08 August 2025
(Mains: Editorials Simplified)

GLOBALISATION IN TRANSITION

The 1990s and 2000s were marked by rapid globalisation, liberal trade regimes, and unprecedented economic interdependence. However, the uneven distribution of benefits from this global integration has triggered a wave of protectionism, nationalism, and regionalism, now reshaping global trade discourse.

Key Concepts Explained

• Golden Era of Globalisation: Refers to the post-Cold War decades where free-market expansion, digital revolution, and multilateralism drove global economic integration.

• Inward-looking Trade Policies: Measures like protectionist tariffs, stricter immigration laws, and industrial subsidies aimed at safeguarding domestic interests.

• Near-shoring and Friend-shoring:

  • Near-shoring: Shifting production closer to home markets to mitigate supply chain risks.

  • Friend-shoring: Prioritising trade and investment within geopolitically aligned nations.

• GATRI Index (Geopolitical Annual Trade Risk Index): A composite measure developed to assess how diplomatic, military, and economic geopolitics affect international trade.

Underlying Trends and Fractures

• Unequal Distribution of Globalisation Gains:

  • Developed economies and elite classes often reaped disproportionate benefits.

  • Rising inequalities within and between countries fostered discontent and economic nationalism.

• Rise of Trade Fragmentation:

  • Shift away from global multilateralism (e.g., WTO-centric trade norms) towards regional trade blocs and bilateralism.

  • A fragmented system threatens predictability and coherence in global supply chains.

• Geopolitical Risk as a Trade Determinant:

  • Diplomatic tensions, military confrontations, and economic coercion are increasingly shaping trade alignments.

  • Tools like GATRI index now quantify this volatility, highlighting the growing fusion of geopolitics with trade flows.

 Receding Faith in Multilateralism:

• • Stagnation of WTO reforms and increasing preference for unilateral policy actions reflect waning confidence in global trade governance.

• Transitional Uncertainty:

  • Global economy is between a past model that has exhausted its legitimacy and a future model yet to fully emerge.

  • Current phase marked by flux in rules, actors, and trade norms.

Reimagining Global Trade

• Towards Inclusive Globalisation:

  • Future trade architecture must focus on equitable growth, capacity building, and digital inclusivity.

  • International institutions need to embed social justice and sustainability as core trade principles.

• Strengthening Regional Resilience:

  • Encouraging cooperative regional supply chains to reduce overdependence and vulnerability to shocks.

  • India's Act East Policy and PLI schemes can be leveraged to benefit from this trend.

• Institutional Reforms at WTO and Beyond:

  • Reviving dispute resolution mechanisms and updating trade rules to accommodate new-age sectors like digital trade, e-commerce, and services.

• Data Governance and Trade Security:

  • Balancing data localisation concerns with cross-border data flows to ensure digital trade growth.

  • Building trust in technology sharing through robust cybersecurity frameworks.

• Empowering the Domestic Base:

  • Investing in skill-building, MSME competitiveness, and infrastructure to ensure that global trade benefits are percolated widely within the country.

Conclusion

The backlash against globalisation is less about its rejection and more about its perceived unfairness. For nations like India, this evolving scenario presents a dual challenge – to insulate itself from external shocks while integrating strategically into trusted value chains.

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MONETARY POLICY IN UNCERTAIN TIMES

India's central bank has chosen to pause its rate-cutting cycle amid growing global trade tensions and domestic uncertainties. This decision reflects a broader need to assess the effectiveness of past policy measures while factoring in evolving external risks.

Key Concepts & Terms

• Monetary Policy Committee (MPC): A 6-member body of the RBI that decides benchmark interest rates based on inflation-growth dynamics.

• Basis Points (bps): A unit representing one-hundredth of a percentage point, used to express changes in interest rates.

• Transmission of Policy Rates: The process through which changes in the RBI’s policy rates affect interest rates in the broader economy.

• Liquidity: Availability of cash or easily convertible assets in the banking system to meet short-term obligations and lending needs.

• Comparative Advantage: Economic principle where a country produces goods/services at a lower opportunity cost than its trading partners.

• Tariff Shock: Sudden imposition of trade duties that distorts market expectations and competitiveness.

Context & Background

• The RBI has cut interest rates by 100 bps since February 2025, aiming to stimulate growth amid global slowdown fears.

• Recent tariff escalations by the U.S. – including additional duties on Indian imports and threats linked to oil purchases from Russia – have introduced significant policy uncertainty.

• Despite rate cuts, credit offtake in key sectors (housing, consumer durables, industry) has shown sluggish growth, indicating that monetary policy alone may not be sufficient.

Core Issues and Challenges

• Delayed Transmission:

  • Although liquidity is ample, banks have not fully passed on the rate cuts to borrowers.

  • Weak demand for credit suggests structural constraints beyond just interest rates.

 External Shocks to Trade:

• • U.S. tariffs undermine India’s export competitiveness and increase uncertainty for policymakers.

  • These shocks may also weaken investor confidence and capital inflows.

• Subdued Consumption and Investment:

  • Lending for housing, durables, and vehicles is slowing, indicating consumer pessimism.

  • Corporate borrowing is also down, pointing to restrained private investment.

• Policy Coordination Deficit:

  • Monetary policy, in isolation, is insufficient to revive growth.

  • The RBI itself has emphasized the need for stronger frameworks beyond monetary levers.

Way Forward

• Fiscal-Monetary Synergy:

  • The government must complement monetary easing with targeted fiscal measures.

  • Examples include tax rationalisation (GST) and fuel price adjustments to boost consumer confidence.

• Structural Reforms:

  • Address credit market inefficiencies to ensure better transmission of rate cuts.

  • Reform land, labour, and logistics sectors to revive private investment.

• Trade Negotiation Focus:

  • Proactive engagement with major trade partners like the U.S. is essential to mitigate tariff risks.

  • India’s approach must safeguard strategic interests while building resilient supply chains.

• Boosting Consumer Demand:

  • Incentivising household consumption through fiscal incentives and welfare delivery improvements can catalyse demand-led recovery.

Conclusion

While monetary policy has its role, the burden spurring growth also lies with the government through structural and fiscal interventions. Coordinated action is essential for sustaining India’s growth amid a shifting global economic landscape.

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