Foreign policy goals, influence and threat perceptions are shaped by a combination of economic capacity, technological leadership, diplomatic leverage as well as military strength. The BJP manifesto, to recall, seeks India’s “rightful place in the comity of nations and in international institutions” through “global strategic engagement in a new paradigm”, and this assertion should lead to a bold new vision.
The ‘Asian Century’ will be shaped by its middle class reaching three billion by 2030, accounting for two-fifth of global consumption. 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. India’s GDP will increase to 18 per cent as a share of global GDP while China’s share will be 28 per cent, just as it has been since the dawn of civilisation.
Relations between China and India will be the defining factor for realising this potential by developing a notion of ‘shared prosperity’ in at least two relevant areas: Natural resource used in a situation of global scarcity; and, manufacturing capacity to support their middle class consumption.
India and China will have to reconstruct international relations theory with a global vision of sharing natural resources and technology, to ensure prosperity for its people who have yet to benefit from globalisation. Such a vision will provide the legitimacy to reshape the global order, as the shift will require new global rules based both on markets and social considerations. Creating markets for economic growth and then creating new markets to clean up have led to the current global ecological crisis; climate change is an example of market failure.
Global environmental change is not about physical but social processes. Dealing with global ecological limits remains an unresolved issue within the United Nations. New values based on the principle of shared responsibility and prosperity will be the basis for international cooperation; redistribution has so far been kept outside the UN system. New global rules based on per-capita use of natural resources to raise standards of living will be vital for India’s continued growth, more than for any other major power. For example, while the working age population of China has peaked, India has half its population, 650 million people who are less than 25, out of which 400 million are less than 15 years old, presenting a very different set of challenges compared with the other global powers, as their population has shifted, or is well on its way shifting, to cities.
India has the capacity for global leadership in pharmaceuticals and new crop varieties, as it is the only country with both extensive endemic biodiversity and a world class endogenous biotechnology capacity. Combining our global leadership in software development with China’s acknowledged leadership in manufacturing within an Asian ‘common market’ that share technological development will lead to continued growth. 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. As India builds its infrastructure and China shifts to consumption led growth, the two countries can increasingly become economically interdependent.
China is likely to overtake the US by 2025 to become the world’s biggest consumer market, with India as the third largest. These markets will define their own lifestyles and spending patterns, with significant impacts on global market developments and trends. India needs to establish a manufacturing base to support the shift of the rural population to cities and middle class levels of living not only within the country but also in Asia, and a pre-condition will be a common understanding between the Asian giants.
First, with Chinese labour costs growing 15 per cent 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. It is in India’s interest to get Chinese companies to set up manufacturing in the country. Capital goods, textiles, electrical goods, home appliances, auto parts, tiles, etc are products whose demand will increase both in India and in China with middle class consumption. We should encourage Chinese firms to shift here, and also support infrastructure development by building highways, power plants and ports — China already supplies over two-fifth of India’s power capital equipment and exported $6.7 billion of telecom equipment to India in 2011.
Second, India’s technology outsourcing companies have not been able to sell to China’s largely state-run companies, that requires a heavier dose of government relations than Indian firms are accustomed to, and a Working Group needs to be set up linking software service markets in China to infrastructure projects in India for the mutual advantage of the respective countries.
Third, China is now India’s largest source of imports, with trade deficit of $31 billion out of a total deficit of around $150 billion. A focus on bringing down this deficit with China would increase the overall trade deficit because two-third of these imports are capital goods, such as electrical machinery, nuclear reactors, boilers, iron and steel products, ships and boats, and project goods with prices 30 per cent or more below those offered by suppliers in the US, Europe, or Japan, and also come with financing deals, while India largely exports raw materials.
Fourth, the real problem for India is the composition of foreign trade. Two-thirds is accounted by import of oil, gas and coal, and requiring capital equipment, preferably manufactured in the country, to generate electricity and access to low cost finance without unreasonable environmental restrictions on the use of fossil fuels and building hydro electric dams and nuclear power plants. As 300 million Indians are lacking access to electricity and per-capita electricity consumption is one-fourth of the world’s average, India needs to get its energy mix right. At the moment, imported fuels are being used to generate energy (for example, lNG). This mix can be changed by increasing hydropower and coal based generation. Already India and China are working together in the climate negotiations to ensure the policy space for future growth of infrastructure, urbanisation and middle class well-being.
Fifth, a major factor tilting the scales in favour of manufacturing in India is favourable movements in the foreign-exchange market. The yuan has climbed 7.2 per cent against the US dollar in the past three years and 35.3 per cent in the past decade, making China’s exports costlier. The rupee, meanwhile, has dropped 26.7 per cent in the past three years, making imports more expensive. Even if both currencies rise against the dollar, a common market with its own standards can be a powerful factor in shared growth of the Asian giants. In the Global CEO Survey of 2013 published by Deloitte, though we score poorly in terms of number of researchers per million population, innovation index and quality of life, the executives were sure that India would climb to the second place in terms of competitiveness.
The relations between India and China need not be — and should not be — a zero sum game, and the time is ripe for settling differences with China. Changing the political and economic relationship between two rising powers seeking to establish their territorial integrity, identity and rightful place in world affairs requires that both countries use the opportunity provided by their proximity and shared interest in global governance reform to develop close cooperation and trust and pave the way for the ‘Asian Century’, rather than let a colonial legacy dominate relations.
The writer is a former Indian Administrative Service officer and has worked with the United Nations