A virtuous cycle
India must do everything it can to attract foreign firms to set up shop in the country and do business with Indian partners
International Monetary Fund (IMF) managing director Christine Lagarde has recently spoken about the need for boosting productivity in the Asia-Pacific region and “the transformative power of trade” for doing so via innovation-sharing.
She is right. But harnessing this power will require overcoming several hurdles. This newspaper has warned of the negative consequences of the shortening of global value chains (GVCs) seen since the financial crisis. Research also shows that a decline in arm’s length trade is contributing disproportionately to slowing global trade volume growth, which hit a post-crisis low of 2.4% last year.
Shortened GVCs and less arm’s length trade means less innovation-sharing. Obviously, no single country can address this entirely. But India must do everything it can—lowering barriers to business, encouraging formalization of industry, building infrastructure—to attract foreign firms to set up shop in the country and do business with Indian partners. The virtuous cycle of trade, innovation and greater productivity is essential for growth.