India moves from fringes to core
The Indian economy has come closer to the ‘core’ of the international marketplace of late.
By Jaideep Mishra, TNN |
The Indian economy has come closer to the ‘core’ of the international marketplace of late, says a new study on globalisation by the United Nations University at Maastricht. Anecdotal evidence would certainly suggest so, what with Indian corporates in sectors like steel, aluminium, wind power, pharma et al gung-ho about takeovers and on a buying binge abroad.
A key feature of globalisation is of course the growth and spread of multinational enterprises. The research suggests that heady growth in the turnaround, hitherto peripheral economies do spur and add momentum to market dynamics in the global economy.
But despite the weighty role of market forces, the importance of policy initiatives remain paramount. In particular, what is needed is proactive industrial policy to fast-forward peripheral economies to the core of action.
The core-periphery issue is now current in economics and public policy, what with buoyant growth now quite the norm in the long-laggard economies of India and China. By definition peripheral countries have been economically or otherwise poorer or less technologically advanced than countries of the core.
So being at the periphery has meant taking on the challenges of development to catch-up with the more mature economies. Since the prized membership of the core changes over time, what is essential is that the actors and stakeholders in the emerging economies have the right incentives and operating environment to globalise and be internationally competitive.
Globalisation of course implies integration in the economic sphere, so there is no core-periphery dichotomy as such but rather a state of continual flux. It cannot be gainsaid that economies with limited participation in the global marketplace are de facto weakly integrated with the international economy and so are clearly peripheral to the world economy. The UNU study finds that while India was listed as a peripheral economy and clubbed with ‘the rest’ in 1977 (as was China), the latest listing suggests that India is now closer to the core of the international system and is far more better integrated internationally.
The policy issue is to what extent emerging economies leave it to their corporates to leverage the market system to globalise on their own, and whether industrial policy can deliver the goods faster, as it were. The declining costs of transportation and communications do add a new dimension to globalisation. And the structural change underway in the global economy does make it far more amenable to market forces.
Also, peripheral economies tend to be supply and demand constrained, and so do need to internationalise to seek scale economies. But does proactive policy imply intervention to micro-manage the economy to create national champions? Such a option is expensive and not really sustainable anyway, especially with WTO protocols such as the agreement on subsidies and countervailing measures remove the avenues for intervention.
Note that the Budget has proposed that corporates in sun-rise sectors availing of tax benefits under section 10A & 10B of the income-tax code would now need to pay minimum alternate tax, and so would no longer be fully exempt from corporate taxes. Peripheral-economy governments have limited budgetary resources and a surfeit of tax exemptions or tax expenditure can add up to 50% of tax revenues as here in India and surely need to reduced and clipped to the bone, for the larger good.
So in this era of globalisation, national governments in the periphery can best help home-grown corporates by making it easier for them to overcome market failure in the markets for knowledge, technology and skills. Such a proactive industrial policy would require tax incentives for industry to internalise and absorb emerging, cutting-edge technology and skill sets via research and development.
In parallel, it entails investing more in the quality of tertiary education and publicly funded research, to have skilled human resources of international standards.
It is notable that the Budget proposals indicate a wider interpretation of R&D for tax purposes, and that tax incentives would no longer be confined to a few, preferred sectors and industries. The move makes perfect sense and would expedite spill-overs and technological gains economy-wide, and would put paid to unhealthy lobbying and “directly unproductive profit seeking.”
Also, since innovation and growth in high-potential sectors like financial services and business services like software solutions are increasing consumer-driven and demand-led, what is needed is the possibility of greater internationalisation and global interaction in the domestic industry itself. Hence the need to make Mumbai an international financial centre, as rightly proposed in the Budget.
A key feature of globalisation is of course the growth and spread of multinational enterprises. The research suggests that heady growth in the turnaround, hitherto peripheral economies do spur and add momentum to market dynamics in the global economy.
But despite the weighty role of market forces, the importance of policy initiatives remain paramount. In particular, what is needed is proactive industrial policy to fast-forward peripheral economies to the core of action.
The core-periphery issue is now current in economics and public policy, what with buoyant growth now quite the norm in the long-laggard economies of India and China. By definition peripheral countries have been economically or otherwise poorer or less technologically advanced than countries of the core.
So being at the periphery has meant taking on the challenges of development to catch-up with the more mature economies. Since the prized membership of the core changes over time, what is essential is that the actors and stakeholders in the emerging economies have the right incentives and operating environment to globalise and be internationally competitive.
Globalisation of course implies integration in the economic sphere, so there is no core-periphery dichotomy as such but rather a state of continual flux. It cannot be gainsaid that economies with limited participation in the global marketplace are de facto weakly integrated with the international economy and so are clearly peripheral to the world economy. The UNU study finds that while India was listed as a peripheral economy and clubbed with ‘the rest’ in 1977 (as was China), the latest listing suggests that India is now closer to the core of the international system and is far more better integrated internationally.
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The policy issue is to what extent emerging economies leave it to their corporates to leverage the market system to globalise on their own, and whether industrial policy can deliver the goods faster, as it were. The declining costs of transportation and communications do add a new dimension to globalisation. And the structural change underway in the global economy does make it far more amenable to market forces.
Also, peripheral economies tend to be supply and demand constrained, and so do need to internationalise to seek scale economies. But does proactive policy imply intervention to micro-manage the economy to create national champions? Such a option is expensive and not really sustainable anyway, especially with WTO protocols such as the agreement on subsidies and countervailing measures remove the avenues for intervention.
Note that the Budget has proposed that corporates in sun-rise sectors availing of tax benefits under section 10A & 10B of the income-tax code would now need to pay minimum alternate tax, and so would no longer be fully exempt from corporate taxes. Peripheral-economy governments have limited budgetary resources and a surfeit of tax exemptions or tax expenditure can add up to 50% of tax revenues as here in India and surely need to reduced and clipped to the bone, for the larger good.
So in this era of globalisation, national governments in the periphery can best help home-grown corporates by making it easier for them to overcome market failure in the markets for knowledge, technology and skills. Such a proactive industrial policy would require tax incentives for industry to internalise and absorb emerging, cutting-edge technology and skill sets via research and development.
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In parallel, it entails investing more in the quality of tertiary education and publicly funded research, to have skilled human resources of international standards.
It is notable that the Budget proposals indicate a wider interpretation of R&D for tax purposes, and that tax incentives would no longer be confined to a few, preferred sectors and industries. The move makes perfect sense and would expedite spill-overs and technological gains economy-wide, and would put paid to unhealthy lobbying and “directly unproductive profit seeking.”
ADVERTISEMENT
Also, since innovation and growth in high-potential sectors like financial services and business services like software solutions are increasing consumer-driven and demand-led, what is needed is the possibility of greater internationalisation and global interaction in the domestic industry itself. Hence the need to make Mumbai an international financial centre, as rightly proposed in the Budget.
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