Macro Economy

This is India’s moment of reckoning with Dr.Manmohan Singh

The country can be the fulcrum of the new global order, as a peaceful democracy with economic prosperity

April 22, 2022
Manmohan Singh

I have been deeply saddened by recent global developments of conflict and violence in Ukraine. Talk of nuclear threats have alarmed me. Regardless of provocations and causes, however justifiable they may seem to be, violence and consequent loss of human lives are deeply regrettable and avoidable. As Mahatma Gandhi’s nation, India must be a committed and relentless apostle of peace and non-violence, both at home and in the world.

Conflict and a reshaping

The Russia-Ukraine conflict portends a reshaping of the world order. Ever since the fall of the Berlin Wall in 1989, a paradigm of free societies, frictionless borders and open economies evolved to be the governing order in many nations. This catalysed freer movement of people, goods, services and capital across the world. Global trade and per capita GDP nearly doubled in this period, marking an era of general peace and prosperity. Societies and economies in the world became intertwined closely in the pursuit of shared global prosperity. Such tight inter-dependence among nations will lead to fewer conflicts and promote peace, was the established wisdom.

The Russia-Ukraine conflict has dismantled this wisdom. If inter-connectedness and trade among nations were mutually beneficial, then it follows that its disruption and blockade will be mutually harmful. Retaliatory economic sanctions imposed on Russia have hurt all nations, albeit some more than the others.

Egyptians are reeling from food shortages due to their dependence on Russian and Ukrainian wheat, Germans suffer from high costs of heating in winter due to their dependence on Russian gas, Americans face a shortage of electric cars due to unavailability of car batteries that are dependent on Russian nickel, Sri Lankans have taken to the streets on economic woes and Indian farmers run the risk of high fertilizer prices triggered by a global shortage.

‘Global Village’, a lived reality

‘Global Village’ is not just an academic term but a lived reality for the nearly eight billion people on the planet. This ‘Global Village’ was built on the foundation of advanced transportation networks, cemented with the U.S. dollar as the reserve currency and fenced by integrated payment systems. Any disruption to this delicate balance runs the risk of plunging the ‘Global Village’ into disequilibrium and derailing the lives of all.

India too has benefited enormously from being an active participant in this interconnected world, with a tripling of trade (as share of GDP) in the last three decades and providing vast numbers of jobs. Trade with other nations should and will always be an integral cornerstone of India’s economic future. A reversal towards isolationism and protectionism will be foolhardy and calamitous for India.

The Russia-Ukraine conflict is a global geo-economic conflict that threatens to hark back to the Cold War era of two dominant power blocs. Nations that did not condemn the Russian aggression in the United Nations constitute more than half the world’s population but a quarter of the world economy versus nations that condemned Russia, account for three-quarters of the global economy. The former, the Russia-China bloc, are large producers with rising consuming power while the latter, the western bloc, are today’s large consumers. Any new curtain that descends between these two blocs and divides them will cause major upheavals to the entwined global economic equilibrium.

A trade opportunity

During the Cold War, when India pursued a prudent foreign policy of non-alignment, trade was a small part of India’s economy. Now, trade represents a significant share of India’s GDP. India’s trade is dependent on both these power blocs and on the current global economic structures of free trade, established reserve currency and transaction systems. As the western bloc of nations looks to reduce dependence on the Russia-China bloc of nations, it presents newer avenues for India to expand trade.

The western bloc of nations has expressed its desire to embrace a new paradigm of ‘free but principled trade’ that values both morals and money. While one may reasonably quibble about this new doctrine, India, as the largest peace-loving democracy, stands to gain enormously from this ‘principled trade’ aspiration of the western bloc. It presents a tremendous opportunity for India to become a large producing nation for the world and a global economic powerhouse. However, to capitalise on these opportunities, India needs free access to these markets, an accepted and established global currency to trade in and seamless trade settlements.

The American dollar has emerged as the global trade currency, bestowing an ‘exorbitant privilege’ on the dollar, much to the justifiable consternation of other nations. But a forced and hurried dismantling of this order and replacing it with rushed bilateral local currency arrangements can prove to be more detrimental for the global economy in the longer run.

I recall the time when I was part of bilateral currency negotiations such as the Indian rupee-Russian rouble agreement in the late 1970s and 1980s, when we mutually agreed on exchange rates for trading purposes. Such isolated bilateral agreements are fraught with risks, but when trade is a small share of the economy and such agreements are limited to a few trading partners, it was wieldy.

Needed, ties on either side

India thus needs not just a non-aligned doctrine for the looming new world order but also a non-disruptive geo-economic policy that seeks to maintain the current global economic equilibrium. By the dint of its sheer size and scale, India can be both a large producer and a consumer. With rising inflation, volatile crude oil prices, global uncertainty, weak domestic private investment and deteriorating fiscal situation, expanded external trade in the changed global situation presents the best opportunity to salvage India’s economy and create large numbers of jobs for our youth and women. To best utilise this opportunity, India needs not just cordial relationships with nations on either side of the new divide but also a stable and established global economic environment. It is important for India to adopt a strategic economic self-interest doctrine within the larger paradigm of its non-alignment foreign policy.

Social harmony is a must

Just as it is in India’s best interests to balance the current geo-economic equilibrium, it is also imperative for India to maintain its domestic social equilibrium. To be a large-scale producing nation, India needs millions of factories with hundreds of millions of people of all religions and castes across all States to work together. Social harmony is the edifice of economic prosperity. Fanning mutual distrust, hate and anger among citizens, causing social disharmony is a shameful slide to perdition.

Now, with India’s robust external sector, a flourishing trading relationship with many nations and tremendous potential to expand trade, such bilateral arrangements are unsustainable, unwieldy, and perilous. Opportunities to buy discounted oil or commodities may be enticing but if it entails a prolonged departure from the established order of dollar-based trade settlement or jeopardises established trading relationships with western bloc markets, it can have longer term implications for India’s export potential. In the long run, India stands to gain more from unfettered access to the western bloc markets for Indian exports under the established trading order than from discounted commodities purchased under new bilateral currency arrangements that seek to create a new and parallel global trade structure.

The reshaping and realignment of the world order will be a unique opportunity for India to reassess its foreign policy, economic policy and geo-political strategy and don the mantle of global leadership. Strengthening India’s global economic might through a cautious geo-economic strategy in the aftermath of the Russia-Ukraine conflict can potentially mark a pivotal turn in India’s economic history. India can be the fulcrum of this new global order, as a peaceful democracy with economic prosperity. But this requires India to first stem the raging communal divisions within. I sincerely wish and fervently hope that India can emerge as the harbinger of peace, harmony and prosperity in this new world.

Manmohan Singh was the Prime Minister of India from 2004 to 2014. (With help from Praveen Chakravarty)

https://www.thehindu.com/opinion/lead/this-is-indias-moment-of-reckoning/article65342705.ece

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