Effects of International Trade on Poverty in India - Research Paper Example

Effects of international trade on poverty in India History and state of poverty in India India is one of them the world’s most populated countries found in the southern region of Asia with a current population of more than 1.2 billion. India has one of the highest poverty levels in the world according to a report released by the World Bank in 2010 with its poor estimated to contribute to a third of the world’s total poor. According to the World Bank index, the total number of people in a country who spend less than $1.24 per day estimates poverty. India has a population of more than 40% who spend less than this amount a day and have one of the lowest per capita incomes when compared to other countries in the region (Almas, Kjelsrud & Somanathan, 2013). Statistics from the national sample survey from 1973-2002 indicate the changing trends of poverty in the country and the population section that have been most affected by poverty in the country. The 1973 census indicated that out of the total population, 54.9% was leaving way below the poverty line. The poverty index increased from this year to 1990s as a resulting of the surging population growth which was not supported by a concurrent economic growth in the country. In the 1990s, the poverty trend worsened with a high percentage of up to 320 million Indians classified as being poor and requiring support from the government. During this era, the significant pace of decline in poverty decreased from an impressive 6% to 2.9%, attributed to the significant increase in population. The financial crisis of 1991 was also blamed for this increase in poverty index in the country (Almas, Kjelsrud & Somanathan, 2013). International trade and poverty With the current surge in globalization and cooperation between countries, international trade has grown significantly between countries including India. International trade is defined as the exchange of goods, services, ideas and technological knowledge between countries geographically separated. The growth in international trade has led to significant growth in demand and supply in different sections of the world, thus spurring growth and elimination of poverty. Through this exposure, countries develop new ways of production, transportation, trading approaches and technological ways of production, which increases its gross domestic product. An increase in the gross domestic income of a country results into increase in the country’s per capita income, which significantly translates to an increase in the living standards on the people. International trade also opens up more opportunities for countries to market their products beyond their borders resulting into increased exports and imports (Topalova, 2010). India has advanced significantly in the arena of international trade and today contributes to a significant ratio of the world’s total exports both of goods, services and new technological ideas. The advances in international trade in the country began in 1991 when the country liberalized its market, thus opening up for international imports and exports. This has increased foreign investments in the country and opens it up for new ideas, means of production and techniques (Hasan, Cain & Mitra, 2010). International trade thus have a significant role in reducing poverty in any country as it opens it up and increases its overall trade volume. This increases the gross domestic product of the country which translates into an increased per capita income. A country with a higher per capita income has a decreased poverty level for each member of the population contributes in a significant ratio to the overall growth of the country. But how has international trade impacted on the poverty level in India and how has it narrowed the total population that leaves below the poverty line? In this paper, the impact of international trade in reducing the devastating effects of poverty will be evaluated. Through this evaluation, the strengths and weaknesses of the Indian economy will be discussed and related to the impacts of international trade in spurring economic development (Ghosh, 2010). Indian SWOT analysis Despite the devastating poverty that has been associated with India for more than three decades, the country holds a great potential for international trade and economic growth. According to the statistics at the NSS, the country has a massive population of 1.22 billion with a really increase of over 18 million. It has a higher life expectancy of 68 years as compared to other developing economies in the world (Topalova, 2010). A country’s potential to grow is determined by its education and skilled level, a fact that stands out in India as a great strength due to its highly educated, skilled and youthful population. This provides a highly dynamic human resource, which is a great aspect that contributes significantly to the growth of international trade in any economy (Ezell, 2013). Multinationals and global based organizations see a great potential and investment opportunity in India due to its readily available human resource. While most Asian countries like china, Korea and Japan use their language as the official language of communication, India has stuck with English as its national and official trade language in the country. This increases investment opportunities to the country due to the massive influence that English as a language has in the whole world. This has opened massive investments for the countries as multinationals from Europe and American continent readily invest in the country (Ghosh, 2010). International business is significantly influenced by a country’s political stability and maturity and this is one feature that India has preserved for a long time. It is considered as one of the world’s most populated democracies with a friendly political, social and spiritual atmosphere. This opens the country for international trade due to the significant political stability that it has enjoyed over the years as compared to neighboring countries like Pakistan. The country is also rich in massive deposits of natural resources, biodiversity and technical knowhow. This has significantly spurred the country’s growth and contributed to the overall reduction in the country’s poverty index (Topalova, 2010). The country however faces a number of threats mostly attributed to the global economic events that significantly influences business and economic growth in the country. As a country that liberalized its borders and opened up for international trade, India is exposed to the impacts of the raging economic slowdown and recession. Characteristic of any developing economy, India has high expenditure and less revenue resulting into a fiscal deficit, which is supplemented by loans and grants from international monetary organizations (Topalova, 2010). The country also suffers from the volatility in the prices of crude oils, which increases its overall costs of production and increases the overall cost of living in the country. Despite being a major contributor to the country’s human resource reserve, the high population explosion in the country reduces the potential of growth in the country. The country also has an all time high inflation rate of over 6%, which significantly affects the cost of basic goods in the country. Over dependence on agricultural activities has significantly reduced its exports thus lowering the overall income for the country (Ezell, 2013). Recommendations on international trade application for poverty elimination International trade holds a great potential for reducing the overall poverty index in India as it presents a number of opportunities for both the poor and the rich alike. Through this, the poverty index in the country will significantly decrease as the capita income of the population increases. In this section, I will provide a well-informed recommendation on how the country can exploit the opportunities of international trade to reduce its overall poverty index and improve the living standard of its citizens (Mishra & Pathak, 2011). In any economy, the poor population suffers from massive impact of over inflated prices of goods and services. This makes it impossible for those who spend less than a dollar a day to afford the basic commodities, as has been the case in major rural provinces of India. Liberalization reduces the overall prices of goods and services in a country by increasing the overall supply of goods and services in the country (Hasan, Cain & Mitra, 2010). The poor in India are in great demand for basic commodities like food, drugs and medical services which may be expensive in a closed trade system. International trade will increase the overall supply of these goods into the country and this will reduce the price, as each commodity will have a substitute. In such a scenario, there will be a perceived increase in income for the poor as the little they earn will be able to afford the basic commodities and goods (Barnes & Samad, 2010). Lack of employment and low wages in the country is a significant contributor of the current low poverty index in India as the majority is unemployed or employed for low wages. International trade will increase the number of companies in the country as multinationals and global businesses open their subsidiaries in the country. This will create more employment opportunities for the citizens and increase the overall wage and salaries of the people, both rich and poor. International trade will also affect the overall government spending and revenue through a number of ways that holds the potential of spurring growth. Liberalization is associated with tariff and tax cuts thus allowing increase in the total goods imported to the country. This leads to lowered costs of basic goods in the country, making it possible for all citizens in the country to afford (Hanson, 2012). With implementation of proper policies for international trade and liberalization, the country has a greater potential of improving the overall living standard of the Indian people. As discussed, international trade has the potential of increasing the per capita income in a country as it creates more employment opportunities in the country. An increase in per capita income by 1% significantly reduces the total number of population that spends a dollar per day. As a country that depends on agricultural income, international trade opens non-agriculture based opportunities which holds a greater potential of improving the overall living standards (Mishra & Pathak, 2011). To achieve much significant growth and eliminate the current poverty in the county, India should adopt a broad based liberalization, which seeks to lower trade barriers and removal of the restraining tariffs in the country. This liberalization will create significant opportunities for all including the poor resulting into economic growth and decrease in the current poverty levels. As international trade increases in a country, there is need for the development of a more progressive and flexible exchange rate. This is due to the high foreign currencies that will enter the economy thus raising need for the development of a better exchange system (Barnes & Samad, 2010). Despite the current high poverty levels in India, significant developments have been undertaken to change the country’s gross domestic income. One of the available options that hold the greatest potential of changing the current poverty level in the country is international trade for it holds present massive opportunities. With increased flow of goods and services in the country, the current inflation rate that stands at 6.7% will decrease thus lowering the prices of the goods and services. Multinationals and global organizations shall create employment opportunities for Indian citizens which will increase the per capita income of the people. An increase in per capita income increases the purchasing power of the population and this translates into an increase in the overall living standards of the citizens (Hanson, 2012). India must follow the precedent it set in 1991 when it abolished the trade barriers and created room for international trade while developing friendly policies for foreign investments. This will create more opportunities for its citizens and make it possible for them to move out of the current poverty bracket. References Hasan, R., Cain, S. & Mitra, D. (2010). Trade liberalization and poverty reduction: new evidence from Indian states. Working paper no. 2010-3. Columbia program on Indian economic policies. Ghosh, J. (2010). Poverty reduction in china and India: Policy implications of recent trade. DESA working paper no. 92. Economic and social affairs. Ezell, S. (2013). Hearing on U.S.-India trade relations: opportunities and challenges. United States committee on ways and means of trade. Topalova, P. (2010). Factor immobility and regional impacts of trade liberalization: Evidence on poverty from India. IMF working paper, 10. Barnes, S. & Samad, H. (2010). Energy poverty in rural and urban India: Are the energy poor also income poor? Policy research working paper, 5463. Almas, I. Kjelsrud, A. & Somanathan, R. (2013). A behavior-based approach to the estimation of poverty in India. Institute of economics. Mishra, S. & Pathak, D. (2011). Poverty estimates in India: Old and new methods, 2004-05. Mumbai: India Gandhi institute of development research. Hanson, G. (2012). The rise of middle kingdoms: Emerging economies in global trade. Working paper 17961. Read More