India’s position in global order depends on how it restarts the economy post-COVID 19

Written By: Rachit Seth
Delhi Updated: Apr 28, 2020, 04:15 PM(IST)

Other significant challenges before the Indian economy are overhauling the infrastructure, creating job opportunities, and raising corporate investments in the country. Photograph:( AFP )

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How India deals with its economy would have a direct impact on its external trade and geopolitics at large

The world and the world around us has become uncertain. The impact of COVID-19 pandemic will be felt by India both internally and externally.  

Internally, a full lockdown cannot continue because the economy needs to be unlocked. Reignited. India needs to start working, even if a real threat of COVID-19 pandemic persists. We cannot surrender our future to a virus. A month lockdown has brought an already slowing economy to a grinding halt.  

Externally, the world economies will become inward-looking. The global recession is underway. Liberal economic order is taking a bow as protectionism will now flourish. In the geopolitical order, India will be the middle power between the United States and China. It will have substantial bargaining power in a deepening US-China confrontation.  

In the last two months, the pandemic scenario was so dynamic, that it was difficult to reflect upon the impact. An extended lockdown in India, the opaqueness and the revelations concerning China’s role and the abdication of the United States to lead the world in overcoming this crisis has made the picture clearer.  

Internal Challenges and Opportunities 

There is a prediction of zero percentage GDP Growth for India. India will bear ‘catastrophic consequences’ and 40 crore jobs are at peril, as per an ILO report. A large number of people are already losing their jobs and many small businesses have started bearing the brunt. Unorganised sector — which is already enduring the burden of an unplanned lockdown is hurt the most. Millions are becoming poor. Migrants have still not reached home. Women and children isolated in the houses have become vulnerable owing to a spike in the cases of abuse. Societal fissures have deepened, owing to the complacency of governments in allowing religious congregations in the beginning. Communal harmony is in danger.  

The Central government has announced two major packages. First, an ‘economic package’ worth Rs 1.7 lakh crore for the poor, which entails bare minimum cash transfers to women, some minuscule help to health workers, no real help for farmers and zero assistance to the small and medium businesses. Second, an ‘Emergency Response and Health System Preparedness Package’ worth Rs 15,000 crores has been announced for states.  

Health is a state subject. It is the states which are required to take lead in fighting the pandemic. However, no real funding has been given to states. For instance, Punjab has been handed over a pittance sum of Rs 71 crores to fight the pandemic. A big state like Karnataka has been allocated only Rs 395 crores. Kerala which has the second-highest number of cases has been allocated Rs 157 crores. This is too little. The union government should increase this funding so that states can start building the requisite healthcare infrastructure.  

Supply chains are still disrupted. People are hungry and are mortgaging their dignity to stand in long queues, to get cooked food either from private bodies. Only 15 per cent of the poor have received the promised pulses under the union government’s package. Around 11 crore poor are estimated to be out of the entitled PDS net and are on the verge of starvation.  

Even the most ardent supporters of the market economy feel that this is no time for fiscal prudence and a loosening of purse strings is the need of the hour. Cash transfers to the poor, tax breaks to industry, and deferment of loans, employee retaining packages for the small industries, wrapped in a large stimulus package is the need of the hour. How India deals with its economy would have a direct impact on its external trade and geopolitics at large. A nation’s external policy is shaped by its internal stability.  

External Challenges and Opportunities  

There is an economic web angle to the current crisis. US Fed’s balance sheet is now at record levels above $6 trillion, after the central bank pumped almost $2 trillion in quantitative easing since late February. The United States, therefore, is running high trade deficits and acting as a consumer market. Closer to home, China is acting as an investor. It wants to put the Yuan on the global currency map. China’s Belt and Road Initiative (BRI) and its numerous infrastructure projects make it an ideal power for smaller countries to gravitate towards itself.

However, there is a constraint. With businesses shut in most of the developed world, who will China export too? After, all Economy 101 is based on supply and demand. With the demand weakening, can China retain its position as a major exporter?  

India is in a unique position to bargain. On one side, the US would want India to spearhead its economic and geostrategic potential to counter China. Given that India also has a large sector for vaccination and pharmaceuticals, it would be heavily wooed by the United States. On the other side of the spectrum, China would want India to continue increasing its trade with it, the latter being a massive consumer market for its goods.  

The newfound negotiating power of India places it as the middle power between two confrontationist nation-states. Yes, there will be other powers like Russia, Japan, and EU et al which may join either camp. However, traditional Indian foreign policy prefers installing ‘tents’ in either block to joining any ‘camp’ and that position will only get strengthened.  

All this will be contingent on how India strengthens its economy — internally. And that should be our only focus, for the time being. 

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)


 

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