August 16, 2020The Intersectioneconomicsgeopolitics

A retreat from global trade will hurt India’s geopolitical stature

India must resist the forces of de-globalization and lead the charge for a new, more balanced international economic order. The openness that we seek in the global economy must start at home.

Mint This is from The Intersection column that appears every other Monday in Mint.

Almost a year ago, this column had warned that the economic slowdown that India was experiencing would have a negative impact on India’s geopolitical standing, because it is presumptuous to expect countries and companies to be sympathetic to India’s political interests if they do not see an economic upside”. Sheer momentum will allow Indian foreign policy to tide over a mild, short slowdown. If, however, we go into a deep, prolonged slump, we should expect a tough time in international relations.” This was before the covid pandemic began. Events and India’s own policy choices since then have worsened the prognosis.

With an economic recovery distant, rising trade restrictions, and a reluctance to participate in a wider geopolitical contest against China, India risks undermining its relevance as a world power. For its part, Beijing is unlikely to miss any opportunity to push its hegemonic agenda further and box New Delhi into a sub-subcontinental role. The international environment that was so conducive to India’s developmental and political interests over the past three decades might turn against us within the next couple of years. One has only to recollect the experience of the 1970s and 80s—when import and foreign exchange restrictions, international sanctions and foreign sympathy for domestic insurgencies kept us on the back foot and dissipated our strategic establishment’s energies—to conclude that the government should do everything possible to avoid a similar plight.

The domestic economy is a good place to start. According to Pronab Sen’s estimates, presuming there will be no additional fiscal stimulus, it could take five years for India’s gross domestic product to return to the 2019-20 levels. Such a slow and long-drawn recovery implies that India will not be a dynamo for global growth. Accelerating the recovery and regaining the path of high growth, therefore, is of utmost strategic importance. Soon after the lockdown was announced, I had argued that a massive deficit-financed Marshall Plan-like public investment in infrastructure is necessary to galvanize rapid post-pandemic growth. The slew of measures introduced by the Narendra Modi government in recent months are useful but inadequate for a quick recovery. A slow recovery not only means that the lives of hundreds of millions of people will take unconscionably longer to improve, but also risks the proliferation of bad economic ideas—like protectionism and raising taxes—that will make the eventual recovery that much harder. Beware the vicious cycle that started in the late 1960s.

This year’s call for self-reliance first came during the national lockdown as a way to cope with the demands of living in a period in which domestic movement was restricted, international travel impossible, and global supply chains were in disarray. After China’s transgressions in Ladakh, official restrictions on Chinese apps and imports became a way to signal displeasure and impose costs on Beijing. So much is justified. However, both official policy and public discourse are proceeding in a direction of self-sufficiency and import reduction as desirable ends in themselves. Punitive customs duties on Chinese imports, applied strategically in an attempt to change Beijing’s behaviour, are one thing. But raising customs duties in general and imposing domestic quotas are quite another. A domestic purchase quota for defence equipment might sound patriotic, but shielding domestic producers from competition will eventually lead to lower quality products. In defence, as in other areas, it is far better to purchase the best equipment that money can buy—forcing Indian manufacturers to become globally competitive.

It is unfortunate that self reliance” is being mistaken as self sufficiency”. They are different things. It is possible to be self-reliant, but impossible to be self sufficient in the modern world. For all my life-long admiration of Mahatma Gandhi, I think his idea of a retreat into self-sufficient village republics, turning our back on modernity, technology and the world, was both impractical and harmful to the national interest. True self reliance comes from wealth: the greater our per-capita income, the greater our self-reliance. The United States is self-reliant not because it makes everything within its borders, but because it can purchase or make everything that it wants, and more. So raising incomes, in other words boosting growth, is the surest path to self reliance.

Reducing dependence on imports from China or fuel from West Asia doesn’t mean trying to make everything in India, even if it were possible. Rather, it means diversifying the sources of those imports. It also means working with like-minded nations and shaping the international trading system in a manner that reduces catastrophic risks and geopolitical coercion. Such an approach would not only promote India’s growth, development and self-reliance, but also strengthen India’s hand in international relations. If, however, India insulates itself from world trade, our relative value as an economic partner will decline.

That’s the geo-economics. On the geopolitical front, as much as we can justify our reluctance to side with the United States in the Indo-Pacific theatre against China on grounds of either strategic autonomy or prudence, Washington and East Asian countries could recognize the limits of India as a counter-weight to China. To the extent that New Delhi recedes in importance in the pursuit of their interests, they will be less inclined to back India’s foreign policy positions.

There are some concerns in New Delhi over whether a Joe Biden administration—if elected in November—will take a softer line on China and a harder one against India. Such a view tends to ignore our own agency. If we reduce the common ground, then the differences will become relatively more important regardless of who is in office.

India must resist the forces of de-globalization and lead the charge for a new, more balanced international economic order. The openness that we seek in the global economy must start at home.

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