Hyperglobalisation has been used to describe the dramatic increase in international trade witnessed for about a decade and a half from the early 1990s up to the global financial crisis of 2008. The imagery intended is one of an increasing connectedness among nations leading to a virtuous cycle of economic expansion.
By a trait common to every generation, we tend to assume that ours is somehow unique, in this case with respect to globalisation. However, if we are to take the long view, we would find that this is no more than a conceit. Starting some time in the last quarter of the 19th century, for close to 50 years, the world saw an expansion in trade that was actually as great or even greater than during the recently concluded phase. Then had also occurred an unprecedented movement of capital and of people. British capital flowed into building the railways across the world, immigrants moved from Europe to the United States and Asian labour was moved to the sites of deployment of western capital.
End of a phase
So, the facts are that the world has seen the waxing and waning of global traffic in goods, capital and people.
To be precise, the phase of high trade starting 1870 came to an end with the First World War and was to revive, slowly, only after the Second. Then, following the collapse of East European communism in the early 1990s, there was a resurgence in global trade. Now even this phase has somewhat abruptly ended with the global financial crisis.
Economists who study trade flows have gone to the extent of claiming that hyperglobalisation was a one-time event unlikely to be repeated. Though some may hold that we ought to shun economists offering predictions with as much diligence as we should beware of enemies bearing gifts, it may pay us to heed their prognosis, for were it to be true, it has implications for economic possibilities in India.
Note that even if vigour were to return to the global economy 25 years from now, that would still account for a significant chunk of the working life of an Indian, for which period alternative economic opportunities would have to be found.
Role of technology
What underlies the scepticism expressed regarding a revival of global trade?
The view is based on the observation that especially 19th century globalisation was underpinned by technological advances that facilitated trade. The advent of the telegraph is alluded to along with the invention of the internal combustion engine. The former enabled the communications infrastructure intrinsic to trade and the latter enabled the fast, reliable and cheap transportation of goods across seas. These advances, we are told, dwarf anything since, including the Internet, in terms of their capacity to expand trade. And, none is foreseen in the immediate future.
This account of how advances in technology fueled trade is of undoubted relevance but remains partial in that it leaves out the role of the growth in demand for these technologies. It was, after all, the growing market for British goods as Indian manufacturing was dislodged following military conquest and as British capital flowed into the laying of a rail network in parts of Latin America and Africa that provided the demand for development of cheaper communication and transportation technology.
Therefore, it may as well be said that trade expanded as the demand for goods grew. However, it is yet true that when global demand expands, countries can exploit the trade route to grow their economies. This was the great promise of globalisation held out to the developing countries in the 1990s. Now, what does all this have to do with us in India today? A great deal, actually.
The slowdown and India
If the world economy is set to grow slowly for the foreseeable future, a premise of much of the economic policy in India since 1991 would have to be replaced. It had been assumed then that globalisation was here to stay and India had only to hitch onto its current to ride to prosperity.
This India has even successfully done in phases since. Now, however, we need to recognise that the game may have changed substantially — even if not irrevocably, as the experts claim. The shift that has taken place is visible most in the IT industry. Quarterly growth only inches forward there and insecurity grips its particularly young workforce.
In retrospect, we can see the hollowness of the boast that had made the rounds a decade ago that India need not bother with manufacturing when it could leapfrog into a service economy led by IT exports. Now, “bricks and mortar” is no longer something to be spurned and soiling our hands may be part of the business of earning our living for some time to come.
Recognising the diminished tempo of globalisation, India’s economic policymakers must address the growth of the home market, which is the demand for goods and services emanating from within the country. The immediate points of action and the appropriate instruments can be identified without much strain on our ingenuity. In the short run or the present, when the global economy is sluggish, only domestic investment can move demand.
In India, we have been witnessing slowing or depressed private investment for close to five years by now. There is a view that this has to do with tight monetary policy. It is true that the real lending rate for firms has been rising as inflation is falling. Such a policy stance can be justified only by resorting to the claim that the Reserve Bank of India knows something about future inflation that we don’t, in particular that inflation is set to rise again soon.
Barring this possibility, there is a case for cutting the repo rate now, and there is a clamour for this. But there are reasons to doubt the potency of such an action, one each from the supply and the demand sides. Given that they hold non-performing assets, the banks are extremely wary of lending. Any significant resumption of lending by banks may be hostage to their first resolving the bad loans problem. Ditto with the firms, which are themselves debt-laden. Are they likely to take on more of it, just because it is offered at a lower rate, before cleaning up their balance sheets?
On public investment
Independently of the ‘twin balance sheet problem’, Keynesian economics has long recognised that lowering the rate of interest may not do much for private investment if the expected rate of return is depressed.
The slowing of both global trade and domestic manufacturing may have had precisely this effect by lowering the long-term expectations held by private investors. We do, however, know how to buoy up flagging demand. You do this through public investment.
In response to the argument heard at the highest level of policymaking that there are no viable projects to be had, one need only refer to a recent news report on the state of our roads and bridges.
It is reported that 23 bridges and tunnels on India’s national highways are over 100 years old, of which 17 require rehabilitation or major maintenance. As many as 123 other bridges in the country require immediate attention and 6,000 are “structurally distressed”.
Infrastructure is unique in that spending on it raises aggregate demand and when it actually comes on stream, it raises the productivity of investment elsewhere in the economy. ‘Roads and bridges’ are a metaphor for the public infrastructure that the Indian economy can fruitfully absorb today.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.
Consider this hypothetical situation: Rajalakshmi, from a remote Karnataka village spots a business opportunity.
She knows that flowers, discarded in the thousands by temples can be handcrafted into incense sticks.
She wants to find a market for the product and hopefully, employ some people to help her. Soon enough though, she discovers that starting a business is a herculean task for a person like her.
There is a laborious process of rules and regulations to go through, bribes to pay on the way and no actual means to transport her product to its market.
After making her first batch of agarbathis and taking it to Bengaluru by bus, she decides the venture is not easy and gives up.
On the flipside of this is a young entrepreneur in Bengaluru. Let’s call him Deepak. He wants to start an internet-based business selling sustainably made agarbathis.
He has no trouble getting investors and to mobilise supply chains. His paperwork is over in a matter of days and his business is set up quickly and ready to grow.
Never mind that the business is built on aggregation of small sellers who will not see half the profit .
Is this scenario really all that hypothetical or emblematic of how we think about entrepreneurship in India?
Between our national obsession with unicorns on one side and glorifying the person running a pakora stall for survival as an example of viable entrepreneurship on the other, is the middle ground in entrepreneurship—a space that should have seen millions of thriving small and medium businesses, but remains so sparsely occupied that you could almost miss it.
If we are to achieve meaningful economic growth in our country, we need to incorporate, in our national conversation on entrepreneurship, ways of addressing the missing middle.
Spread out across India’s small towns and cities, this is a class of entrepreneurs that have been hit by a triple wave over the last five years, buffeted first by the inadvertent fallout of demonetization, being unprepared for GST, and then by the endless pain of the covid-19 pandemic.
As we finally appear to be reaching some level of normality, now is the opportune time to identify the kind of industries that make up this layer, the opportunities they should be afforded, and the best ways to scale up their functioning in the shortest time frame.
But, why pay so much attention to these industries when we should be celebrating, as we do, our booming startup space?
It is indeed true that India has the third largest number of unicorns in the world now, adding 42 in 2021 alone. Braving all the disruptions of the pandemic, it was a year in which Indian startups raised $24.1 billion in equity investments, according to a NASSCOM-Zinnov report last year.
However, this is a story of lopsided growth.
The cities of Bengaluru, Delhi/NCR, and Mumbai together claim three-fourths of these startup deals while emerging hubs like Ahmedabad, Coimbatore, and Jaipur account for the rest.
This leap in the startup space has created 6.6 lakh direct jobs and a few million indirect jobs. Is that good enough for a country that sends 12 million fresh graduates to its workforce every year?
It doesn’t even make a dent on arguably our biggest unemployment in recent history—in April 2020 when the country shutdown to battle covid-19.
Technology-intensive start-ups are constrained in their ability to create jobs—and hybrid work models and artificial intelligence (AI) have further accelerated unemployment.
What we need to focus on, therefore, is the labour-intensive micro, small and medium enterprise (MSME). Here, we begin to get to a definitional notion of what we called the mundane middle and the problems it currently faces.
India has an estimated 63 million enterprises. But, out of 100 companies, 95 are micro enterprises—employing less than five people, four are small to medium and barely one is large.
The questions to ask are: why are Indian MSMEs failing to grow from micro to small and medium and then be spurred on to make the leap into large companies?
At the Global Alliance for Mass Entrepreneurship (GAME), we have advocated for a National Mission for Mass Entrepreneurship, the need for which is more pronounced now than ever before.
Whenever India has worked to achieve a significant economic milestone in a limited span of time, it has worked best in mission mode. Think of the Green Revolution or Operation Flood.
From across various states, there are enough examples of approaches that work to catalyse mass entrepreneurship.
The introduction of entrepreneurship mindset curriculum (EMC) in schools through alliance mode of working by a number of agencies has shown significant improvement in academic and life outcomes.
Through creative teaching methods, students are encouraged to inculcate 21st century skills like creativity, problem solving, critical thinking and leadership which are not only foundational for entrepreneurship but essential to thrive in our complex world.
Udhyam Learning Foundation has been involved with the Government of Delhi since 2018 to help young people across over 1,000 schools to develop an entrepreneurial mindset.
One pilot programme introduced the concept of ‘seed money’ and saw 41 students turn their ideas into profit-making ventures. Other programmes teach qualities like grit and resourcefulness.
If you think these are isolated examples, consider some larger data trends.
The Observer Research Foundation and The World Economic Forum released the Young India and Work: A Survey of Youth Aspirations in 2018.
When asked which type of work arrangement they prefer, 49% of the youth surveyed said they prefer a job in the public sector.
However, 38% selected self-employment as an entrepreneur as their ideal type of job. The spirit of entrepreneurship is latent and waiting to be unleashed.
The same can be said for building networks of successful women entrepreneurs—so crucial when the participation of women in the Indian economy has declined to an abysmal 20%.
The majority of India’s 63 million firms are informal —fewer than 20% are registered for GST.
Research shows that companies that start out as formal enterprises become two-three times more productive than a similar informal business.
So why do firms prefer to be informal? In most cases, it’s because of the sheer cost and difficulty of complying with the different regulations.
We have academia and non-profits working as ecosystem enablers providing insights and evidence-based models for growth. We have large private corporations and philanthropic and funding agencies ready to invest.
It should be in the scope of a National Mass Entrepreneurship Mission to bring all of them together to work in mission mode so that the gap between thought leadership and action can finally be bridged.