Changing geopolitics

India must focus on creating a genuinely market-oriented economy

Developments around Russia’s invasion of Ukraine point to a long-drawn conflict that will preoccupy Europe and the United States and inevitably result in a shift in geopolitical priorities and alignments. These changes will affect the tenor and trajectory of India’s international relations, especially in the light of New Delhi’s alignment with the US as a counterbalance to China’s growing global clout. With Beijing flexing its muscles along India’s northern and eastern borders, US strategic realignment would be a matter of deep concern for New Delhi. Put simply, the US administration’s focus on its Atlantic alliances could cause a diminution in its emphasis on the Indo-Pacific, where India stands to play a role. The most visible evidence of this was the revival of the Quad security alliance between US, India, Japan, and Australia, which gained traction under US President Donald Trump and his successor, Joe Biden. Though the stated reason for the founding of the Quad was to ensure a “free, open and prosperous Pacific”, it has been primarily a security alliance as a counterpoise to China’s regional domination, with several joint maritime exercises conducted over the past few years. Questions then arise as to how India can remain relevant in response to shifting geopolitical realities.

Some commentators have suggested leveraging India’s soft power as a liberal multicultural democracy. Though these are desirable values for India, authoritarian China’s rise shows that they are not sufficient reasons in themselves. India’s ability to remain relevant in the new world order will depend critically on the economic clout it wields in global markets as a sought-after destination for investors and a vibrant place to do business. It is worth recalling that the US pursued the civil nuclear agreement at a time when the Indian economy was growing robustly. But the economy does not fulfil those conditions now. On the contrary, economic policy has in recent years shifted towards the pre-reform era of rising tariff barriers and a revival of the notion of self-sufficiency reflected in the Aatmanirbhar Bharat slogan. In pursuit of this goal, the government has opted for an import-substitution policy for over 20 industries, from mobile phones to textiles, dispensing subsidies and protection from import competition. No country has become prosperous in this manner.

That said, some degree of self-reliance is desirable in developing strategic capabilities. The Indian Space Research Organisation (Isro), for instance, has created a robust manufacturing eco-system of over 120 large, medium, and small industries. The once defect-prone auto-component industry, driven by demands for indigenised vehicles, is another example of an industry that transformed itself into a world-class exporter. But a globalised world driven by cost competitiveness makes it difficult to ignore the benefits of global supply chains. Even Isro sends certain components to Japan for high-tech processing. Opting out of regional trading partnerships such as the Regional Comprehensive Economic Partnership is unhelpful both in terms of economic and political signalling. In other words, India’s economic policy-making requires fine judgements between the benefits of aatmanirbharata and globalisation. Rather than opting for a binary choice, the focus needs to be on making India a genuinely market-oriented economy, with all the elements this involves — from investment in education and health to streamlined processes. That will be the best guarantor of India’s continuing significance in the global order.