Globalisation and its Impact on Economic Powers

Historical Context and Waves of Globalisation

• First Wave (1870s)
  • Triggered by the opening of the Suez Canal and transatlantic cable.
  • Resulted in the US emerging as the world's economic superpower.
• Second Wave (Post-1989)
  • Followed the disintegration of the Soviet Bloc.
  • Led to China's rise as the "world's factory" and a "mega-trader".

India's Missed Opportunity in the Current Decade

The current decade had the potential to be India's due to its favourable youth demographics and policy initiatives. However, several disruptions hindered this progress:

• Disruptions such as Covid, wars in Ukraine and Iran, and unilateral tariffs by US President Donald Trump.
• Lack of materialisation of the demographic dividend from a labour force "bulge".

Challenges to Globalisation

The fundamental basis of globalisation, which relies on the free movement of goods, services, capital, people, and ideas, has been disrupted. Assumptions about the improbability of wars in an economically interdependent world are now questionable.

• Migrant workers' exodus during Covid and due to cooking gas shortages from the Iran war exemplifies these disruptions.

Strategic Responses for India

• Diversification of energy and raw material supply chains.
• Building fiscal and physical buffers against geopolitical risks.
• Continued focus on reforms and macroeconomic stability as safeguards against market volatility.

Energy and Policy Considerations

The energy supply and price shocks from the war highlight the need for policy reforms, especially in areas such as:

• Reforming the fertiliser subsidy regime, which leads to imbalanced nutrient use, particularly over-application of urea.
• Addressing the financial losses of state discoms.