Tinted Lens: Mixed Signals

[Ironbound]

Yes, I'm throwing my hat into the ring, as well. I daresay we see a sufficient number of political threads in this place, of varying nature and topic, and to that extent I'm usually content to observe from the sidelines. But polity is a strange thing, underlining the fine difference between ludicrous and ridiculous, amusing and bemusing. Let's call this my take, a South Indian's perspective on geoeconomics/geopolitics. Naturally this sort of thing is my opinion, and any interactions are welcome.

 

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A week is a long time in politics, it is said. While it's true that a lot can change in a short while in day-to-day statecraft, political trends are a lot more permanent, lasting for years and even decades. For instance, the broad trend of liberalization and globalization had taken root in the 1980s, and has been growing more and more ever since. Until now. Globalization seems to be giving way to newly resprung trends of isolationism, protectionism and ultra-nationalism. Which is merely a euphemism for racism.

Now, this is nothing new, being itself a trend unabated for centuries; but it has now resurged as a new wave. Donald Trump rode to power on that wave. Britain is struggling to deal with the aftermath of that wave. Nexit and Frexit were narrowly avoided...for now. Italy, another member of the European Union, could go to elections soon. Will there be a Quitaly, I wonder?

Granted, France did not go the isolationist route, after all. Holland and Austria are other EU states that opted to stay with a centrist, pro-globalization structure as well. But even as Macron beat back the challenge of Le Pen, one ought to notice that this is the first time that the Eurosceptic (read: racist) Front Nationale made it to the second round of the Presidential elections, taking a third of the vote in Round II to boot. If it wins a significant number of seats in the parliamentary elections in June, the clamour of a Frexit agenda will be stronger still. A general dislike for immigrants and multiethnicity is certainly a common factor across the EU, and a breakup is a distinct possibility. The USA already has a President who wants to restrict immigration and bring back manufacturing. If the EU also turns protectionist, it will break up, and globalization would be dead in the West.

 

Globalization brought many benefits: the coming down of trade barriers, cross-border flows of capital and technology, easy location of industry across cheap labour segments, and even easier immigration or long term residency for skilled talent. Poverty reduction was unprecedented. Taiwan and South Korea became First World economies in a mere generation, while China, Malaysia, Indonesia and Thailand saw rapid growth. Even India, which arrived somewhat later on the global scene, saw strong acceleration. With the ascendancy of Moon Jae-in in Korea and Xi Jinping's new Silk Road project aiming to recreate China's historic association (and dominance) in Asian geoeconomics, and even as the third year of the Modi administration in India draws near, a new agenda of globalization is likely to cement East and South Asia, though who will sit where at the table is still to be seen. The new trends, Eastern or Western, could last an indefinite while. It's anyone's guess if any protectionism will rise in Europe; sentiment favours it, and even centrist governments may be tempted to pander to it, whether the EU stays intact or no.

 

But where does India stand? 

Well, more protectionism would mean a reduction in cross border foreign direct investment flows, especially in R&D, Pharma and Information Technology industries. India's Gross Domestic Product is closely intertwined with its trade; over half the GDP is solely due to the trade component. Exports would choke and wilt if such protectionism gains ground; the IT and Pharma sectors (which comprise a large chunk of 'invisibles') is already hit hard by the USA raising barriers. Domestic economy is also due to receive a few shocks, at least in the short term, due to the finalisation of the much-vaunted Goods and Services Tax (which, though an improvement from India's current web of archaic, cascading indirect taxes, is still likely to be hamstrung by exemptions and multiple rates thanks to populist pressure...but that's a different issue altogether) and the need for markets to absorb the new rates and tweaks. Despite optimistic statistics and strong macroeconomic estimates, India's economy isn't doing all that well. Job growth has been next to nil, bank credit growth miserable. The Index of Industrial Production has seen a shift in base year and a recomputation in formula to make it paint a rosier picture, but in effect it's stagnant. Capital Formation is the lowest in a decade. There's been some good news, but not enough. The current government made the most of the oil glut of a year or two ago, and sold the idea that their ascendancy immediately resulted in a better economic situation, but coincidence, let alone correlation, can't be treated as on par with causation. We're looking through a tinted lens, making a grey sky appear blue.