Have you ever come across the term Economics of Language? It is a field of economics that focuses on how linguistic diversity affects trade, financial markets, migration, the cost and benefits of planning language options, etc. A new variable has been discovered called the Language Barrier Index, which measures the linguistic distance similar to geographical distance as a cost to trade. Economics textbooks discuss many topics concerning factors affecting trade, but another intrinsic determinant of trade is language. Buyers and sellers must constantly discuss the terms of contracts, the requirements of goods and services, and the procedure for production and delivery. To customize goods and services, they occasionally also need to communicate thoughts and ideas. The common language they employ is the main factor in these encounters. It is difficult to predict whether it is causation or correlation, but a definite pattern depicts a positive relationship between them.

As of the 8th Schedule of the Indian Constitution, 22 languages have been recognized. More than a decade ago, the Census of 2011 revealed that 12.85 million people in India speak English as their first, second, or third language.

Source: Ethnologue; Compilation and Visualization By Arthashastra Intelligence.

English has a deep-rooted history not only in India but all around the world. English and Chinese were termed Lingua Franca, which is a global medium for inter-community communication. More than 50% of the websites worldwide are in English. According to the English Proficiency Index 2022, India is ranked 52 and classified as a country that has moderate proficiency. According to research by the British Council, with nearly 125 million English speakers, India has the second-largest English-speaking population in the world behind the United States. Furthermore, according to research by EF Education First, India has the 22nd-highest level of English proficiency in the world. According to the Ministry of Trade and Industry, India’s total merchandise commerce with the rest of the world in 2020 was USD 791.23 billion, with USD 292.39 billion in exports and USD 498.84 billion in imports. A great deal of this trade would have required some level of English communication. But as per Census 2011 data, only a fraction of the Indian population of over 1.3 billion people speaks English. India is a linguistically diverse country, with more than 19,500 languages and dialects spoken across the country. It may be one of the common languages spoken in urban areas, but it may not be the language of choice in rural and remote regions. Can this factor affect our trade proficiency?

Over the past two decades, India’s exports of services have increased significantly, with a CAGR of 10.8% from 2000 to 2019. India was the eighth-largest service exporter in the world in 2019, with service exports totaling $205 billion. The IT and business process outsourcing (BPO) industries, which have been able to take advantage of India’s English-speaking population to deliver services to clients globally, are significantly responsible for the development of service exports. India’s trade performance is not solely reliant on the use of English. India’s proficiency in English has certainly contributed to its success in the services sector, which is an increasingly important driver of India’s economy.

How is China dealing with this language barrier? The dominance of Mandarin as the official language of China has created a language barrier between China and the rest of the world, particularly for non-Mandarin speakers. This barrier can affect trade relations, particularly with countries that do not have Mandarin as their native language. Many Chinese companies and organizations have adopted English as their second language to overcome the language barrier and facilitate international trade. However, the language barrier exists, particularly for small and medium-sized enterprises (SMEs) that may not have the resources to hire bilingual employees or invest in language training programs. In a survey conducted by the European Union Chamber of Commerce in China in 2020, 39% of respondents stated that language barriers were a significant challenge in doing business in China. Additionally, 45% of respondents stated that communication challenges with Chinese partners had negatively impacted their business. Research by the US-China Economic and Security Review Commission found that Chinese exporters who had a native speaker of the language of the country they were exporting to on their staff had a higher success rate in negotiating deals and resolving disputes.

Languages have developed and grown across the entire world largely due to trade and business. The development and adoption of new languages were facilitated by the exchange of commodities and ideas through trade, which established linguistic and cultural ties between various people and areas. Languages like Mandarin, Persian, Arabic, and Turkish expanded over various regions of Asia and Europe owing to historical trade routes like the Silk Road, which linked China and the Mediterranean. Only after interacting with Indian markets were words like “charpoy,” “guru,” “pashmina,” and “masala” introduced to the English language.

In conclusion, language and trade have a complex and interdependent relationship. It is difficult to determine if language paved the path for trade or vice-versa, but both have certainly had a significant impact on one another. Trade has supported the growth of a universal language and cultural exchange, while language has aided trade by enabling communication and negotiation.