Hyper globalisation is dead but not globalisation: Arvind Subramanian
In a chat with ET Now, Arvind Subramanian, CEA, Ministry of Finance and Vinayak Chatterjee, Chairman, Feedback Infra Pvt. Ltd, discuss the future of globalisation.
ET Now: You have said hyper globalisation is dead but long live globalisation. I have a counterpoint. Are we calling this trend by all these names instead of shying away and just saying this is de-globalisation? The world is seeing protectionist trends whether it is US, UK, Australia, New Zealand. What will be the future of this new globalisation?
Arvind Subramanian: We have to be a little bit careful here. First, between a lot of rhetoric that we have seen around the world and the actual actions taken, mercifully there is still a big gap. If the actions catch up with the rhetoric, then we are in serious trouble. So let us wait and watch.
Second, the word globalisation is a little bit misused and you need to parse it. In Australia it is about immigration. Australia is not saying we are going to raise tariffs etc. etc. In Europe, for example, Brexit was two things; one, against migration and of course in Europe and Germany the refugee problem is big and we saw people wanting to take control of their destinies. Neither the UK nor Europe is saying we are going to raise trade barriers.
With the United States, things are in a little bit in flux. There is a lot of rhetoric which says trade barriers might also go up. So we need to distinguish the different forms. For India, what matters is we export a lot of services, we also export a lot of goods like textiles, clothing, pharmaceuticals etc. We need to keep focussed on the products that we are exporting. As long as those remain relatively unchallenged, we can negotiate that.
The last point is if you look at the actual numbers over the last 25-30 years, one way of measuring globalisation is to look at trade to GDP at the global level. After about 1980-1985, it sort of soared and that is what I called the period of hyper globalisation.
After the crisis, there was actually de-globalisation but that had to do not with protectionist action so much as the fact that growth declined. Now we are seeing a tapering off and again a slight revival.
I do not think we are going to see de-globalisation massively and this is because the container got invented, we get more fall in transportation costs, fall in information costs, no one can stop that and not even all the powers in the United States, in Europe and China can stop that. So that technology is going to continue and that is why I think hyper globalisation might be dead but not globalisation.
ET Now: Are you here suggesting at one level that countries will not have a choice, I am not going to perhaps use the word de-globalisation then in today’s context, but countries will no longer have a choice? We will see a different space of globalisation? Critics say that the developed world was alright with globalisation till it suited them, and this is the hyper globalisation phase that we are talking about. But when the developing world is standing up and you seeking a stake in that pie, that is when the problems are arising?
Arvind Subramanian: That is absolutely right. What has happened is that suddenly China and India were emerging as among the biggest beneficiaries of globalisation and just when that was beginning to happen, the rhetoric changed. Let us wait and watch. If we do get protectionist action, then you will see a phase of de-globalisation but I do not expect that to happen.
If you look at the value added chain, you cannot even identify when you say made in India or made in China or made in the US. There are 100 different parts coming from 100 different countries. It is going to be very difficult to undo all that. Take FDI for example. In the old days we used to get all the FDI, now we get FDI, we send out FDI. So it has become a two-way process. Undoing all this is going to be politically very difficult, but we have to be watchful.
ET Now: Do you believe given the new definition and the new phase of globalisation that we are seeing one also needs to take into account investments or job creation locally because once countries start looking inward, it is also going to hamper their own economies, right?
Vinayak Chatterjee: That is certainly true and in the context of India, we have noticed a certain trend on FDI that is coming in. The large chunks of FDI have been coming into infrastructure. Names like the Canadian Pension Fund, Brookfield etc, etc. Practically all of them are not coming into new greenfield ventures. They are acquiring or taking over existing or almost complete brown field ventures. So there is a qualitative difference in FDI. There is FDI that comes in which creates new assets, creates jobs and there is FDI that is partly solving the twin balance sheet problem by coming in taking over existing assets. So while that is welcome because it is bringing the much needed capital and loosening up the balance sheets of others, it does not lead to creation of jobs.
Arvind Subramanian: China at the peak of its growth used to get $100 billion FDI. We get $65-70 today. In the old days, it used to be 10:1 ratio, now India gets 65 so we are approaching those really astronomical numbers which is very good news. However, we have to be a bit careful. A lot of FDI comes from Singapore and Mauritius. One distinction that Vinayak is making is between green field and brown field, the other distinction is, how much of it is going into manufacturing plants and machineries and how much is going into financial services start ups etc, etc. We need to monitor this carefully. The impact on Make in India and in terms of jobs will of course depend a lot on where this FDI comes, if it comes in infrastructure, manufacturing, the impact will be much greater.
ET Now: If we look at the scenario that the world is witnessing which is rise of protectionist tendencies if not trade barriers and so tariffs going higher. Where does Make in India stand amidst all of that because Make in India in principle is a very export led driven sort of an ideology? Is there space for that sort of an initiative and should India instead give a fillip to its services and not be obsessed with manufacturing?Does Make in India hold water?
Arvind Subramanian: I have always interpreted Make in India as a way to make the Indian economy globally competitive. That is what broadly is the message and the intend behind Make in India. So if you are going to become globally competitive, that means you need to export a lot and that also means that domestically we produce more of what was being imported previously. Both components are important.
It is true if other people start imposing trade barriers it is going to be difficult for us to realise Make in India. The second worry I have is that if others start doing this there will be groups within India who may say look others are raising barriers, we should also raise barriers and that is the kind of dynamic that I worry about. So we need to champion openness outside and we need to be more open ourselves.
ET Now: But if those barriers rise do we still insist upon making in India?
Arvind Subramanian: Remember you have to be globally competitive you cannot say oh the markets are being closed there therefore I will start making my industry less competitive. You have to be competitive. That is regardless of the international environment.
ET NOW: Contrary to what Dr Subramanian is saying Make in India in the common parlance is seemingly about manufacturing. But the age of those big mega factories is over. There are a lot of robots on the shop floor, there is artificial intelligence that people are using. Given that context, do we still obsess over manufacturing and Make in India and especially at a time when perhaps the export pie, the global trade will shrink?
Vinayak Chatterjee: The truth is that large portions of Indian industry be it manufacturing or be it services are today islands of excellence, unfortunately floating in a sea of morass because the environment in which we are being asked to be competitive. Like Dr Subramanian is urging us to be globally competitive, if you visit most of the factories that are at a reasonable level today, in IT or biotech or services, in the micro world of the firm, Indians are pretty globally competitive. The reason we are not globally competitive at the macro level is because we are hamstrung by the environment we are working in. We mentioned some of them, high capital cost, non facilitative government policies, electricity distribution, labour laws the whole chakkar of now trying to remove all those barriers of inspector raj called ease of business. So the issue is the fundamental question for Dr Subramanian to address as a clinical economist and I challenge him to do that.
If I were to distribute a 100 points and ask him how much of this is because of Indian industry being lethargic, laid back, uncaring, protectionist and we are just not globally competitive and how much of it is because the operating environment in the last 60 years of our economy, our government, our bureaucracy and the system within which we operate do not allow us to be globally competitive?
Arvind Subramanian: It is all the same tribe my friends. I do not take it very seriously. I want to make just two or three points. One is that look all the things that Vinayak enumerated, he is absolutely right. After all, we said it in the survey very eloquently.
We need to address the twin balance sheet problem. I feel very strongly like Vinayak that we need one market in power in India. By imposing restriction on sale of power within India we make huge swathes of Indian industry, even the labour intensive sectors, high uncompetitive. All these points are very well taken and up to industry and of course up to government to address. No one disputes that. But note, note that Mr Vinayak Chatterjee, super efficient, super successful, super thoughtful has fallen victim to exactly what I said. When he raises all the macro issues he does not touch upon the exchange rates as if it is someone else deciding them. It is a very important macro factor determining competitiveness.
I get texts from our clothing industry and so on saying sir you know it is becoming– yet all of you are so silent. I plead guilty to what we may not have done but you should do the same and reciprocate the confession my friend.