The Outlook for 2023
Arvind Gupta, Director, VIF

The year 2022 will go down in history in which the great power rivalries returned with a vengeance. Even as the Covid pandemic lingered on, the world saw a major conflict erupting in Europe, bringing in its wake huge supplychain disruptions, an unprecedented energy and food crisis and high inflation which plunged many countries into bankruptcy and indebtedness.

The Russia-Ukraine war was the ‘Black Swan’ event of 2021. Although the fears of invasion were being expressed in January, the actual invasion came as a huge surprise. The even greater surprise was that the war, now in its eleventh month, has gone on for so long. It was expected to be a short-term affair. The positions of the two sides are pole apart and a compromise seems difficult. It seems that the war is likely to continue well into 2023.

What is the outlook for 2023? Will the world see a respite from the multiple geopolitical and economic crises of 2021 or will the situation be worse in 2023 than in 2022?

The chances are that the negative trends of 2022 are likely to continue because all the factors which made 2022 a defining year are still in play. Heightened geopolitical risk, uncertainty and unpredictability will remain the defining features of 2023. As multilateralism remains dysfunctional and de-globalisation gathers pace, more crises may engulf the world. A great deal of circumspection and restraint on the part of leaders and citizens will be required to navigate the choppy waters in 2023.

Much will depend upon the choices the world leaders make. If sanity prevails, the Russian-Ukraine war may come to an end through dialogue and diplomacy. There is a slight glimmer of hope. Russia has said it is ready to negotiate and President Zelensky has proposed a ‘peace formula’ which envisages the complete withdrawal of Russian troops from Ukraine. Yet, these are initial gambits. It is difficult to be optimistic about an early end to the war. Despite the bravado of the Ukrainian President, Ukraine and its people are suffering immensely. How long will they bear the pain? For the moment President Zelensky is counting on continued western support in weapons and money. But this cannot go on indefinitely. War weariness will set in some time or the other.

Mother Nature has entered as a major factor in geopolitical risk calculations. The pandemic has introduced new certainties in geopolitical calculations. The world has still to recover to the pre-pandemic levels of economic growth. In the last few years, most parts of the world have faced nature’s fury. Extreme weather events are taking a toll on countries. Adaptation and resilience require international cooperation and resources. Solutions are available but the political will is lacking.

In a worst-case scenario, Russia Ukraine war may be transformed into a wider conflict. The West continues to pump tens of billions of dollars of weapons into Ukraine. Sweden and Finland have been admitted to NATO. Putin has warned that Russia will respond suitably to the continued supply of NATO weapons to Ukraine. He has announced the plans to deploy intercontinental ballistic missiles soon. This will exacerbate tensions.

Most issues of international security remain unresolved. Diplomacy has taken a backseat. The UN Security Council, which is mandated to resolve international security, has instead become an arena of battle amongst the P-5. Multilateral institutions may become even more dysfunctional during 2023. India has expressed its dissatisfaction at the way the UN institutions are functioning and underlined the urgency for early reforms.

The geostrategic rivalry between the US and China is likely to spill into new sectors. The US has taken several strong measures to deny China access to its chips and semiconductors. Chips, electric vehicles, batteries, artificial intelligence, vaccines, quantum computing, batteries, critical materials and rare-earth elements are the new battlefields of great power rivalries.

Fresh approaches will be required towards public health emergencies as the world faces the prospects of a fresh outbreak of the pandemic. China, a global economic powerhouse, is bracing for a massive spread of the pandemic and deaths on a large scale. This will result in economic disruptions worldwide.

In recent times several countries have borne the fury of extreme weather events caused by climate change; such events are becoming more frequent and disruptive. This trend is likely to continue. The need for better resilience and adaptation will continue to be felt. However, the inability of the world to come together to deal with climate change has been starkly shown in COP 27. It is unlikely that a quick agreement on loss and damages due to climate change will be realised anytime soon.

Most analysts predict a sharp global economic slowdown, if not a downright economic recession. There is a growing consensus that 2023 is likely to be to the third-worst year for global growth in the 21st century. According to the IMF forecasts, global growth will slow from 3.2 percent in 2022 and 2.7 percent in 2023 while global inflation will decline from 8.8 percent in 2022 to 6.5 percent in 2023 and 4.1 percent by 2024. The inflation may slow down but it will remain at high levels. Food, fertiliser and energy crises to continue high commodity prices may soften a bit unless there is a geopolitical black swan event.

Cyber attacks and cyber crimes increased exponentially during 2022. This trend is likely to continue in 2023 as new technologies like artificial intelligence make cyber attacks more complex and complicated. Cyber crime will also increase as it has been over the last several years.

The Russia-Ukraine war is not just about artillery, tanks and missiles. It is truly a hybrid war in which modern technologies, cyber tools, and data platforms have been used effectively alongside kinetic weapons. The war was fought in all domains simultaneously. Several global private companies took sides and helped Ukraine by providing intelligence and communications and helped build its resilience. Social media was used as a tool of war by both sides. The mainstream media also joined in the propaganda war. Strategic experts are closely studying the ongoing war to understand how future wars are likely to be fought.


The Russia-Ukraine war presented difficult choices for India. Whose side to take? Eventually, India took a principled position. It abstained from UN resolutions condemning Russia while coming out strongly in favour of dialogue and diplomacy. PM Modi told PM Putin publiclythat the present age is not an era of wars. This position was appreciated widely in the international community. PM Modi spoke several times with global leaders including Putin and Zelensky. Many analysts felt that India could play a role in facilitating the end of the war. As G20 president in 2023, India can explore the possibilities of ending the war. President Zelensky even said that Ukraine is ‘counting’ on India.

Thanks to the G20 presidency India has the opportunity in 2023 to play a role in shaping the global agenda. Reforming the dysfunctional multilateral system should be a top priority. Achieving UN Sustainable Development Goals by 2030 should be another. Dealing with climate change is third. The list is long. By choosing Vaudhaiva Kuntmabkam – One Earth, One family, One Future – as the overarching theme of the G20 presidency, India has signaled its inclusive approach to global issues. A note of caution, however, is in order. Intensification of US-China, and US-Russia rivalries could endanger G20. India-China relations are delicately poised. Ensuring a successful culmination of its G20 presidency will remain a priority for Indian foreign policy.

Lately, India has begun to strongly articulate the interests of the global south. This is a welcome development. While maintaining close relationships with the US and Russia and also advocating a free and open rule-based Indo-Pacific, India has the chance of making a positive contribution to global peace and stability. This will require a high degree of engagement with differentcountries and multiple global and regional issues.

Ironically, as India’s relations with China become more complicated on the political and security fronts, its trade with China has increased sharply. The trade deficit has reached a whopping USD 73 billion as the trade has crossed USD 116 billion in 2021-22. This level of trade deficit is unsustainable and poses a security risk. India’s dependence on China for raw materials, machinery and intermediate goods needs to be cut down sharply. Many companies are getting disillusioned with China as it turns inwards and becomes hostile to foreign businesses. India must project itself as an alternative destination for investment like Vietnam is doing. It will need to improve the ease of doing business and speed up reforms to attract foreign investments. The cost of logistics and capital will have to be reduced. The Atmanirbhar programme, supported by various Production Linked Incentive schemes, has done well but it has still a long way to go, particularly in the defence manufacturing sector.

China continues to remain a big security challenge for India. The skirmishes at the Yangtse section of the Line of Actual Control near Tawang have once again underlined the unreliability of China and its endeavour to keep India under constant pressure. China cannot be trusted. India will need to rethink its security doctrines to thwart China’s aggressive designs on the LAC and in the region. It will need to take a comprehensive approach to deal with China by not only building infrastructure in the border regions but also by further bolstering ISR capability, cyber deterrence and promoting jointness among the armed forces. Dealing with China will require strengthening the Quad’s security dimension, evolving suitable military and strategic postures because of the changes on the LAC, and becoming a strong technological power rooted in sound research, development and innovation.

India’s neighbourhood will continue to present challenges in 2023. China-Pakistan's strategic nexus is growing and will continue to present a challenge to India. Pakistan remains in the grip of deep economic and political instability. There is a sharp increase in clashes between Tehrike Taliban Pakistan (TTP) and the Pakistan army. Baloch protests have also intensified. Anti-India terror groups continue to operate from Pakistan and Afghanistan.

Cross-border terrorism remains a major security issue. India should brace for a fresh wave of terrorism in 2023. It is not surprising that India has taken up the issue of terrorism at the highest multilateral fora and also organised high-profile conferences in India in recent months.

In Afghanistan, the Taliban have hardened their stance, banning girls from education. Islamic State has stepped up deadly attacks in the country. Afghanistan-Pakistan ties have also deteriorated. Sri Lanka remains mired in an economic crisis.

Prachanda-Oli political alliance, born in opportunism and buttressed by China, has returned to power in Nepal. The situation in Bhutan and Maldives is relatively stable. Bangladesh will see elections in a little over a year. Myanmar remains in the grip of military rule with no immediate signs of a political settlement. The international community remains a bystander even as China’s grip on the country remains firm.

These are familiar challenges in the neighborhood. India can deal with them through a policy of constructive engagement, strengthening connectivity, bolstering economic cooperation and mature diplomacy. Connectivity has been at the heart of India’s neighborhood policy for the last several years. India should take some robust steps in strengthening BIMSTEC in 2023. The effort should be to increase power trading with Nepal, Bangladesh and Sri Lanka. India gave over USD 4 billion in help to Sri Lanka during its economic crisis. There are new economic opportunities in Sri Lanka which should be taken advantage of by increasing investment, trade and boosting connectivity.

Looking Ahead

Crossing the USD 3 trillion milestone, India became the fifth-largest economy in the world. While this is a creditable performance, the challenge will be to sustain a high economic growth rate at a time when the global economy is slowing down and inflation remains high. Economic slow growth in the US and Europe will impact Indian exports. High oil, gas and fertilizers will strain India’s current account position. India will need to take effective steps to ensure energy and food security for its vast population.

The economic content of India’s foreign policy needs to be strengthened further.The US is our largest trading partner. Strengthening economic, technological and security partnerships with the US is vital. The same holds for Europe. India will need to launch major efforts to boost its share in global exports. Africa and Latin America cannot be ignored. An early FTA with the UK should help. India should also join the trade pillar of the Indo-Pacific Economic Forum.

The Gulf is undergoing a huge transformation and rebalancing. The Saudi Crown Prince has initiated several socio-economic and political reforms. There are strains in Saudi Arabia’s relations with the US. China is making deep inroads into the Gulf region. Iran is seeing unprecedented protests over the hijab issue. These changes will play out in 2023. India’s relations with the Gulf countries have been transformed, but the role of Iran in the context of our access to the CIS and Central Asia is equally important. The promising partnership between India, Israel, US and UAE (I2U2), often dubbed as the western quad, is primarily economic that holds promise. We need to be to do fresh thinking to exploit the potential the region holds for India.

It should not be forgotten that India's security has continental as well as maritime dimensions. The Quad is primarily a maritime partnership as it focuses on the Indo-Pacific. It is not a security alliance, as India has said many times. India cannot be seen tilting to one side or the other. Our partnerships will continue to be guided by our national interests, not mere sentiments. The Eurasian region is of great importance for our security as well. The challenge from China and Pakistan is on the land where we have territorial disputes. Neither can be ignored. Terrorism emanates from Afghanistan and Pakistan. IS plays an important role in radicalising the youth. These challenges are rooted in the Af-Pak region and in Eurasia.

Therefore, Indian foreign policy in 2023 will have the task of balancing Eurasia with the Indo-Pacific. While the US and Europe remain important for India’s growth and stability, Eurasia cannot be ignored. Russia, despite its current difficulties, remains important for our overall security, including energy security. There is fresh momentum in India’s relations with Central Asian Republics which needs to be built upon. India holds the presidency of the SCO. We should use this opportunity to shape the SCO agenda and put an Indian impress on it.

In 2022 India fared well. We adopted a well rounded foreign policy which saw us through the Russia-Ukraine crisis. Economic management was prudent as India maintained a respectable 6 percent growth rate, inflation was brought under control and a precipitous fall in the rupee versus the US dollar was avoided. The pandemic situation was brought under control with a well-implemented massive vaccination programme.

The government accelerated the border infrastructure construction and unleashed several significant reforms in the defence sector which gave a boost to defence manufacturing and defence exports. India also launched the indigenous aircraft carrier INS Vikrant and carried out the training launches of Agni 3 (3000 km), Agni 4 (4000 km) and Agni-5 (5000 km) Intermediate-Range Ballistic Missiles thereby strengthening the credible minimum deterrent.

Yet, India cannot be immune from global headwinds. 2023 will be a hard year. The global slowdown will impact India too. China can pose unexpected challenges. Pakistan is becoming dangerously unstable. Even if the hot war ends somehow due to fatigue or diplomacy, the Russia-Ukraine conflict may become a frozen conflict. At the heart of the conflict lies the issue of Russian security. India has robust fundamentals, but overconfidence in one’s capabilities to deal with crises should be avoided. India can handle the uncertainties and challenges of 2023 provided it prepares itself well to deal with external shocks while maintaining domestic stability. There is no room for complacency.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>

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