From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 2- Adapting to geopolitical and geoeconomic changes
As India returns to a high growth path after a slowdown in the last decade, its geopolitical salience in the world will continue to rise.
India’s growth story
- Today, India’s GDP is $3.1 trillion and could cross, according to some estimates, $8 trillion by the end of this decade.
- India’s total trade, which was about $38 billion in 1991-92, is expected to touch $1.3 trillion this year.
- This is about 40 percent of India’s GDP and underlines the fact that India is more deeply tied to the world than ever before.
- The world itself is in a geo-economic churn making the transition to $8 trillion a challenging one.
Geo-economic and geopolitical changes in the global order
- It was Edward Luttwak, the well-known American strategist, who triggered a global discourse on the idea of geoeconomics in a seminal article in 1990 amidst the end of the Cold War.
- Using economic dominance for political gain: The rapid economic rise of China in the last three decades and Beijing’s success in leveraging its growing economic clout for political gain is widely seen as a classic example of geoeconomics.
- Economic interdependence: Luttwak’s warning against illusions of economic interdependence and globalization have been borne out by major changes in US-China relations in recent years.
- The dramatic expansion of economic interdependence between China and America over the last four decades — what some called “Chimerica” — was the principal evidence for the thesis that geopolitics and ideology no longer mattered.
- Chimerica was held up as an efficient economic fusion that underscored the virtues of economic globalization.
- However, economic nationalism has re-emerged in both countries today.
- The US is also strengthening domestic research and industrial capabilities to compete more effectively with China.
- China too has adopted the economic strategy of “dual circulation” that focuses on strengthening domestic capabilities and reducing exposure to external factors.
How geopolitical and geoeconomic changes are influencing India’s free trade policies
- At the end of 2019, India has walked out from the Regional Comprehensive Economic Partnership (RCEP) suggesting that the costs of joining a China-centered regional economic order are unacceptable.
- Deepening engagement with complementary economies: India’s move towards free trade agreements with countries like Australia, Britain, UAE, and Israel.
- Domestic orientation: Much like the US and China, India is now taking a number of initiatives to promote domestic manufacturing in a range of sectors under the banner of “Atmanirbhar Bharat”.
Way forward for India
- Until now, India had the luxury of treating its foreign, economic, and strategic policies as separate domains.
- An integrated approach to policies: Adapting to the current global geo-economic churn demands that Delhi finds better ways to integrate its financial, trade, technological, security, and foreign policies.
- Above all India needs a strategy that can respond to the imperatives of building domestic capabilities, developing geo-economic partnerships, and constructing geopolitical coalitions with like-minded countries.
Consider the question “How the current geo-political and geo-economic policies are shaping India’s trade policies? Suggest the approach India need to adapt to the structural changes taking place in the global order?”
India’s selective trade arrangements and the policies to promote domestic manufacturing have drawn much criticism. While those arguments must continue, they must be related more closely to the structural changes in the international economic order.