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North South imbalances in Foreign Trade - Impact on Sovereignty of States

At this point of time a conference is going on in Osmania University on the topic North-South Imbalances: A Global perspectives and Challenges. In the inaugural session the distinguished speakers have thrown light on their perspectives on these imbalances. However the views of Academicians are not understandable to all. There are two types of conceptualizations.

One that is understandable to even ordinary people and another that is only understandable to intellectuals. As the conceptions of academicians are difficult to be understood by ordinary people this Article makes an attempt to present a perspective on several issues ranging from Globalization, Protectionism, Brexit and Indian Economy which can be understood even by ordinary people. The attempt is not only to present a simplistic view devoid of rhetoric but also to reduce the complexity lent by intellectual jargon generally surrounding issues relating to Economics.

What is Globalization?

Globalization may be defined as the process of integration of economies across the world through cross border flow of factors, products and information, factors.. in the sense, the land, labor, capital and entrepreneurship. The IMF defines globalization as the growing economic interdependence of countries worldwide through increasing volume and varieties of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.

The expression liberalization is a correlated word in Indian context which is part of LPG (Liberalization, Privatization and Globalization) initiated in 1991. It refers to the economic liberalization of the country’s economic policies initiated in 1991 with the goal of making the economy more market friendly and service oriented and expanding the role of private and foreign investment.

Why LPG for India?

There was a crisis in Indian economy at around 1990 which had its roots in 1985 when India began having balance of payments problems as imports swelled, leaving the country in a twin deficit: the Indian trade balance was in deficit at a time when the government was running on a large fiscal deficit. By the end of 1990 in the run-up to the Gulf war, the situation became so serious that the Indian Foreign Exchange Reserves could barely finance three weeks worth of imports while the government came close to defaulting on its financial obligations. By July that year, the low reserves had led to a sharp depreciation of the rupee, which in turn exacerbated the twin deficit problem.

The Government could not pass the budget in February 1991 at a crucial time when Moody had downgraded India and it further went down after the budget was not passed and global credit rating agencies further downgraded India from investment grade making it impossible to even get short term loans and the government was not in a position to give any commitment to reform the economy.

The IMF and World Bank also stopped their assistance, leaving the government with no option except mortgaging the country’s Gold to avoid defaulting on payments. This led government to airlift national gold reserves as a pledge to a large conditional bail out from the IMF and World Bank in exchange for a loan to cover balance of payment debts.

The crisis led to the liberalization of the Indian economy, as one of the conditions stipulated in the World Bank loan (Structural reform), requiring India to open itself up to participation from foreign entities in its industries, including state owned enterprises.

The politics of whatever mentioned above in India thereafter is that the Congress party took this bargain on Economic Sovereignty of Nation as Manmohanamics. And successive governments carried forward these Economic reforms and people were under the impression that there is a well-crafted shift from the Socialist Model of economy prescribed by Nehru-Indira to a Capitalist model in order to put country’s economy back on track. The NDA government had different reasons to support this Capitalist model of economy which will be addressed later.

Revolution of ICT and Electronic Media in India in 1990s

The above mentioned reforms of LPG were coincided with the revolution in Information and Communication Technology with Internet, Mobile and Electronic Media spreading into every nook and corner of the country through Cybercafés, Computers, Televisions, Mobile phones in 1990s.

It cannot be said that only these Economic reforms led to putting of Indian Economy back on track, it is a combination of factors like these that coincided with this reversal of Indian Economy from being almost a dead horse to a raging bull. What is to be understood primarily here is that it is not any magic or statesmanship of any politician, or economist because the shift towards this Capitalist model was made because of compulsion of Structural adjustment proposed by World Bank and IMF for giving World Bank Loan when India ran out of Forex Reserves to meet its BOP obligations during 1991.

So, if at all any credit goes to these Economic reforms it goes to World Bank and IMF, not to Manmohan Singh or Congress party. So…for all the wealth we Indians enjoy today, thanks to World Bank and IMF.

What is World Trade Organization?

Following the Uruguay Round Agreement, GATT was converted from a provisional agreement into a formal international organization called WTO (World Trade Organization) with effect from Ist January 1995. WTO now serves as a single institutional framework encompassing GATT and all the results of the Uruguay Round. The Uruguay round sought to broaden the scope of MTNs (Multilateral Trade Negotiations) far wider by including new areas such as:
  • Trade in Services
  • Trade Related aspects of intellectual property (TRIPs)
  • Trade related investment measures (TRIMs)

Under the old system, there were two GATTs:

  1. GATT the Agreement – i.e. the agreement between contracting parties (governments) setting out the rules for conducting international trade;
  2. GATT the Organization – an international organization created to facilitate discussions and administration related to the Agreement (adhoc, though, continued to exist until the establishment of the WTO).

GATT the organization, ceased to exist with the establishment of WTO and GATT the Agreement which always dealt with (and still does) trade in goods continues to exist, in amended form, as part of the WTO alongside two new agreements, viz., General Agreement on Trade in Services (GATS) and General Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). The old text is now called ‘GATT 1947’ and the updated version is called ‘GATT 1994’.

GATT (the institution) was small and provisional, and not even recognized in law as international organization. GATT (the agreement) was amended and incorporated into the new WTO Agreements. GATT dealt only with trade in goods. The WTO Agreements now cover services and intellectual property as well. The WTO is a more powerful body with enlarged functions than the GATT and is envisaged to play a major role in the world economic affairs. To become a member of the WTO, a country must completely accept the results of the Uruguay Round.

Differences between GATT and WTO are:

  1. GATT was adhoc and provisional whereas WTO and its agreements are permanent.
  2. GATT had contracting parties whereas WTO has members
  3. GATT system allowed existing domestic legislation to continue even if it violated a GATT agreement, on the other hand WTO does not permit this.

WTO endeavors to reduce trade barriers between countries and improve market access.

Why Advanced countries like USA, Britain and EU want Free Trade between countries on Globe?

In all earnestness it must be understood that there are advanced countries behind this coming into being of WTO. Before world war, the British set up colonies, occupied countries like India for the purpose of exploitation of natural resources, cheap labor to improve their country’s GDPs and in turn used same countries as markets to sell their finished goods. In other words, they needed countries like India for cheap raw material and for purchasing finished goods manufactured in those countries.

Now political sovereignty is not required for them because they can force developing countries to open their economies for access to markets, investments – direct and indirect. In other words, they do not require political sovereignty for exploiting the natural resources of developing countries and to have access to markets of developing countries because of World Trade Organization.

However there is no need to view this with a magnifying glass to paint it as some kind of imperialist mischief or villainy because over the past four decades, trade among developing countries has increased substantially and steadily and their trade relations have changed markedly from the traditional north (industrial economies)-south (developing countries) pattern and in 2001, 40 percent of their exports went to other developing countries, compared to less than 25 percent in 1960.

There has indeed been a robust trend in intra-developing country trade since the 1990s. Between 1990 and 2001, South-South trade grew twice as fast as world trade (10 percent versus 5 percent) with the share of intra-developing country trade in world merchandise exports rising from 6.5 percent to 10.6 percent.

Keeping this aside, let us now try to understand the model of economic growth and development in the Advanced countries which are primarily the Capitalist and Industrialized economies.

As economics students we read about the choice between Labor intensive and Capital intensive models of growth. Here in these advanced countries we know that there is no Labor intensive model because they have mechanized production processes and perfected techniques of production through innovative technologies.

Their populations are under control because they are in the third stage of demographic transition. Hence the needs of population can be met by their mechanized production processes very easily and they produce beyond the needs of their population which needs to be sold in some external markets, which we call as Exports.

Let us imagine for a moment no other country imports their goods, they will have to produce only to the extent their own population needs. Does it make them richer? It does not, because their own country people cannot keep on making repeat purchases from manufacturers in order that manufacturers earn profits.

Their growth gets stagnated and they will not require further growth in GDPs if they don’t find markets beyond their domestic markets for their exports. As a result their economies also get stagnated. So the model of economic growth of these advanced countries relies heavily on external markets for their exports and cheap raw material for imports.

That is why they use WTO as a tool to force developing countries to go for LPG which will force developing countries to open up their economies. No to protectionism, yes to free trade is the Mantra of their development models.

Let us imagine a scenario when every developing country becomes a developed country on globe and no one requires imports. What happens then? Then no country can afford a GDP growth rate. Countries can afford GDP growth rate only as long as there are developing countries serving them markets to import extra GDP produced. As South bloc developing countries are serving these North bloc Advanced countries as markets they are getting richer otherwise their economies would have long back stagnated.

While proposing Capitalist and Capital intensive models to sell their Capital goods and Technology to developing countries these North bloc countries forget that if this mechanization in developing countries leads to loss of job opportunities that will lead to loss of markets for their exports. But it does not matter if a significant portion of population is driven to poverty and small portion of population keeps graduating to middle classes and higher middle classes to serve as their markets. That will still serve the purpose.

What this means politically for developing countries?

It means that there can be Exclusive growth in the country. May be 30 percent of population engages in the production of Goods and Services required for Economy and remaining 70 percent just lives the life at subsistence level. This 70 percent population cannot serve as markets for domestic manufacturers because they lack purchasing power. But remaining 30 percent population by virtue of having good purchasing power can serve as markets for the Exports of North bloc Advanced countries of the world.

What is produced as extra GDP by this 30 percent population relying on Capital Intensive Industry can find markets outside the country. No need to develop our own people to achieve better economic status to enjoy purchasing power so that they become Markets for us.

Is our Nationalism Pseudo-nationalism?

At a first glance this may appear as an irrelevant question for the discussion of economics. But we have to understand the political perspective of this economic model. In this globalized world, Nationalism means nothing. The rich 30 percent population mentioned above will produce what it wants from the natural resources of a country and for markets it depends on foreign countries for exports.

Which means formation of a Rich Elite group of people across globe surpassing National boundaries as a result of free trade regulations pushed into by WTO, for whom the poverty and poor people in their own countries mean nothing. They produce and find international markets for extra GDP and that leads to Exclusive growth.

Those who fight for independence in states like Kashmir and those fighting for or against CAA in country today must understand that in business our religious and national affiliations matter nothing for us. You are selling groceries in a shop as a Hindu and you will find Muslim buyers who have purchasing power and Hindu buyers who don’t have purchasing power, you will care for Muslim buyers. Business matters for us nothing else.

When it comes to exports, the attitude is, we don’t care for purchasing power of Indian buyers, let them live in poverty, I am happy as long as I get markets for my exports. If my fellow Hindus cannot purchase my goods I will sell them to Muslims in Gulf countries. The same is case vice-versa for Muslims. They will prefer Hindu buyers having purchasing power over Muslim buyers who don’t have purchasing power. Only money matters…neither religion, nor nationality matters in Business.

The very fact that majority of developing countries experiencing Exclusive Growth shows that there is only Pseudo-nationalism across the globe today, because we care little for the poor who are out of jobs because of Capital Intensive models of economic growth the developing countries adopting.

What is a market?

A market is a group of people having purchasing power. Who are poor people? Those who cannot be considered as Market by any Exporting country or for that matter, any manufacturer irrespective of him being a domestic or foreign manufacturer.

What the Advanced countries get by increasing North South imbalances? They will lose markets if poverty increases in developing countries.

That is why attacking poverty is not only the job of individual countries but also that of wealthier North bloc advanced countries of Globe. They are not doing any charity by attacking global poverty in South bloc countries. They are creating markets for their exports by doing so.

They can no more think that our exports need markets but developing countries should reel under poverty because if these developing countries become rich they will stand in competition to us in defense and security of nation which will have a bearing on the geopolitical equations of armed power. There is definitely risk involved in it but they must go with a positive attitude that when these developing countries enter 3rd stage of demographic transition their population’s education levels will increase, as a result that will foster positive international relations between States. It should not be their case that our MNCs want your markets, our businessmen wants investments but your governments should be poor and you should remain a developing country forever.

What is Brexit?

It is Britain’s exit from European Union. Britian held a referendum in 2016 in its country referring question to people - whether to remain part of EU or not. People preferred an exit from EU.
The first argument for it is that it threatens Britain’s sovereignty.

Over the past decades, a series of EU treaties have shifted a growing amount of power from individual member states (of EU) to the central EU bureaucracy in Brussels. On subjects where the EU has been granted authority – like competition policy, agriculture, and copy right and patent law – EU rules override national laws. Which means the Britian has to compromise on its Sovereignty in so far as these matters are concerned.

Now having briefly understood the Brexit let us now shift our focus to WTO.

In the third difference set out in the above question What is World Trade Organization, viz., - 3. GATT system allowed existing domestic legislation to continue even if it violated a GATT agreement, on the other hand WTO does not permit this we have similar compromise of Sovereignty by the member states and India is a member of WTO.

Let me now make a reference to 42nd Amendment of Constitution, 1976 in which two important words, Secular and Socialist is introduced into the Preamble of the Constitution. India followed Socialist model, Nationalized banks, brought land reforms legislations etc. In 1991 this obligation towards Constitution of our country’s economic model being socialist is compromised because of Structural adjustment proposed by World Bank and IMF while lending loan to help India survive its BOP crisis.

Somehow it is not taken as compromise of sovereignty by Indian political parties, more particularly Congress party projected this compromise on Sovereignty by moving away from Constitutional obligation as Manmohanamics. Though it appears to be oversimplified, it is a serious issue relating to Sovereignty of our Nation.

Why BJP carried forward this Manmohanamics?

The reason why BJP carried forward Economic reforms of Dr.Manmohan Singh is that it is politically pitched against Leftists. BJP which is basically a political wing of RSS has nothing to take from RSS in so far as Economic policy to adopt for the Nation. They have a political ideology of Hindutva but they do not know what Economic policy suits well for this Hindutva.

Two reasons for BJP pursuing Economic reforms are that:

  1. Congress followed Nehruvian Socialist model which he initiated having been inspired by the Economic model of Soviet Union. Leftists in India support it. BJP is politically against Leftists always. And so Capitalist Economy of Advanced countries is suitable for India.
  2. RSS is basically an organization inspiring Hindus to protect Hinduism from onslaught of people of other religions and nations if required. Without any support RSS itself, on its own it keeps training people to be prepared to fight enemies within and coming from outside.

    The Shakas it organizes to impart the training in fighting, use of sticks as weapons etc are examples for it. Now having understood that without any government support itself if it has so much of interest in Defence of Nation, if it comes to power what will it do? It will focus on Defence of India. And having seen the Capitalist model of USA and fall of Soviet Union it has no doubt in mind that in order that India be militarily strong, it must follow the Capitalist model of USA.

Otherwise, they are people leading simple life, without much grandeur and pomp, following Spiritual path proposed by Hinduism. But for this mindset to rely on violence to defend, in all other aspects they are as simple as Mahatma Gandhi.

But while accepting and carrying forward this Capitalist model they have not thought what happens to Hindu family system. Hindu families are breaking up because of Capital Intensive Technology and Capital Intensive Industrialization.

Children from joint families are influenced by the glittering world of rich shown by Advertising media and they are migrating from Rural to Urban areas and from Urban areas to Advanced countries. Joint family system which is back bone of Hindu Family has given way to formation of Nuclear families.

The problem of elderly destitute is taken care of by Old age homes and Senior Citizens Act and Section Cr.PC 125 of the Act.

Capitalist model of Economy has a huge contribution for this.

Hindu festivals have become dispirited by market extravaganza and pomp to show off wealth by Hindu families getting rich. Markets have taken over Hindu festivals. Till 1990s people were enjoying sweet relationships during festivals now people are enjoying Western Model parties in the ethnic garb vulgarly displaying wealth.

Hindu way of living has transformed from simplicity to vulgar display of wealth and elite consumption because of exposure to variety of goods and services produced by market economy. As a result the country’s defense is surely growing but the country is losing the very foundation on which our Hindu culture stands.

We are protecting India’s geography at the cost of its ethnicity.

Written By: Chandra Sekhar Anjuru, Asst. Professor at Aurora Legal Sciences Academy, Bandlaguda, Hyderabad.

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