By Dr Utpal K De & Dr Simi Mehta
COVID-19 has resulted in a disruption of trade as well as market linkage across the globe. The responses of various countries have been observed in the form of a structural shift from participating in global supply chains to looking inwardly. Lockdown of the economies hit global supply chains by halting the process of production and output. The world, for the first time in decades, experienced negative growth of over 7%. The IMF projects a bounce back by 2021, where the optimism is located in the growth potential within South Asian Economies.
There was an exponential reduction in trade across the countries, and India experienced a reduction in imports more than exports. This skewed response resulted in a belief that India had successfully responded to trade imbalance, and the understanding of today was the result of protectionism with both exports and imports being hit. However, there is a large potential for India and South Asia to grow both within global supply chains and building regional supply chains.
Prof Amita Batra, Chairperson Centre for South Asian Studies, Jawaharlal Nehru University, pointed out that trade is usually studied as a standalone economic variable. It is the development potential that should be looked at as a key motivation for growing inter-and intra-regional trade.
The South Asian region has been riddled with developmental concerns, which only exacerbated during and after the Lockdown. South Asia today houses the largest population of the global poor. Poverty is not just the absence of capital but translates into a losing the potential of demographic dividend due to concerns of hunger, education, skill development, and health care.
It is common knowledge today that South Asia holds a massive potential of the demographic dividend because of its large proportion of the population within a working-age group. This has so far translated into failed potential due to development and sustainability concerns.
How does trade which is traditionally seen as a marker of economic growth, respond to these concerns? Trade within it houses the potential to absorb this demographic dividend into production activity which would increase the flow of capital and eventually progress to answering larger developmental concerns at the micro-level. The biggest concern with the demographic dividend in South Asia, in her opinion, “there is an inability to match skills of working age group with demand for particular skills.”
It has been argued that trade is an important instrument of economic growth where there is percolation from the economic variable to individual life. Trade leads to prosperity from competitive advantage, and in order to sustain this advantage, there must be an efficient allocation of resources.
Effective and efficient allocation of resources results in ‘growth for all’. This aspect of the benefit of trade as an engine of growth, when pointed by Prof Amita Batra, encapsulated within it an understanding of the inequalities resulting from trade.
There would be industries that would become obsolete, and the role of the state becomes important. The state must ensure that the population which is rendered unemployed as their working sectors becomes obsolete must be re-skilled to meet the demands of the economy.
Trade is not always responsive to income can be nuanced to trade is differentially responsive to income. This leads to one sector becoming obsolete. To draw an analogy, the service sector has taken over the manufacturing sector as the lead traded commodity, even within manufactured products, intermediary products lead the share in trade. These trade cycles have resulted in global value chains.
The concerns with these global value chains remain that a dominant player in these global chains remains China. The reasons why China controls these global chains is because of the structural and economic benefits where it stands to be the second-largest economy. Its expansionary trade and fiscal, economic policies have resulted in a capital surplus economy where most of the countries stand at a disadvantage of increasing trade deficits.
Trade Deficits are difficult to sustain, and following the politics immediately with the COVID outbreak has begun a cycle to restore these global supply chains, looking at returning to North America and using ASEAN countries, including India, for their low cost of production. To capitalize on this opportunity, South Asia needs to revive its regional trade capacities. ASEAN has made itself a viable alternative which began with the Foreign Direct investment from Japan and resulted in a specialized segmented process where the market leads network production.
There needs to be a comprehensive response from South Asia in terms of strengthening regional value chains. Globally trade has grown exponentially by resulting from special trade agreements. South Asia as a region, has not resulted in similar agreement-based integration.
Regional integration has been bogged with socio-political concerns. Political and Geographical conflicts, which are the result of colonial history between the countries, need to be actively responded with possible solutions.
After engaging with the political questions, there needs to be a focus on expanding the normative engagement with trade and its impact. Dr Ganesh Wignaraja, Senior Fellow, ISAS, spoke on the need to evolve new trade policies following the unprecedented shock to economies. One needs to steer clear of extreme optimism because IMF projections can only be true if the vaccines result in a global immunity to the Virus (including the new strain). There has to be sceptical optimism, where the state does not become too complacent. They have to be more vigilant for a second shock or interrupted pattern to economic growth.
COVID-19 has also resulted in protectionist economic stands, and if they do not change, economic and trade growth will not be possible. Developmental questions can be responded to with an efficient understanding of problems that affect the population.
Food insecurity is a key concern that continues to loom in the region. Analyzing the Indian capacity for both investment and infrastructure could build into a trade value chain for Agro Processing. New sectors can aid South Asia to begin the journey of development and trade. These sectors are Financial Services and Digital Trade Treaties. These sectors hold within themselves the capacity to absorb a tertiary graduate population in the country.