How India can adapt to global geo-economic turnover

As India returns to a high growth trajectory after a slowdown over the past decade, its geopolitical importance in the world will continue to increase. India’s GDP has grown significantly since 1991-92, when it stood at $270 billion. Today, India’s GDP is $3.1 trillion and could top $8 trillion by some estimates by the end of this decade.

India is now the sixth largest economy and could become the third largest by the end of the decade if current projections hold. India’s total trade, which was around $38 billion in 1991-92, is expected to reach $1.3 trillion this year. This accounts for around 40% of India’s GDP and underlines the fact that India is more deeply connected to the world than ever before.

But GDP’s journey from three trillion to eight trillion will not be a linear process; nor would it be easy to protect India’s interests in deeper integration with the world. The fact that the world itself is in geo-economic turmoil makes the transition difficult.

Raising India into a higher economic orbit would involve recalibrating its assumptions, taken for granted over the past three decades of reform. For the international context in which India has rapidly developed has begun to change. If globalization was seen as inevitable and irreversible over the past three decades, India’s task now is to adapt to significant changes in the global economic order.

First, a word on the current buzz about geoeconomics. It was Edward Luttwak, the well-known American strategist, who sparked global discourse on the idea of ​​geoeconomics in a seminal paper in 1990 amid the end of the Cold War and a new wave of economic globalization.

Luttwak – who this week addresses India’s strategic community on the legacy of the late Indian strategist K Subrahmanyam – addressed the emerging consensus on the economy’s new importance in global affairs, as opposed to dominating competition military during the Cold War years.

China’s rapid economic rise over the past three decades and Beijing’s success in leveraging its growing economic weight for political gain are widely considered a classic example of geoeconomics. But Luttwak wasn’t really about economics replacing politics in the international system. Luttwak offered a more powerful argument about the relationship between geopolitics and geoeconomics.

Luttwak warned against the excessive optimism that shrouded the post-Cold War era – that economic interdependence would eliminate contestation between nation states. The idea of ​​a borderless world promoting perpetual peace and prosperity across the globe had indeed become a powerful force amid the fall of the Berlin Wall and the collapse of the Soviet Union. Luttwak argued that the “logic of conflict” between states is likely to persist in the age of globalization, if only in the “grammar of commerce”. He suggested that the emphasis on “national interest” will remain as powerful in the economic realm as it is in the geopolitical realm. He also insisted that states will continue to do what matters more within their borders than the presumed imperatives of the global good.

Luttwak postulates that the zero-sum situations that prevail in military conflicts are not exclusive to geopolitics. They also exist in the economic field by inevitably triggering conflicts, some of which could degenerate at the military level. But the popular notion of geoeconomics as a metaphor for replacing politics with economics lives on. The latest example is Pakistan’s recently released national security policy document.

Pakistan’s real challenge is not to replace geopolitics with geoeconomics. What Pakistan needs is a long overdue transition from a rentier national security state to a developmental state. This, in turn, demands an end to the domination of the military, feudals and a kleptocratic elite over the country’s economy. The reorganization of the Pakistani state is ultimately a political task rather than an economic one.

Luttwak’s warning against illusions of economic interdependence and globalization has been borne out by major shifts in US-China relations in recent years. The dramatic expansion of economic interdependence between China and America over the past four decades – what some have called the “Chimerica” ​​- has been the main evidence for the thesis that geopolitics and the ideology no longer mattered.

That “capitalist” America and “communist” China form such a broad economic partnership, reinforced by a massive nexus between their business elite and civil societies, has reinforced the power of geoeconomics. Chimerica was presented as an effective economic merger that emphasized the virtues of economic globalization. This mythology is now being shredded by developments in the United States and China.

Economic nationalism has reappeared in both countries today. In the United States, President Joe Biden has persisted in his predecessor Donald Trump’s emphasis on “America First” economic policies. He took a step forward by making the effort to restart America in a more focused way. The United States is also strengthening domestic research and industrial capabilities to compete more effectively with China.

Biden is resisting strong pressure from American finance capital and other interested groups to restore the old economic engagement with China. It is not the United States alone that is backtracking on globalization. China has also adopted the “dual circulation” economic strategy which focuses on building domestic capacity and reducing exposure to external factors.

The China issue has also shaped India’s recent free trade policies. In late 2019, India withdrew from the Regional Comprehensive Economic Partnership (RCEP), suggesting that the costs of joining a China-centric regional economic order are unacceptable.

Although India’s decision to turn its back on Asian economic integration has drawn many critics, others share Delhi’s concerns about China’s dominant economic position. In a recent book, China’s Rise and Asia’s Decline, William Bratton argues that the short-term benefits to Asia from China’s growth may be temporary and will be overshadowed by the long-term costs of economic, industrial, financial and technological dependence. vis-à-vis China. .

After abandoning RCEP, Delhi turned to free trade agreements with countries like Australia, Britain, the United Arab Emirates and Israel. This should be seen as the start of a process of deepening India’s engagement with countries whose economies complement each other. Liberalizing trade with Europe and the United States will be a difficult but important next step.

India also argues, along with the United States and China, that no major country can simply hand over domestic manufacturing to other countries in the name of economic efficiency and globalization. India is now taking a number of initiatives to promote domestic manufacturing in a range of sectors – from mobile phones to weaponry – under the “Atmanirbhar Bharat” banner.

India’s selective trade deals and policies to promote domestic manufacturing have drawn widespread criticism in the country, calling them a dangerous return to economic protectionism and de-globalization. If these arguments are to endure, they must be more closely tied to structural changes in the international economic order.

Until now, India had the luxury of treating its foreign, economic and strategic policies as separate areas pursued by different bureaucracies with different agendas. Adapting to the current global geo-economic rotation requires Delhi to find better ways to integrate its financial, trade, technology, security and foreign policies. Above all, India needs a strategy that can address the imperatives of building national capacity, developing geoeconomic partnerships and building geopolitical coalitions with like-minded countries.

This column first appeared in the print edition of February 1, 2022 under the title “Doing business in a new world”. The writer is an international affairs editor for The Indian Express

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