Trade Integration and Labour Market Trends in India: an Unresolved Unemployment Problem

Date period
17 December 2010

SummaryStructural reforms and the liberalization of foreign trade and investment have occurred all over the world. The majority of developing countries have embraced reforms that differ regarding the timing and speed of implementation but not in character. The economic model pursued has combined adjustment and stabilization reforms with the liberalization of foreign trade, increasing the level of competition in international markets.

As a result of their increased integration into the world economy, developing countries today are more exposed to the risks associated with external shocks. Indeed, most of them have suffered greatly from the decrease in global demand, the dr ying up of trade finance and the decline ininvestment and remittances resulting from the recent financial and economic crisis. While several developing nations have shown early signs of recovery, the crisis may have reversed modest progress towards poverty alleviation. Furthermore, social indicators suggest that natural rates of unemployment are likely to be higher in the future, prompting concerns about possible jobless growth.

As pointed out by several analysts, despite the liberalization that has occurred over the past few decades, many Asian economies were less affected by the crisis, due to the relativly lower degree of trade and financial integration in international markets, especially if compared with developedeconomies. This is also the case with India. In the immediate aftermath of the global crisis, the Indian economy experienced a downturn, which was then followed by an early and quite robust recovery. Nevertheless, the ongoing recovery presents many of the features that made the earlier growth strategy inadequate in terms of sustained employment growth. Since the mid-1980s, India has undertaken a series of economic reforms which have progressively liberalized its economy and integrated it into the world economy. These reforms have had a significant impact in terms of GDP growth, economic diversification, and productivity gains in the non-agricultural sector.Nevertheless, they had modest effects in terms of employment generation, leaving India with a significant u nresolved u nemployment p roblem.

This paper titled ‘Trade Intergation and Labour Market Trends in India’ by C.P. Chandrasekhar (Centre for Economic Studies and Planning, Jawaharlal Nehru University), focuses on the Indian pre-crisis strategy of liberalization and integration into the world economy and its impact on labour market trends. It then examines the specific ways in which the crisis affected the countr y, with a focus on the labour market. Finally, it draws some concrete policy recommendations which are perceived as an example of successful global integration through liberalization.

With this paper, which was published in combination with three other country-studies (Chile, Mexico, and South Africa), ICTSD aims to contribute to a knowledge based debate on the impact of trade liberalization and the economic and financial crisis on trade and labour market. Thesestudies also aim to inform the debate on whether development assistance and aid for trade in particular, can help to mitigate different impacts of the trade liberalization process and the crisis on the labour market.