India: Globalisation and Growth

Abstract

Post‐reforms, in the 1990s, India chose greater integration with the global economy as a part of its development strategy. Even though integration deepened, rates of growth of per‐capita‐income and investment levels did not change very much. But in the first decade of the 21st century both the pace and character of this integration changed. The quickening pace of integration also saw sharp increases in investment and savings levels and in per‐capita‐income growth alongside low current account deficits and high capital flows. Low current account deficits were predicated upon rapidly growing export of goods and services and inflows of remittances from migrant labour. Goods exports saw an improvement in technology content and a switch of geographies towards Asia. In the last three decades world trade relative to GDP has seen substantial increases and as the centre of gravity of the world’s economic and trading activity has begun shifting back to Asia, India’s integration with Asia has deepened. This integration however also saw a structural increase in the import intensity of the economy as a result of dependence on hi‐tech imports. The global economic slowdown as result of the financial crisis of 2008 uncovered these chinks as the deceleration of growth of the Indian economy was accompanied by a sharp widening in its current account deficit. If, growth performance of the economy has improved, there have been other less beneficial outcomes as well. First, it has had little impact on the Indian economy’s anaemic employment performance. Second, the most integrated sector in the economy – manufacturing – has only seen a marginal increase in its share of output and actually a small decline in its share of employment. Global integration therefore has been the driver of growth but distorted structural change. Third, globalization has worsened the mismatch between employment structure and output structure by having catalyzed a multi‐dimensional agrarian crisis, as a result of which agricultural and nonagricultural productivities have diverged instead of converging. Fourth, the slow growth of employment opportunity both inside and outside agriculture is not only a driver of inequality but also the cause of land‐hunger, leading to widespread resistance from below to the acquisition of land and other natural resources, an unintended consequence of globalization. This unintended consequence however carries with it the potential of shaping India’s future growth trajectory