing countries. The North-South differences on trade, development assistance, institutional reforms and social priorities have only sharpened over the last two decades of greater freedom for market forces.

For the protagonists of globalisation, what is more important than these basic problems are the competition and lowering of costs that the free play of market forces bring while developing countries like India must accelerate their reform of product and labour markets to achieve more rapid growth for poverty reduction.

In the view of Ms Anne Krueger, First Deputy Managing Director of IMF, the figures of poverty reduction in India over the last decade "give the lie" to commentators' arguments that the recent elections demonstrated "a narrow and selective impact" of the reform programme. That globalisation does not work beneficially is also borne out from external shocks from financial and equity markets and the trading system, which particularly harm developing countries.

For many countries, as Unctad notes, the liberalisation of the l990s produced mixed results and privatisation and foreign direct investment led to greater concentration of industry. Indeed, the Common Minimum Programme of UPA Government underlines this point saying that privatisation should increase competition, not decrease it, and that Government would not support the emergence of any monopoly that only restrict competition. The first Budget of UPA Government in July, is expected to provide the broad contours of the new economic policy designed to avoid the pitfalls of development through globalisation.

The CMP seeks to restore the role of the state as driver of growth through significant public investments in agriculture, industry and infrastructure, leading to greater employment, and accords a strategic role for public undertakings in a competitive environment.

Analysing the links between trade and development, in the context of the experience of how globalisation has worked so far, Unctad calls for revised strategies for development at both the international and national levels. One important lesson is that the rapidly expanding and sustained investment can induce a shift in economic structure from the primary sector to manufacturing and services, leading to a rise in productivity.

Another lesson is that a steady increase in investment cannot be achieved by relying on market forces and FDI alone; the state must take an active part. National governments must also encourage the availability of lending; create a sound legal framework for business; build infrastructure; and foster an educated workforce, the report adds. The outcome of the Doha Round should determine whether a more equitable trading system would be in place to promote integration of the developing countries with the global economy.

(The author, former Chief Editor of PTI, is a New Delhi-based freelance writer.)

More Stories on : Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
How feasible is a rural employment guarantee?

The VAT juggernaut
Globalisation gets a riposte in India
VAT regime: Myths and realities
`Project'ing corruption in multilateral banks
Credit trap
Package for farmers

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line