Deglobalisation: Challenges and Opportunities for India

Globalisation has been a rule rather than an exception for the last three decades.

Interconnectedness and interdependence have become the major characteristics of the entire world. However, recent developments suggest that the concept of a global village has taken somewhat of a backseat in light of novel health concerns, rising geopolitical tensions, and consequently, a nationalistic undercurrent gripping the nations.

This looming disaffection from global interconnectedness gives the impression of a world going down the path of de-globalisation indicated by decreasing integration of the world economies, tighter border controls and focus on inward-looking policies. Talks about deglobalisation have gained traction, especially after the COVID-19 pandemic, which became the turning point that revealed the vulnerability of the global supply chains to the world. The Ukraine-Russia war has accelerated the ongoing fragmentation of the world into two major blocs, one led by US-Europe and the other by Russia-China. This has further consolidated the inter-bloc hostility in strategic, political and economic ties while intra-bloc synergical benefits continue to exist. Coupled with rising economic discontent, trade wars in developed economies are compelling governments and firms to look for economic and business opportunities closer to home. The recalibrating approach of the US manufacturers to shift their supply chains from China to countries like Mexico serves as a case in point.

All these incidents raise the common questions: What does this emerging world order mean for India? Are we about to see a shift in the positioning of the global supply chains? Or will it be a paradigm shift of the world order with India at its centre? Will new avenues of economic growth reveal themselves? Or will there be an erosion of existing growth?

Essentially, is India ready?

The recent rise of economic giants like India, and China has transformed the unipolar world of the 1990s into a fragmented multipolar world. With the formation of different blocs, the power structures within world organizations and the bargaining powers among nations have experienced a massive shift, leading to an entirely new spectrum of frameworks that determine political alliances and trade relations. In the context of multipolarity and a deglobalisation that is particularly isolating various power blocs, India can seek to strategically establish itself as a regional player in South Asia. Ties with players in the Indian subcontinent would allow India to exploit the benefits of nearshoring, i.e., focusing supply chains in nearby countries preferably with a shared border. For instance, Maersk’s recent development of a cross-border logistics solution has provided a convenient and reliable opportunity for trade expansion.

Post COVID-19 China has been surrounded by questions regarding the sustainability of businesses in the country, its economic recovery trajectory, its autocratic structure, and political unrest. Foreign investors have been driving away their investments from China to other developing countries. According to a report by Reuters, investments in China were about $20 billion last year as compared to $120 billion in 2018. It also reported that greenfield investments in India rose by about $65 billion, around 400% between 2021 and 2022. India has emerged as an attractive destination given the recent relaxations in labour laws, developing infrastructure, Make In India initiatives, development of Pharma parks, and data privacy standards that are at par with world regulations.

Government investment in transportation infrastructure like the Golden Quadrilateral, and North-South East-West Corridor would act as a driver of the Indian business environment. With well-developed ports, inland waterways, and an extensive rail network, India has an edge over its competitors. India is located at the very centre of the world, both geographically and economically, and is positioned well to entrench itself in the development of diversified and resilient global supply chains. Globalisation has integrated the world economies but this very interdependence exposes the countries to shocks and supply crunches from anywhere else across the globe. India’s successful utilization of its substantial manufacturing capacity during COVID, not only ensured vaccine availability to its vast population but also helped other nations through the ‘Vaccine Maitri’ program. This episode makes a case in point for India to identify opportunities to Indianise supply chains and strengthen its domestic manufacturing capacities. India is expected to have its peak working-age population proportion by 2030 and the potential India’s demographic dividend is well-known. It can provide the necessary skilled as well as unskilled labour pool at wages relatively lower than in other economies. India has recently started to gain ground in manufacturing owing to collective action by public and private entities.

However, the regional headquarters and senior management that takes strategic decisions for multinationals thrive in Hong Kong and Singapore. According to a report by PWC, 70% of the CEOs are either ‘extremely concerned’ (30%) or ‘somewhat concerned’ (43%) about the availability of key skills. India needs to take significant measures to upskill the workforce and assure multinationals of quality along with the quantity of labour pool available. Deglobalisation would push India to fully reap its demographic dividend by retaining a highly skilled workforce.

High-skilled Indians have found it attractive to work in more developed countries that offer higher wages and higher standards of living. With the advent of immigration restrictions, the returns to investment in education, upskilling, and other human capital would be localized in the country itself hence reducing the brain drain.

The world economy with all its dynamism, volatility, and diversity offers a plethora of opportunities however making the most out of the opportunities is a herculean task. The current setup of the global economy appears to be one where firms are restricting themselves to a few countries to build resilient supply chains. The question then arises – What challenges confront India in capitalising on this opportunity?

In order to be the next best alternative for capital holders, it is extremely crucial for India to demonstrate its ability to produce high-quality products at relatively low costs. One argument that has been constantly put forth is the availability of labour at low wages. Though the low-cost argument holds for unskilled and low-skilled workers, the country faces a serious shortage of a high-skilled workforce that is essential for production with precision. As per the reports of TeamLease, an HR firm, only 49% of professionals in the age range 22-25 are employable. With substandard quality of education in most of the institutes in India, be it primary or higher, a high proportion of the youth, even after attaining graduate degrees, has no practical knowledge whatsoever and struggle to find a decent job. Unequal access to education further exacerbates the plight of the poor due to the presence of highly inefficient staff at government institutions in general and primary schools in particular.

Another factor working against India’s candidature for being the next production hub is that India’s policies at the central and state levels depend not only on the global macroeconomic outlook and the domestic economy’s condition but also rely heavily on the party in power. As a result, there exists uncertainty in the formulation of industrial and labour policies at the Central and State Levels. Various researchers have shown that Gross Domestic Product and fixed investment are negatively related to economic policy uncertainty in India.

India’s diplomacy is being hailed by many today, be it for its position on the Russia-Ukraine conflict, the significant achievement of achieving a consensus on G-20, New Delhi, declarations, or its fostered ties with other nations. However, the road ahead does not appear to be smooth. If India has to emerge as the voice of the global south and assert its regional influence on the global stage, as has been its recent efforts, it has to take on ‘the dragon’ not just economically but also geopolitically. China today stands as a major superpower due to its rapid growth in the past few decades and has become the world’s factory. With its claims on Indian soil and border conflicts between the two countries in Galwan, the tensions seem to be at an all-time high. Talks with Pakistan have also taken a stall, be it trade talks or diplomatic ones. The geopolitics of today is full of uncertainty. This has been evident in the recent souring of relationships between India and Canada, otherwise friendly nations, which has drawn global attention. The cooperation that India seeks to achieve in the world order is far from what’s needed, despite its constant global commitment. 

Can India be the narrator of its own story?

In light of the entire discussion on challenges and opportunities that accompany deglobalisation,

India needs to cautiously navigate between capitalizing on opportunities created by the current deglobalisation trend and creating our own sphere of a globalized world (that is, integration of the Indian economy with other countries on their terms).

Harnessing India’s bilateral and multilateral ties strategically can prove effective in protecting Indian traders. Another area of focus needs to be multilateral organizations like BRICS. BRICS along with its proposed new members can act as a counterbalance against G7 and has made credible BRICS’s claim of being “the voice of the Global South ”. The group would comprise more than half the world population starting January and would mean a huge consumer base for multinationals. On one hand, through strategic ties with BRICS nations, India can promise investors access to a huge proportion of the consumer market of the world, and on the other hand, through carefully curated policies, India can provide businesses incentives to establish production, operations, and management connections across the country.

One of the avenues to achieve a conducive environment for economic activity is to focus on infrastructure investments which not only includes the upgradation of physical infrastructure but also incorporates investments in digital infrastructure. India’s development of its own 5G technology and subsequent supportive infrastructure has the potential to drive economic growth.

Another way of strategically integrating its economy with its partner nations is through collaborative action. India’s success in the development of digital payments technology is unparalleled in terms of the widespread adoption of The Unified Payments Interface (UPI). By sharing its expertise and facilitating the adoption of the technology, India can contribute to the creation of a stronger and more transparent financial system. As India seeks to solidify its position in the global supply chains it can undertake the responsibility of cleaning up these global supply chains by increasing investments in renewable energy.

India today stands at a juncture where a fast rate of growth is not only an objective but a necessity to counter the high rate of poverty, inequality, and malnourishment. However, it would be too narrow an approach to consider mere GDP growth as we are witnessing an era of stable moderate growth rate with increasing inequality trends. India, to achieve higher growth rates, has to make the most of its demographic dividend phase. This can be done only through programs facilitating mass skill formation in all employable youth, irrespective of their endowment constraints. Around 65% of the population of India is below 35 years of age. The proportion of the working-age population will reach its highest of about 69% in 2030. However, a high proportion of the population lacks basic amenities for mere survival, let alone the means to develop human capital. As a result, a large section of the population remains forever out of the workforce and so do the subsequent generations. To tap the benefits of this demographic composition, large-scale public investment in human capital formation with outcome-based goals to keep track of the effectiveness of such measures is needed.

Employability and productivity (as wages) of individuals from these programs can be two such outcome-based measures rather than the number of enrollments to make sure that the implementation of policies is in line with the targeted objective – rapid, equitable, and sustainable growth.

India has an unprecedented opportunity where the right choices can make it the protagonist of a sustainable and socially just economic growth story.

The authors are MA students at the Delhi School of Economics