NEW DELHI: India faces twin threats to its income from global trade which makes up 48 per cent of India’s GDP – rise of protectionism and trade wars and technological change. The World Bank believes that as much as 1 per cent of India’s GDP could be shaved off by ongoing trade wars.
“If trade wars escalate, it could cost India half to one per cent of its GDP,” said Aaditya Mattoo, the World Bank’s Chief Economist for East Asia and Pacific and co-author of World Development Report 2020 :Trading for Development in the Age of Global Value Chains, in an interview to The New Indian Express. Around 44 per cent of India’s GDP is accounted for by its exports and imports.
While India has gained so far from trade wars as some trade has been diverted to India and its exports have risen by half a percentage, the Bank estimates that if trade wars and protectionist tendencies continue among India’s major export destinations which include the US and Europe, then India’s income and exports could both decline by up to one percentage point.
In such a scenario, Mattoo argues that poverty could actually increase in India by half a per cent, pushing as many as 7 million people into poverty defined by an income per day benchmark of $ 5.50 a day. Globally it is estimated that protectionism could push more than 31 million people into poverty and see global GDP contract by $ 1.4 trillion.
Mattoo says that the twin threats from automation and protectionism is disrupting global value chains where countries trade parts across borders to create a product. New technologies threaten to draw production closer to markets and reduce demand for labour. Global value chain production which made up 38 per cent of India’s exports has now slumped to 36 per cent.
The problem with a fall in exports which are part of the global value or supply chain is that a 1 per cent increase in GVC participation is estimated to boost per capita income by more than 1 per cent, almost double the rise in per capita due to conventional trade.
Interestingly, the study says India has over-achieved in global value chains in the more complex services chain but has under-achieved in basic labour-intensive manufacturing, especially in sectors like textiles and light engineering where manufacturers are moving out of not only the sophisticated West but also out of China.