It has long been accepted by scholars that economic security is an integral part of national security. In India’s case, it could even be argued that economic security is perhaps the most important part of national security. After all, if 800 million people have to be taken care of through the Pradhan Mantri Garib Kalyan Yojana (extended till December 2028) and at least 500 million (admittedly a guessestimate) are really poor, then it becomes hard to carry out a foreign and strategic policy aimed at becoming a Great Power. There are things we need to do to set our house in order and the Government is doing a lot of it. This blog is aimed mainly at explaining the external environment which has become very challenging.
(1) There have been three phases (at least) of setback to globalization, now referred to as “slowbalization” or “de-globalization”. The first around 2015-16 when Brexit happened and Trump got elected in the US. Trade protectionism then became rampant and the WTO’s impotence set in. The second phase was post-COVID when talk of “supply chain resilience” began and people started to talk of de-coupling and de-risking. Again, this was shorthand for changing the rules of globalization. The third phase (and the current one) was post-Russian invasion of Ukraine with markets in energy, food and fertilizers getting impacted and more generally, affecting trade and investment. The upshot of all this is that trade, investment and capital flow has become intensely geopolitical. It can no longer be taken for granted. India will need to trade more with the world, it needs massive foreign direct investment and will need to watch out for both capital inflow and capital flight: all this at a difficult juncture for its own economy and that of the world.
(2) Anti-immigration sentiment has grown in the West and now threatens to be part of the permanent political landscape. This will have huge implications for our youth who desperately want to go abroad for higher education and emigrate for better economic opportunities.
(3) The principal challenge with the Indian economy at present, despite having the fastest economic grawth tag, is jobless growth. The million dollar question is where the jobs for our youth are going to come from? More jobs appear to be available in the rural areas and agriculture, which is counter intuitive to say the least. Raghuram Rajan and Rohit Lamba have controversially suggested that India has missed the manufacturing bus and that therefore it should focus on services instead. This, by definition, is long term because services requires a different skill set and this in turn requires huge investment in vocational and skill-based education.
(4) Chinese overcapacity will be a problem and will not go away in a hurry. But the more troubling fact from our view is also that China is not really vacating lower end manufacturing even while tightening its grip on the “new productive forces” such as semi-conductors, solar panels and critical minerals. This will have serious implications for India’s trade policy.
(5) The WTO and MFN-based international trade has become passe and what we are seeing is a proliferation of FTAs. India is lagging behind in this regard so we will need to get our act together on ongoing and forthcoming FTA negotiations with Europe, UK and GCC.
(6) China plus one has substantially benefited countries like Vietnam and Mexico and not so much countries like India. So, we are faced with a conundrum. If we do open up our markets significantly, there is a good chance we will be flooded with Chinese and other goods with disastrous implications for our domestic indsutry. But if we don’t open up, our manufacturing will continue to be uncompetetive and we may miss out on reciprocal market access for badly needed exports. This is the Catch 22 situation we find ourseleves in.
(7) We are the only major economy being told to follow a low-carbon pathway to development. China has followed an unacceptably high carbon pathway to development, burning fossil fuels along the way with impunity. China burns more coal than the rest of the world put together. There are reports it will achieve peak emissions next year, when it should have achieved it at least ten years ago. As pointed out by climate scholars like Sunita Narain, it is not about giving India flexibility anymore, it is about whether there is going to be any carbon space left for use by countries like India (and Africa) to achieve its legitimate developmental goals.
China’s economic rise, not to compare but to merely provide perspective, took place with a very fortuitious & favourable external environment, and they were smart enough to capitalize on it. India’s economic prospects, on the other hand, will be determined by a much more challenging external environment.
Diplomacy and Geopolitics 