Vipal Bhagat
Mercantilism was the phenomenon prevalent in the Europe during the sixteenth and eighteenth century and was mainly focussed upon imposing higher tariffs, thereby summing up the advantages of the trade to oneself. In this way, this thrives upon the concept of zero-sum game i.e. one loses and other gains.
The trade that is happening in the present world seems to be the outshoot of mercantilism. A better phrase would be that “a form of neo- mercantilism is on the rise”. Trade between the countries in the present world is marked by high tariffs and protectionism. The trade theories like the theory of the comparative advantage and the theory of free trade, which used to form the basis of the modern-day trade has been pushed to the backseat. It , therefore, turns out to be a cumbersome job to actually delineate the benefits of trade.
The on-going US- China trade war is the perfect example of the neo-mercantilism whereby USA imposes higher tariffs on the products from China. China, on the other hand, is reciprocating in the similar fashion. As the today’s world is highly integrated, the trade war between these two countries has repercussions far beyond their national boundaries. Moreover, the impact of this trade war is incomprehensible if one looks at it only from the economic spectrum. This neo- mercantilism form of trade has cast its shadow upon almost every nation of the world and India is no exception.
The exports from India to USA have been adversely effected which has heavily stressed our foreign exchange earnings. This has further impact on our current account deficit.Declining exports has led to the slow aggregate demand which has spiral effect upon the low consumption rate and subsequently low employment. This all has to be seen in the backdrop of the rising NPA crisis, the after-effects of demonetisation, GST reforms and prevalent conditions of stagflation. The impact of both the international and the domestic conditions has put India at the acute disadvantage situation. This overall situation will turn out be more complicated for India to resolve if the crude oil price will rise in future because of the Middle East political unrest.
But India can not be at the receiving end of this new world of neo mercantilism, if India maintains the balance between the two extremes i.e. no trade policy and open trade policy and adopts the “middle path”. So, India has to go along the principles of the new world wherever it suits her and makes a counter move wherever these principles adversely affect her.
India ranks low at the global manufacturing index. The low rank has to be seen in the context of “demographic dividend” that India possesses. “Make in India” program is one such programme that aims to utilise the potential of demographic dividend so as to enhance the export share of India and at the same time plug the vacuum that has been created by the shifting of the China from her export-oriented economy to the consumption- driven economy. From this perspective, India should counter the policy of neo mercantilism and promote the policy of free trade as this will enhance not only the export share of the Indian economy but at the same time creates employment opportunities in India. At the same time, countering neo mercantilism and cheering for the free trade will help in the development of the domestic industry by the incorporation of the foreign investment.
On the other extreme, if India falls in line with the policy of the neo-mercantilism, it will help in the protection of sensitive sector of the nation from the external influences that are highly competitive. Take for example, agriculture. Agriculture sector is not very efficient and competitive sector in India as majority of farmers are illiterate and they still practice traditional agricultural techniques for one or another reason.Opening up this sector to the external competition will be highly detrimental to the Indian farmers. Similarly, this policy of neo- mercantilism will also limit the practice of dumping in India. In this context, it can be mention here that staying out of the RCEP, India has decided to move along the policy of neo mercantilism.
So, India has to manipulate the world of neo mercantilism in her own way so as to maximise the benefits for the nation. Moreover, history has proved us that how the developed nations has manipulated the policy of free trade to their own advantage. Even in the present world, they are continuing this policy, directly or indirectly. The issue of GSP in the WTO is a classic example in this regard.
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