India must tread with caution at Davos meet
Can India become “magnetized” for global industry, finance, and trade in 2018? That is the question Prime Minister Narendra Modi could face when he meets the “Davos Man” (DM) on 23 January. DM is a term popularized by controversial political scientist Samuel Huntington of The Clash of Civilizations fame to denote the international movers and shakers of industry, finance, and trade.
The sole demand of the DM is the elimination of national boundaries that act as obstacles/barriers to their profits touching stratospheric levels.
Around 3,000 globetrotting executives, politicians, lobbyists, and academics congregate for five or six days in the Alpine ski resort of Davos ostensibly to improve the state of the world. It is a bizarre “tribal celebration for leaders who worship a holy trinity of ideas: capitalism, globalization and innovation”, wrote Gillian Tett of Financial Times in Foreign Policy magazine last year.
Following the disappearance of Uncle Sam from the international stage since January 2017, a new leader has emerged on the Davos stage. As Washington under President Donald Trump increasingly resorts to an ‘America First’ disruptive trade policy regime on an ever-expanding scale, the new leader from the Middle Kingdom has assured the DM: “economic globalization” is here to stay and will be salvaged from the dangerous tectonic shocks stemming from beggar-thy-neighbour policies.
“Whether you like it or not, the global economy is the big ocean that you cannot escape from... Any attempt to cut off the flow of capital, technologies, products, industries and people between economies, and channel the waters in the ocean back into isolated lakes and creeks is simply not possible. Indeed, it runs counter to the historical trend,” said President Xi Jinping of China at Davos last year, when he signalled the emergence of the long-suppressed “sleeping giant” as the new global power.
“In the face of both opportunities and challenges of economic globalization, the right thing to do is to seize every opportunity, jointly meet challenges and chart the right course for economic globalization,” said President Xi, in a statement that became the new mantra for the DM.
But, for China to claim the Davos centre stage last year, it had experienced long spells/periods of relentless economic growth. That growth created ever-bulging current and trade account surpluses which, in turn, transformed the Chinese economy into a large continent-size magnetic field for capital, labour, and innovation, according to several studies.
Indeed, the laws of magnetism became a reality for China on the economic front. China has shown that it is possible for a nation to align the economic dipoles in one direction to create a powerful magnet of economic growth and development.
Against this backdrop, the DM might seek to know from Modi, who is visiting Davos for the first time—after being denied entry when he was the Gujarat chief minister by the World Economic Forum following the 2002 riots—whether India is able to align the dipoles in its economy to create a super magnetic field for international business. It will seek clarity on numerous economic initiatives/measures such as Make in India, taxes and other incentives for foreign business holdings, demonetization and last but not the least the implementation of goods and services tax (GST). The evidence from these schemes on the ground is anything but encouraging at this juncture.
Surely, to satisfy the insatiable demands of the DM, Modi and his accompanying colleagues in the government could offer costly economic sops that might further contribute to the growing fiscal deficit. India is certainly not in a position to put on a splurge fest at Davos which China can provide. More so, is it worth spending precious dollars/francs when the credibility of the DM is at its nadir, and given its earlier identification with some notorious corporate figures from India as well as leading western countries?
Therefore, India must remain “realistic” about what is doable at Davos, particularly against the backdrop of the current global economic and trading climate. India’s goods and services exporters are facing numerous barriers in the US market and elsewhere. Successive US administrations have claimed India to be its “strategic ally”, “special partner,” and “defence partner” among others. But, when it comes to trade relations between the US and India, the Trump or previous administrations chose to strike body blows time and time again.
Consider the latest US policy measures such as the Department of Homeland Security’s drive to terminate H-1B visa extensions, the latest corporate tax policy changes, and more important, attempts to discontinue billions of dollars worth benefits of the Generalized System of Preferences (GSP) involving tariff-free access to the American market from 31 December.
Indeed, the year 2017 wreaked havoc on Indian software services exports as well as textile and other exporters availing the GSP benefits in the American market. According to a report filed by McClatchy DC Bureau on 31 December, the Department of Homeland Security is toying with the idea of creating a sort of “self-deportation” of hundreds of thousands of Indian tech workers in the US to open up those jobs for Americans. “This proposal is based on pure vindictiveness by the Trump administration to curb legal immigration of legitimate skilled workers from India and China who have been waiting years in green card backlogs…It does not protect American workers as the labour market was already tested,” according to a tweet by leading immigration attorney Cyrus Mehta.
In similar vein, after the recent changes in US corporate tax which brought the rate down from 35% to 21%, Indian Information Technology (IT) giant Tata Consultancy Services Ltd could suffer due to the subsidiaries it has set up in the US, as compared to Wipro Ltd and Infosys Ltd that have branches in the US, on account of offshoring taxes, says an IT analyst who asked not to be identified. More than a fortnight ago, the US also reneged on the commitment to enable a permanent solution for public stockholding programmes for food security at the Buenos Aires meeting of the World Trade Organization.
Consequently, a dose of caution and realism will serve India well at Davos instead of a reckless splurge without securing reciprocal benefits
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