India's policymaking must replace mere forecasts with strategic scenarios

The global economic system since the 1990s was based on relatively depoliticised trade and finance relations. It led to a substantial acceleration in growth in China and a significant rise in India. There was some concern about the openness that emerged with the extraordinary dominance of China in manufacturing and trade and, to a lesser extent, with the rise of India. But the big change has come now with Donald Trump becoming President of the United States.

 

The era of significantly depoliticised globalisation with rising links between developed and emerging market economies is giving way to a system where inter-country relations, even in trade, technology and commercial finance, are linked with security and strategic considerations. This is leading to a degree of nationalism and even mercantilism, particularly by the US, which is setting political constraints on global trade, supply chains and even finance.

 

In many ways, this change was captured by the Prime Minister of Canada, Mark Carney, who in his famous Davos speech said: “Great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, supply chains as vulnerabilities to be exploited,” I think his reference to the great powers was basically to Trump’s America.

 

In such a complex world, it is difficult to forecast behaviour by foreign governments or, for that matter, by global financial or manufacturing corporations. Hence, it is not right to design policy based on forecasts that assume the present pattern of global disquiet would continue. What we need is an analysis that will indicate a set of likely possibilities — whether the present relationship pattern will continue, whether new patterns will emerge, whether the strong assertion of power by the US or other great powers will change.

 

Our policy has to be designed not with any forecast of the global economy but as a policy that can be redesigned quickly depending on which scenario plays out. In a large country like India, the government can also consider the role it can play in directly influencing global prospects.

 

This stress on scenarios rather than forecasts or projections has been reinforced by what we are experiencing with the rising isolationism and unilateral exertion of power by the US. Francis Fukuyama, who wrote the famous book Trust: The Social Virtues and the Creation of Prosperity, now says: “If I were to re-write Trust today, I would not characterise the United States as a high-trust society.”

 

What Mr Fukuyama is saying, in effect, tells us that our global relations policy should not be based on trust but on an assessment of potential action and response by key global partners. As these actions are not accurately predictable, it is best to work out scenarios and design policies that are quickly adjustable.

 

This focus on potential scenarios is most important for our link with the great powers. Consider the issue of trade and finance. The three major partners of India are the US, Europe, and China. Our trade relationship with them in 2024-25 amounted to about $380 billion, which is about one-third of our global trade. If one were to add the combined share of the US and Europe in net services trade, remittances, and investment payments, the proportion would be higher.

 

First, let’s take what is perhaps the most relevant example, the trade and finance relationship with the US. Two alternative scenarios of US global policy beyond 2029 depend on whether a supporter of Mr Trump’s policies is elected President or whether an opponent is elected. In fact, one has to go a little further and assess whether the isolationist and aggressive policies on trade and multilateralism that are the basis of US policy reflect emerging opinion among US citizens. Design a policy that is able to cope with the current attitude of the US government but is flexible enough to take advantage of a new government that is less isolationist, more willing to de-politicise its trade policy, and less demanding in its control over the global activities of its manufacturing and finance corporation.

 

A similar scenario-oriented policy design approach is even more necessary for the other great power, China. Will China continue with its trade restrictions on important commodities like rare earths, or will the tension in its relationship with the US prompt it to reduce the restrictions for other countries? Will the political control over its global trade policy continue or will it be diluted by the growing global presence of its private corporations? Is there a prospect of China becoming a substantial destination of our exports? Should we liberalise Chinese finance flows? There are other similar questions that need to be addressed, and a policy approach needs to be designed to be flexible enough to cope with changes in China.

 

The scenario building in the relationship with Europe is important because we are relying substantially on better trade relationships with Europe and the United Kingdom through the new free-trade agreements (FTAs) that we are moving towards. There is also an emerging sign of the European states moving away from the US.  In fact, recently when the US grossly misbehaved at the G7 summit and refused to admit one of them, Canada, the four European states and Japan walked out.  France, holding the G7 Presidency at present, has not formally called for a permanent “G7 minus the USA” structure. However, French President Emmanuel Macron has proactively expanded the 2026 G7 summit to include India, South Korea, Australia, Brazil, and Kenya to “correct global economic imbalances” and foster cooperation among democracies. The scenario that is most plausible now is Europe as a substitute for the US in many areas of trade and finance. But our policy should also consider the scenarios that would arise if Europe’s relations with Russia worsen further or if Europe moves closer again to the US.

 

I have focused attention largely on the issues of trade, finance, and technology access. But scenario-building is even more necessary for political and defence relations. Scenarios can include possibilities that at present are not obvious. In 1987, anyone looking five years ahead for a projection forecast would not have forecast that communism would collapse in the Soviet Union, that the two Germanies would unite under the Christian Democratic Party government in West Germany, and that apartheid would end in South Africa and Nelson Mandela would emerge as the President of South Africa.

 

At that time, these three dramatic developments did not appear likely but were still possible. All three occurred, which explains why scenario-based projections are more effective than forecast-based projections for designing policy. If we had prepared a scenario that included such possibilities, then we would have anticipated the collapse in the nature of our trade relationship with Russia and the new prospects in South Africa. That is why the government should launch a dialogue among experts and bureaucrats that would outline possible scenarios of global economic relationships rather than attempt excessively precise forecasts.

 

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desaind@icloud.com