The new paradigm that the BJP has called for in its manifesto may well shape the ‘Asian Century’
Mukul Sanwal | May 19, 2014
The foreign policy of a major power seeking to influence world events has to be based on a national consensus to have the assurances other countries would require for stable relations over the longer term. Narendra Modi now has the national vote, the stock market and foreign institutional investors have given their full confidence and have high expectations and the world is watching to see whether the new paradigm will be a bold new vision for the country to realize its true potential or just new wine in old bottles.
The BJP manifesto seeks India’s “rightful place in the comity of nations and in international institutions” through “global strategic engagement in a new paradigm”, based on the “principles of equality and mutuality”. It calls for a “web of allies”. The foreign policy of a re-emerging power with the potential of becoming the second largest economy in the world post-2050 needs more clarity through specificity. The transition from playing a bridging role between the great powers to becoming more than a regional power in a multi-polar world will be based on three defining features.
First, countries are gaining in influence more because of the size of the economy than the strength of their military, and the new government in India must respond to the global rebalancing by joining hands with China to shape the ‘Asian Century’. China is the key to stable relations with the South Asian neighbors of India.
Second, influence, foreign policy goals and threat perceptions are shaped by a combination of economic capacity, technological leadership, diplomatic leverage as well as military strength. According to an analysis of long-term economic trends by the OECD, around 2030 Asia will be the world’s powerhouse just as it was prior to 1800. Currently the OECD has two-third of global output compared to one-fourth in China and India, and by 2060 these two countries will have a little less than half of world GDP with OECD’s share shrinking to one-quarter. India’s GDP will increase to 18% as a share of global GDP while China’s share will be 28%, just as it has been since the dawn of civilisation. China is already India’s biggest trading partner, supplying capital equipment around 30% cheaper than other countries.
Third, the ‘Asian Century’ will be shaped by its middle class increasing three times by 2020 to 1.7 billion and reaching 3 billion by 2030, accounting for two-thirds of the middle class and two-fifths of global consumption. Relations between China and India will be the defining factor for realising this potential by developing a notion of ‘shared prosperity’ in the two most relevant areas – natural resource use in a situation of global scarcity and manufacturing capacity to support their middle-class consumption.
A strategic reordering of the post World War II system or “new paradigm” as the BJP suggests, is clearly in India’s national interest, and indeed may even be necessary to enable the country to grow to its full potential. By 2060, in developing countries demand for food, water and energy is expected to double, and questioning the global system that served the natural resource and security needs of one-fifth of the world population to one that will share prosperity and peace with all of humanity in an interdependent world will provide the legitimacy to reshape the global order, by India taking the lead on global warming, as the BJP manifesto emphasises.
The shift will be more than just a continuation of the current system, because the current scientific consensus on how to meet the challenge of global change focuses on societal dynamics as both the root of environmental problems and the potential solution to them. For example, technological innovation will be a key driver, requiring a review of the intellectual rights regime as it ignores societal concerns.
India has the capacity for global leadership in developing new pharmaceuticals and crop varieties, as it is the only country with both extensive endemic biodiversity and a world-class endogenous biotechnology capacity. Along with global leadership in software-led innovation, India can develop treatments and solutions for common problems in other developing countries, which will gain their respect also enabling productivity gains for India. In climate change there is already a close collaboration with China. India has the opportunity as it builds its infrastructure to make the Asian giants increasingly interdependent economically, to allay future concerns as India will continue to grow long after China’s growth stabilises.
Sustainable development will need new global rules
India and China will have to reconstruct international relations theory with a global vision of sharing natural resources and technology, to ensure prosperity for four billion people who have yet to benefit from globalisation. Global environmental change is not about physical natural processes but social processes shaped by patterns of resource use and urban design as rural populations shift to urban areas. New global rules based on per-capita use of natural resources to raise standards of living will be vital for India’s continued global growth as rural populations shift to cities.
In climate change there is already a close collaboration with China shaped by their future growth. India requires an investment of $1 trillion over the next five years in infrastructure and China plans to shift 250 million to cities and to consumption led growth. There is a historical opportunity to make the two countries increasingly interdependent economically. A shared global vision will overcome the global rulemaking deficit and competition inherent in the rise of two Asian giants.
Manufacturing base to support the middle class
China is likely to overtake the USA by 2025 to become the world's biggest consumer market, with India as the third largest. As India sets up new cities, links its rivers, builds a high-speed rail network and highways and develops its knowledge and research base its competitive advantage over China will improve, as half the population is less than 25 years old.
With Chinese labour costs growing 15 percent annually and a growing shortage of workers, an estimated 100 million jobs will move out of China over the next few years in labour-intensive sectors. India has an inherent advantage because of the size of its domestic market and savings on freight costs in exports to Europe. China already supplies over two-fifths of India's power capital equipment with prices 30 percent or more below those offered by suppliers in the US, Europe, or Japan, and it also comes with financing deals. China is India's largest source of imports, and a major factor tilting the scales in favour of manufacturing in India is favourable movements in the foreign-exchange market.
The problem is the growing trade deficit in favour of China, which can be met by more contracts for India's technology outsourcing companies in China. With fossil fuels accounting for two-thirds of India’s imports, China can be a part of the solution in balancing India’s trade by supporting accelerated generation of electricity using indigenous coal, hydropower and nuclear power. An inter-governmental working group needs to be set up for balancing software service markets in China with infrastructure projects in India for the mutual advantage of the respective countries.
Relations with China need not be – and should not be – a ‘zero-sum’ game, and there is a national consensus for better relations between the two countries. Modi in an interview to the Times of India stated that “it is in the realm of possibility for us to solve our problems with China and take our relationship with China to a new level”. The Congress manifesto is quite specific in seeking “resolution of differences of perception about the border”. According to the leaked Henderson-Brooks Report on the 1962 border war, Dhola Post, where it all started, was inadvertently established north of the McMahon Line, the agreed border. The mistake was reported to the army headquarters and it is not clear whether this was known to the defence and foreign ministries. If this was indeed the case then statements made by the Chinese leaders at that time of teaching India a lesson would reflect a response to an inadvertent step taken by the military rather than Chinese expansionism. A stable, united and prosperous India will have the confidence to take a re-look at the intentions of the Chinese.
Combining India’s global leadership in software development with China’s acknowledged leadership in manufacturing within an Asian ‘common market’ supported by joint research and technological development will lead to the ‘Asian Century’. While the last era of globalisation was driven largely by sourcing low-cost production, the next era will centre on the rise of the global knowledge economy, and knowledge-intensive goods, services and finance are growing faster than the labour-intensive or capital-intensive variety, and are expected to triple to around $75 trillion by 2030, largely in Asia – and that is the ‘Asian Century’.
[The author is Ex-Director, United Nations, and Indian Administrative Service.]
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