Insights into Editorial: India must oppose surging protectionism

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Insights into Editorial: India must oppose surging protectionism


 

protectionism

 

Summary:

Few recent developments have made India a mute spectator to surging protectionism across the world. Infosys’ latest step is the right example for this. India’s second largest information technology company Infosys Ltd has announced that it will hire 10,000 Americans over the next two years. This comes after the US administration’s criticism that Indian technology companies are taking jobs away from Americans.

The chief economist of the International Monetary Fund, Maurice Obstfeld, has fittingly described the evolving situation in his foreword to the latest “World Economic Outlook”: “Mainly in advanced economies, several factors—lower growth since the 2010-11 recovery from the global financial crisis, even slower growth of median incomes, and structural labour market disruptions—have generated political support for zero-sum policy approaches that could undermine international trading relationships, along with multilateral cooperation more generally.”

 

Worrying trends:

Last month, US President Donald Trump signed an executive order to review the H-1B visa programme. Indian IT companies earn the bulk of their revenue from the US market and are big beneficiaries of the work visa programme. This executive order, among others, limits visas issued to Indians.  

  • Legislation has also been introduced in the US House of Representatives, aiming to double the minimum salary of H-1B visa holders to $130,000 per annum. According to analyst estimates, this could affect the operating margins of Indian technology companies by up to 300 basis points. One basis point is one-hundredth of a percentage point.
  • Australia and New Zealand have also made movement of professionals difficult, and the UK has tightened visa norms. Australia has abolished a work visa programme — 457 visa — used by over 95,000 temporary foreign workers, majority of them Indians, to tackle the growing unemployment in the country. New Zealand, too, is introducing tougher norms for immigrant workers. One of the changes will need immigrants to get a job in which they earn at least the median income to qualify as skilled.

 

India’s response:

Union commerce minister Nirmala Sitharaman recently hinted at counter moves against US companies operating in India. Indian policymakers should avoid taking such measures for multiple reasons:

  • First, Indian IT services companies have themselves to blame in part at least for not realizing in time that the labour-cost arbitrage model has limitations.
  • Second, the US is not the only country which is making movement of professionals difficult.
  • Third, India needs foreign direct investment (FDI) to fund its growth.

 

What should India do now?

Rather than replying in kind, India should aggressively voice its concern against increasing restrictions on the movement of professionals at both bilateral and multilateral forums. Global leaders did well to avoid protectionist policies in the aftermath of the 2008 financial crisis. India should play an active role in reviving a similar global consensus through multilateral forums as rising protectionism will have implications for global trade and growth. However, India will have to tread carefully, given this situation.

 

Conclusion:

After nearly a decade responding to the financial crisis and its economic aftershocks, governments must now devote the same level of creativity and ambition to addressing the crisis of confidence in the international economic order. Protectionism and a retreat from international cooperation is clearly not the answer, but policy makers minimize the underlying mistrust of globalization and multilateralism at their peril. In order to promote sustainable and inclusive growth, policymakers must focus on tangible changes that are responsive to the challenges we face.