This article is based off panel discussions at the virtual Bloomberg India Economic Forum 2020.
India has set itself on a path of economic reforms designed to pull the world’s fifth-largest economy out of a deep Covid-fueled recession.
But its leaders have their sights fixed on a much more ambitious reconstruction program; they believe the pandemic’s shock to the system offers an opportunity to reshape India’s industrial and financial base, and enable the world’s second-most populous nation to play a more pivotal role in a post-Covid world.
“The world needs more trusted and capable players – India needs to concentrate on the latter as it’s well regarded in the former," Dr. Jaishankar told this year’s virtual Bloomberg India Economic Forum. India has suffered greatly during the coronavirus pandemic. Almost nine million people have been infected and more than 130,000 killed by the scourge, stretching the public health system and trust in government to their
limits. At the same time, it’s decimated the economy; by most estimates, Indian GDP will contract by 10% in 2020. Additionally, India’s relations with its neighbors and the rest of the world have been tested as the global health crisis has accentuated widening geopolitical divisions. It’s also taken a hatchet to international trade patterns, bringing chaos to the dense nexus of commercial cross-border ties.
Structural weaknesses exposed
India went into the pandemic on a weak footing. Growth that had made the country one of the fastest rising economies in the world had begun to decline, and Prime Minister Narendra Modi’s political stock was sliding in the wake of policies that had been seen as culturally divisive. Jaishankar likened the impact of the pandemic to the virus itself — it was most devastatingly felt in the economies with underlying structural “co-morbidities”. The weakness of India’s healthcare services were laid bare as hospitals quickly became overwhelmed by the virus’ rapid spread, and a harsh lockdown put many millions out of work with little hope of finding new jobs. But the minister said Prime Minister Modi and his government had learned quickly. The nation had already begun a program of deregulating key industries to make it easier for India’s businesses to rebuild. Combined with other measures, including reform of the education system, the groundwork
had been laid for entrepreneurs and industries to seize on this lean period to strip out inefficiencies and sharpen their competitive edge. Covid can have three beneficial outcomes for India, Jaishankar said.
“Attention could shift to becoming part of the global value chain rather than entering into more formal trading arrangements,” the minister said.
Watch our fireside chat with Dr. Jaishankar, Gaining from a geopolitical crisis, from the Bloomberg India Economic Forum 2020 here.
Self-sufficiency is key to recovery
The opportunities presented by the crisis play handily into Prime Minister Modi’s declared aim of making India stronger through self-sufficiency. The policy has been criticized as protectionist and economic nationalism, but Jaishankar rebuffs the suggestion, saying that only when India is strong domestically can it capitalize on its “great capabilities” and contribute fully to the rest of the world. For instance, the economy has been hampered by a decline in its manufacturing base, partly, the minister said, because competitors had taken advantage of India’s openness and rule of law. By refocusing its productive industries, India is now determined to build a reputation for quality products that can compete on value even with cheaper imports. At the core of that dilemma is China, the huge neighbor with whom India has had an often fractious relationship, especially when it comes to trade. Those ties, Jaishankar said, were beset by structural problems that had led to the accumulation of a huge trade deficit. Untangling those problems and recasting the relationship as both nations vied to become global economic powerhouses would be the overarching theme of India’s geopolitical future. The matter boiled down to one question: “Can a rising China find an equilibrium with a rising India?” he asked.
Global rebalance
Stresses in this key bilateral accord reflect the changing nature of international relations. A post-Covid world is being recalibrated into a multipolar one in which a much larger group of strong nations – not just the one or two that have dominated the diplomatic scene since World War II – would be seeking to bring their influence to bear. Such a dispersal of power would result in a world “of issues-based groups” jostling to achieve their own self-interests. That is being compounded by growing distrust of globalization, and Covid-19 had only added more layers of complexity to the problem. Consequently, the journey toward international cordiality will be a rocky one, Jaishankar predicted. To counter these destabilizing undercurrents, a new diplomatic architecture would be needed. With the metrics of measuring power changing rapidly, military might will no longer be the determinant of global influence. Instead finance, trade, connectivity, data, ecology “and even masks and ventilators” would catalyze the new geopolitics. With such uncertainty, co-existence, collaboration and collective negotiations must be the diplomatic watchwords of the future, Jaishankar argued.