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With the age-old Ram Mandir issue resolved Indian civilization took a step ahead in 2020 even when global and Indian economy took several steps back due to pandemic. A great historic wrong has been corrected which was imposed on our ancestors and the current generation of Indians had the fortune to behold the reversal. A golden chapter in history was written in Ayodhya with the auspicious culmination of Bhoomi Poojan and with it comes renewed responsibility by the current and future generations to live upto the potential of the civilization as proud torchbearers. The name “Ayodhya” derives from Sanskrit word “Yudh” meaning “to wage war” and Ayodhya signifies that which is “not to be fought” or “invincible” or “unconquerable”. A powerful and invincible Bharat i.e. Ayodhya is a goal which Indians should strive to make each and every symbol of Indian culture meaningful. A nation devoid of economic and military power won’t be able to enrich or preserve its heritage, traditions, ideals or values to pass on to next generation. While a decade is just a drop of ocean in the eternal flow of civilization, it’s a good enough time frame to extend the momentum for a generation.
Economic power is the ultimate source of power which can supersede or make up for lack of power in other domains. Economic power is to a nation state/civilization what spiritual strength is to an individual human being – all pervading. Unsurprisingly, lack of economic power in relative terms can result in decline of a civilization. For much of known history, India was the superpower civilization inspiring awe as an orient and had largest share in global GDP with estimated 32.9 per cent in earliest records and 28.9 per cent in 1000 AD with negligible mark of European nations. It’s in 1500 for the first time that China briefly piped India to obtain 25 per cent of global GDP as against 24.5 per cent for India.1 The Mughal Empire was founded around the same time by Babur in 1526 and Ram Mandir destroyed thereafter in 1528 doesn’t seem surprising viewing from a prism of economic history. What followed was the rise and decay of Mughal Empire ultimately leading to British colonialism. Indian civilization suffered a heavy toll under both Empires for about 500 years. The construction of Ram mandir is ideal time for a parallel revival in economic fortunes and greater share of world trade and economic prosperity.
History stands testimony that superpowerdom of civilizations or nations are “relative”. Whether a nation is mighty or rich principally depends on how other nations stack up in comparison. The Netherlands in mid-eighteenth century around the time of Battle of Plassey in India was richer in absolute terms compared to a hundred years earlier but was much less Great power because neighbours like France and Britain had more in relative terms. By 1914, France was much richer than that but was in absolute terms eclipsed by Germany. Similarly, the India of today is better off than at any point since 1947 with GDP growing and technology connecting the poorest hinterlands. However, India has to contend with China which started reforms earlier, grew faster and got more people out of poverty over the last three decades in comparison to spectacular Indian performance. India in contrast to China opened up only when faced with economic crisis in 1991 even though India was better positioned to be the manufacturing hub of the world with labour arbitrage and free markets.
It is a pattern oft-repeated in history that a rising super power will stake claim to the high status from the existing power by trying to affect changes in World Order. China with the biggest economy in Purchasing Power Parity (PPP) terms will aim to do just that while the response of other big powers can limit the extent to which China will succeed in imposing a new world order favourable to them. While USA imposed a world order after World War II with the might of nuclear technology, the Soviet challenge made it a bipolar world as opposed to period starting from 1991 after collapse of Soviet Union.
Unlike the cold war era of US-Russia bipolarity, the stakes for India is higher in US-China world order. The Geographical proximity to one pole i.e. China which also is direct economic as well as military threat leaves India with no option but to respond proactively. A laid-back non-aligned approach may not work and alliance with multiple countries and deft diplomacy will be a necessity.
A challenging power is also the most prone to war. “What made war inevitable,” Thucydides wrote in The Peleponnesian War,” was the growth of Athenian power and the fear which this caused in Sparta”. The unravelling of Chinese debt trap intentions combined with wolf warrior diplomacy on a world facing a virus originated in China ensures that the world today is more apprehensive about Chinese rise than ever before. However, sooner than later the economic and military realities will again come to forefront in determining the world order. While history does point towards role of individual folly of leaders, geography and national morale in determining outcomes, it seems uncontestable that a long drawn Great power battle has consistently gone towards the power with more flourishing productive base. An India with a superior, battle hardened armed forces can successfully contest the Chinese side in the event of armed conflicts but doesn’t take away from the fact that odds are stacked against India in case of long drawn war. Any assumption that USA with substantially higher defense expenditure than China will retain the edge in foreseeable future is as misplaced as European generals during World War I thinking only of swiftly fought wars where Russia was seen as a threat. While Russia possessed a front-line army about 10 times that of US, the United States produced six times as much of steel, consumed ten times as much of energy and was four times larger in total industrial output going into World War. While the army generals’ assessment of Russia was correct for a swiftly fought war, by all other criteria the United States was stronger. What the war ended up with was United States being a strong military power by 1919 instead of predicted 1925.2 A focus on economy alone will improve the odds and there is lot of catching up to do for India in this domain.
Unlike overseas investments by other nations, Chinese investments due to sheer scale have the potential to directly impact the World Order. The Belt-Road-Initiative (BRI) is not just economic investments of China diversifying from US Treasury bonds but also a tool for exerting military power across the globe by creating vital assets and interests. From an Indian point of view, the BRI project dwarfs any grand strategy which India can emulate or compete against at this point in time.
Around 27000 Chinese investors had established 43000 enterprises in 188 countries. About 10000 of those enterprises were connected to Belt & Road Initiative. With Covid-19 affecting major western economies, the relative decline of various nations will determine if China has the upper hand economically to dictate terms to nations. The BRI hinges on the success of these thousands of enterprises and Indian interests may have to look at those projects which may turn strategically harmful. The growing hostility and suspicion the Chinese investments evoke may work against China if actively fanned and explains why China may consider restricting the outbound direct investments.3 The amendment of Enemy Property (Amendment and Validation) Act which gives power to Indian government in case of a military conflict to confiscate assets of Chinese companies doing business in India is a step which Indian government should diplomatically push.4 In case of major economies like US, EU & Japan taking similar measures, the Chinese investors may scramble towards domestic markets while a counter measure by China will end up with foreign companies shifting out of China faster. Both alternatives will work in Indian interest to contain Chinese hegemony.
Another giant investment which will wield substantial influence is the Chinese lending to developing countries. With opaque lending and no official breakdown of overseas activity, China is also not a member of Paris club or OECD Creditor reporting system that share data on bi-lateral lending. China in 2017 surpassed the loan books of IMF, World Bank and all other Paris club governments combined and is the world’s largest official creditor and debt owed to China was 15% of debtor country GDP in 2017.5 With such a high debt owed to China, the leverages of China over many nations are significant.
In the current world order, the biggest contributor to US economic competitiveness which China doesn’t possess is hegemony of US dollar. The irreplaceability of US dollar which Federal Reserve can print at will ensures US can run perpetual trade and budget deficits without consequences. The decade 2020-2030 will likely see China attempting to end the hegemony and replace it with Yuan.
The economic rise of US was consolidated after World War II when Bretton Woods’ accord was signed in 1945. Starting with dollar bills backed by gold, the US President Richard Nixon got rid of gold from the equation making it a fiat currency without impacting its appeal among the global community. As the sole authority which can print the reserve currency the US dollar’s liquidity, acceptance and low interests gave US an upper hand for more than half a century. The Federal Reserve in the backdrop of pandemic has added $3 trillion to its balance sheet since February putting the global fund managers in a precarious position. The unilateral knee-jerk approach of US President Donald Trump is in sharp contrast to the previous leaders who moved to weaken the dollar as part of consensus shift to address global imbalances notably with 1985 Plaza Accord. The US administration is increasingly taking the hands-off closed approach which may worry stakeholders invested in the reserve currency and reduce the appeal of dollar paving way for alternatives. The Chinese economic size makes them a contender although a closed political system, lack of transparency, deep-rooted suspicion and track record of manipulating currency prices goes against them. The Yuan’s global footprint remains tiny relative to its economic power stagnating at about 1.8%.6 In the eventuality of any armed conflicts or a World War III, the reserve currency status is what China will aim for in the negotiating table while looking for victory.
As USA faces Great depression like in 2020, there is possibility that economic deleveraging and close to zero interest rates will make investments in US Treasury bonds unattractive for global investors especially the biggest investor – China. China will intensify diversification into projects which can provide a higher rate of return. In many ways, it’s of utmost importance to India that US dollar retains its pre-eminent status as the reserve currency while India plays catch up. Indian economy is too small that it may not be in a position any time in foreseeable future to offer INR as a reserve currency. The Chinese currency attaining the reserve currency status and ability to raise funds in favourable terms like the US will hand over an edge to China which India may not be able to beat. It would be interesting yet risky to observe where the economic gravity of the world shifts if China were to announce that all transactions would be henceforth in Yuan. With US being the issuer of reserve currency which won’t budge and India being second biggest trading partner of China, Indian insistence on US dollar or some other non-Chinese currency can tilt the balance upto a limited extent.
Despite the decades when China grew rapidly adding value to the global supply chain as an indispensable trade partner, the Chinese have failed in producing favourable image of themselves in western world. An important sentiment behind US executive order against Tik Tok and WeChat is not economic or data security alone but apprehension of subversive activities which widespread use of Tik Tok and WeChat can affect. For a western democratic nation, it would be concerning to have a Chinese capability installed in phones of its population which can spread its authoritarian political ideology. From a Chinese point of view, Tik Tok and WeChat owned by Tencent would have been a daily touch point of millions of western users to generate soft power with positive association.7
The Chinese Confucius Institutes totaling more than a 100 in USA alone are viewed as propaganda machinery and have failed to provide tangible benefits in terms of pushing Chinese interests being viewed by democratic countries as puppets of Chinese communist party. The closure of Confucius Institute seem imminent and of far lesser consequences. India fares much better on soft power front with positive associations like Yoga seeping into the western way of life while Bollywood evinces interest in certain quarters. The democratic credentials also adds to the comfort factor even though the Indian budget to develop soft power may be a fraction of what China may be willing to spend. Of all other external engagements, the soft power push by India has highest chance of getting disproportional returns without outspending China. The foundation for soft power is already laid partly due to the rich Indian culture which is a natural magnet for inquisitive minds. The decade 2020-30 should see India building on solid foundation of its soft power to reap greater benefits in a range of domains. After all, brand building contributes a lot in generating demand and it’s not just about price competition (where China excels in). In the long run, branding is about making global consumers ignore the slight price advantage and pick Indian goods from the shelf over cheaper Chinese ones.
Depending on the long term impact of negative global opinion, the possibility if China will go down in history as a potential superpower that displayed “hubris” early on and overextended themselves can’t be ruled out if China is unable to accumulate soft power.
Unlike the macro-external factors namely the competition to India, the major domestic economic factors are inside the domain of influence and will pay rich dividends and strengthen the external engagements too. While the number of improvements is numerous in any country, three things stand out for India and should form focus areas for the decade 2020-30:-
India’s banking sector is severely underdeveloped relative to the size of economy. An efficient banking sector and credit flow factoring in demand/supply dynamics in a competitive market is a pre-requisite for sustaining growth. While India has just one bank in global top 100, Sweden which is 1/6th the size of India and Singapore 1/8th the size of India have thrice the number of global banks as India. Even Finland with economy just 1/11th of India has one global bank. With Public Sector banks (PSB) accounting for 70 per cent of the market share, the government has a major role in deciding the fate of banking sector. While increasing foreign investments would be important but dependent on external forces, the greater efficiency and productive use of capital within the country can be a more reliable and achievable goal for the country. Yet, on every performance parameters, PSBs are found inefficient compared to their peer groups. Several committees like Narasimham Committee (1991, 1997), Rajan Committee (2007) and JP Nayak Committee (2014) suggesting measures to enhance efficiency of PSBs makes it amply clear that this is a well-recognized unaddressed issue.8 The disproportionately lower penetration of credit when plotted against GDP per capita even after taking into account the population differences signals that an enterprising youth of India is less likely to benefit from credit than a youth in other major economies.9 By 2030 when India is likely to be the country with biggest work-force, it would be a lost opportunity for the talent and enterprise of this country to not have a financial system give wings to their ambitions. A well-developed equity market, deep bond market & financial instruments are an important asset for an ambitious economy.
Apart from the internal prosperity which financial sector can usher in, the financial system can play a crucial role in funding aimed at external threats too. Given how expensive wars are and possibility of extended conflicts turning into test of endurance, the only thing which can assure success is money, money and yet more money. In case of World War I, victory therefore went to the powers which had greater capacity to maintain credit and keep on raising supplies. In case of coalition wars, the duration will be extended and India can’t afford to be a nation whose resources fade away only to look at powerful ally for loans and reinforcements. The short-term wars which are won in such a manner often result in long term ruin. The biggest asset to US in case of a conflict would be the alacrity with which US Treasury bonds can be issued to raise funds at almost zero cost to the exchequer. The biggest Achilles heel for USA would be that China is the biggest buyer. Going back in history, the pattern clearly emerges in the Anglo-French Wars when British could spend on war out of all proportion to its tax revenues and throw into the struggle with France and allies the decisive margin of ships and men without which previously committed might have been in vain. The British with their superior banking system consistently spent 30 percent and above proportion as loans as percentage of expenditure while it even touched 39.9 per cent around the American revolutionary war.10 Modern financial sector can enable fund raising beyond the means of middle age banking system when suitably exploited.
With India below par compared to the potential in proportionate terms, the strategic aim to punch above the economic weight as a key deterrent apart from military power is still a long way to go.
Agriculture continues to be a focus area for India in 2020-30 unlike other major economies due to the sheer number of citizens employed in the sector. While major economies look at Agriculture from a food security angle alone, the fact that 70 per cent of rural households still depend on agriculture for their livelihood adds another important dimension in India. The economic behaviour and shifts of 82 per cent of farmers who are small and marginal will determine economic fortunes spreading to the grassroots level.11 Indian policymakers will have to ensure urbanization and take industrial development to tier-II & tier III cities in order to gradually provide industrial employment alternatives to the marginal farmers. At the same time, it should also ensure land under cultivation isn’t declining drastically putting food security under threat if India witness global trend of agrarian economy moving into industrial activities for livelihood.
The Government should ensure that any such shift should coincide with increasing farm mechanization which can make up for the possibility of reduction in labour employed in the sector. The farm mechanization which is just 40 per cent compared to 60 per cent in China and around 75 per cent in Brazil should be doubled to realize the full potential of the sector. The objective of doubling farmers’ income will gain an impetus if mechanization, insurance coverage and irrigation facilities can be improved on a large scale.12 The ultimate irrigation potential estimated at 139.5 million hectares (mha) would be a goal which can mitigate the risk of farmers who form a big chunk of the economy as opposed to the present 84.9 mha.13 As per the World Bank, the ratio of total agriculture income to total population is relatively flat across countries regardless of per capita income.14
India has enough food but has more than enough people engaged in farming. Economic growth potential can be unleashed by policies economically rewarding industrial employment while also ensuring land under cultivation doesn’t decline substantially with improving productivity and higher mechanisation - A delicate balancing act for a country of 1.30 billion.
It’s said that “Truth is stranger than fiction”. There are numerous examples throughout history of both wild card discoveries as well as purposeful scientific inventions which changed the course of history. The nuclear weapons sealed the fate of World War II and made US such a potent force militarily and the subsequent unabated research continues to give an edge which China is trying to catch up. A wild card is unpredictable but has a remarkably frequent (but irregular) impact on world history and it would be a mistake to discount it or be unprepared for it. A stray arrow on Samrat Hem Chandra Vikramaditya in second battle of Panipat in 1556 sealed the fortune of Akbar and reinstated the Mughals in India and the subsequent decline paved way for British East India Company. A Spanish mining administrator used a steam operated machine to solve his problem of flooded mines which more than a century later resulted in Scottish engineer James Watt’s steam engine but it was British who struck gold with it. By 1820, the British could with steam-powered looms produce 20 times output of a hand worker but also operate machine which had capacity 200 times of the regular spinning machine.15 A single British railway engine could source heavy raw materials at very high speed from the British colonies in India and enrich themselves with the loot faster compared to time required with hundreds of horses or elephants.
In contemporary history, nothing changed the course of world more than “internet”. The USA where the invention originated is unsurprisingly about half a century later the country with most successful internet based companies. It was inevitable that US encounters problems in technology first and mostly formulates solutions first which the rest of the world adopt (by paying the price in money and influence). The power and reach of the likes of Google and Facebook can’t be overestimated. The innovators themselves aren’t necessarily Americans alone but US being a thriving ground for the best minds and excellent ecosystem became a launch pad. The well-developed US capital markets and astute investor networks bolstered it scaling it globally and changing the world in the process.
Thomas Edison said “Everything comes to him who hustles while he waits”.
Will India enable an ecosystem during 2020-30 of enough curious scientists who can hustle and trip over an idea or develop an invention which can revolutionize the world and hand over the edge to us?
The wild card innovation has too many precedence in world history that it is not a written-off possibility.
A sum total of dedicated efforts towards military, diplomacy and economy along with a possible boost in the form of a new technology have the potential to make India an “Ayodhya” i.e. unconquerable or invincible by the end of the decade.
(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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[1] https://www.vifindia.org/article/2020/august/13/dissecting-macro-focus-areas-for-india-this-decade-world-order-domestic-economy-and-technology
[2] https://www.vifindia.org/author/praveen-menon
[3] https://www.scmp.com/economy/china-economy/article/3027167/chinas-overseas-investment-fell-10-cent-last-year-government
[4] https://economictimes.indiatimes.com/news/politics-and-nation/modis-amended-enemy-property-law-gives-jitters-to-china/articleshow/62601031.cms?from=mdr
[5] https://voxeu.org/article/china-s-overseas-lending-and-looming-developing-country-debt-crisis
[6] https://www.livemint.com/market/stock-market-news/is-us-dollar-s-reign-as-world-s-reserve-currency-is-under-threat-11596175872376.html
[7] https://theprint.in/world/with-wechat-ban-trump-brings-cold-war-with-china-into-a-billion-homes/477685/
[8] http://www.fao.org/3/y5082e08.htm
[9] https://www.theindiaforum.in/article/india-s-biggest-challenge-future-farming
[10] https://unsplash.com/photos/FO7JIlwjOtU
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