The Covid-19 outbreak will be a turning point in globalization’s steady march over the last 40 years, impacting India beyond its efforts to grapple with the current economic slowdown.
The world is whipsawed by the human toll of the disease and the economic meltdown approaching recession proportions leading to closing of economies and frontiers to a degree that the extreme anti-globalization forces or even President Donald Trump could have foreseen.
Even if the extreme measures taken by governments and the economic fallout end when the disease abates, there will be a reimagination of globalisation now that its perceived unassailability has been breached, exposing its weakness.
Its economic growth had been scaled back to 4.9% for the current fiscal year by the International Monetary Fund (IMF) before the Coronavirus crisis hit. That figure is likely to be reduced even further as also the forecast of 5.8% for the next year because of the disease’s external impact.
India sailed placidly through the 2008 Great Recession compared to other countries, but in the decade since, its exposure to the global economy has increased while the domestic economy was already wobbly.
In 2008 and in the years that followed till as recently as 2018-19, India was buoyed by growing domestic consumption. But that is unlikely this time around as domestic consumption has fallen.
IMF’s Managing Director Kristalina Georgieva recently estimated that global growth would be 2.9%, a dip of 0.5% from previous estimates. A drop of similar magnitude can be expected for India from the 4.9% made for the current fiscal year.
The commercial and industrial headline from the crisis is that coronavirus has hit the world’s factory, China, and the disruption in the supply chains has hit manufacturing around the world and also the availability of goods made in that country. This has exposed the weak point of globalisation that benefited China at the expense of the rest of the world.
The global trade disruption presents three possible scenarios: A retrenchment from globalisation entrenched through the World Trade Organisation that is already under stress from Trump’s trade wars; flowing from it as well as a future insurance, a trend towards reinvigorating domestic manufacture, and the reorientation of the supply chains away from China.
If the WTO structure is shaken, India could try to boost domestic manufacture even of simple things like Deepavali fireworks or religious icons that are increasingly outsourced to China.
It could also try to vie for the downstream of supply chains that multinationals want to relocate. (Lacking the capacity of chip foundries, for example, the cell phone manufacturer that moved to India has been hit by the China closures.) But for this to happen, India will have to create the physical and human infrastructures – the transportation and energy networks for manufacture and the social and educational development of people in the populous inland areas.
There are, however, two barriers to this: Competition from not only other developing countries, but also from the developed countries that would want the supply chains closer in, and a cutback in corporate investments.
UNCTAD has said that reeling from the effects of the coronavirus, multinationals are cutting back on capital investments and the flow of foreign direct investments (FDI) can drop by 5 to 15%. This will affect both the expected regular FDI flow to India as well as the possible relocation of manufacturing.
While China may re-emerge from the crisis slightly weakened, the consequences can be devastating for countries like India, which missed out on most of the benefits of rapid globalisation and do not have the capital accumulation, unless they can reinvent themselves.
The Italian lockdown is testing the concept of a Western Europe without borders, already shaken by Brexit and the German-engineered refugee influx before that. The Schengen Agreement of 1985, which grew to 26 members, is at risk from Italy’s restrictions, that could creep. Wholesale barring of Chinese citizens from entering certain countries is another setback to relaxed global travel.
An article of faith for globalists and many economists and business leaders is that globalisation and the competition it engendered led to greater innovation and making products affordable, and the fast economic growth helped millions out of poverty.
What would happen to these if barriers began to show up again?
The Covid-19 crisis has exposed the weak points of globalisation and it may be time to re-evaluate it, if it had gone too far too soon, and where nations situate themselves ideologically, as much as economically.
(The writer is a New York-based journalist, Non-Resident Senior Fellow of the SPS and can be contacted at arullouis@sps.in and followed on Twitter @arulouis)
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