Global Outsourcing & WTO: Impact on Indian Agriculture and Fiscal Policy

Outsourcing: A Global Shift

In outsourcing, a company hires regular services from external sources, mostly from other countries, which were previously provided internally or from within the country. Outsourcing has intensified in recent times due to the growth of fast modes of communication, particularly the growth of Information Technology (IT). Many services such as record keeping, accountancy, banking services, music recording, or even teaching are being outsourced by companies in developed countries to India. Most multinational corporations, and even small companies, are outsourcing their services to India where they can be availed at a cheaper cost within a reasonable degree of skill and accuracy. The low wage rate and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

The World Trade Organization (WTO)

The WTO was founded in 1995 as the successor organization to the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organization to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes. The WTO is expected to establish a rule-based trading regime in which nations cannot place arbitrary restrictions on trade.

Reforms in Agriculture

Reforms have not been able to benefit agriculture, where the growth rate has been decreasing. Public investment in the agricultural sector, especially in infrastructure which includes irrigation, power, roads, market linkages, and extension, has been reduced during the reform period. This sector has been experiencing a number of policy changes, such as the reduction in import duties on agricultural products and the removal of the minimum support price. These changes have adversely affected Indian farmers as they now have to face increased international competition.

Reforms and Fiscal Policies

Economic reforms have placed limits on the growth of public expenditure, especially in social sectors. The tax reductions in the reform period, aimed at yielding larger revenue and curbing tax evasion, have not resulted in an increase in tax revenue for the government. In order to attract foreign investment, tax incentives were provided to foreign investors, which further reduced the scope for raising tax revenues. This has had a negative impact on developmental and welfare expenditures.