11 Aug Unpacking the resiliency of global trade, yet again
(The Hindu, GS-3, Economics)
Context:- COVID19 has a devastating impact on the world economy and it has shrunk by 4.4% and global trade by 5.3%. This economic crisis led to job losses which have been estimated to be to the tune of 75 million. Countries have responded to pandemic induced shortages with protectionist reactions which have the potential to disrupt complex cross border supply chains . This crisis led to widening trade deficits, income inequalities and growing unemployment are all but natural domestic reactions.
- The Second World War has created sustaining multilateral institutions which was made to sustain demand, these includes United Nations, the Bretton Woods Institutions such as World Bank and International Monetary Fund (IMF) and International Trade Organisation (ITO).
- The General Agreement on Tariffs and Trade (GATT) was negotiated in 1947.
- The oil shocks of the 1970s led to the establishment of the International Energy Agency (IEA) in 1974.
- The financial crisis of 2008 led to the G20 Leaders Summit.
- These developments had a great impact on global trade.
- It has increased from $60.80 billion in 1950 to $2,049 billion in 1980
- $6,452 billion in 2000
- $19,014 billion in 2019.
- International trade is vital for development and prosperity.
- Competition is central to generating competence.
- Stimulus packages and forced savings in several countries in the last year have created financial buffers.
- Global supply chains will help revive manufacturing with lower production costs, induce investments and promote technology transfers.
- The World Trade Organization will have to stitch trade facilitating rules that may impinge on national sovereign policy space.
- Deeper economic integration will be entered into at the bilateral and regional levels to create win-win situations for all stakeholders.
- Countries that harness technology are expected to dominate international trade in future.
- The data will be the main driver of economic growth in the 21st century.
- But at the same time increasing use of data and automation will make nations vulnerable to job losses.
- Economic policies will have to focus on stronger safety nets for workers + income protection, skill training, health care and educational support for families.
What India must do:-
- India’s GDP has contracted by 7.3% and about 10 million jobs were lost along with trade remaining subdued at $493 billion (goods at $290 billion and services at $203 billion).
- We have to look beyond the traditional exports basket comprising:-
- Refined petroleum products
- Pharma, gems and jewellery
- Textiles and garments, engineering items
- Rice, oil meals and marine products etc.
- We have to build an ecosystem that incentivises value added manufacturing and technology induced finished products.
- Plug and play manufacturing units under Production Linked Incentive Scheme (PLI) schemes which will further make indian economy more robust.
- Stimulus packages for micro, small and medium enterprises (MSMEs) will further improve indian resilience.
- Job creation at the local level.
- Developing a synergistic relationship between the big industry and MSMEs is at the core of a successful Atmanirbhar Bharat