Brainstorming Session on Strategic & Economic Outlook for 2022

The Vivekananda International Foundation organized an online brainstorming session on Strategic and Economic Outlook for 2022 on 10 January 2022. It saw participation from Dr. Arvind Gupta, Dr. Anantha Nageswaran, Dr. C Rajamohan, Lt Gen Ravi Sawhney, Amb. Arun K Singh, Amb. Kanwal Sibal, Amb. PS Raghavan, Amb Anil Wadhwa, Prof. Srikanth Kondapalli, Amb. Anil Trigunayat, Amb. Gautam Mukhopadhaya, Amb. TCA Raghavan, Lt Gen Ata Hasnain, Amb Satish Chandra and others.

The Covid uncertainty brought about by the omicron variant is expected to impinge on 2022 and impact both politics and economics. In terms of global economy, the negative interest rates in the US continue to fuel bubbles in asset prices and stock markets including the crypto-currency mania worldwide. The price of crude oil along with decreasing investments in oil complicate energy transition as the economics don’t necessarily justify renewable energy. The third Covid wave in the beginning of 2022 does temporarily cloud the outlook and postpone some elements of recovery in India. However, FDI inflows remain a bright spot as China plus one strategy is beginning to take shape and gain momentum. The technology competition is being reflected in both the civilian and the military sphere. China’s increasing its nuclear arsenal and its hypersonic missile tests threaten a new arms race.

The deep political polarization in the US makes the mid-term elections highly contested. While Biden sees sharp decline in political ratings, Xi seeks a rare third term extension. With the 20th Party Congress in late 2022, Xi is likely to continue with his agenda of rebooting China’s economy, politics, and foreign policy despite the ensuing domestic turbulence. China’s zero Covid policy and constant lockdowns complicate Xi’s dual circulation goals as domestic consumption further declines- in China it is 53-54% of GDP compared to 70-80% of GDP in developed countries. With numerous policy bills under Biden, the structural shift in US-China relations is unmistakeable and the stage has been set for prolonged rivalry. However, there are uncertainties owing from domestic interests as Wall Street and rising inflation push for rethink of US’ China policy and factional interests in the CCP make stabilizing US relationship a priority.

Indo-Pacific environment saw significant developments in 2021 with the announcement of the AUKUS, Japan-Australia defence pact as well as Europe’s naval deployments to the region. As the US is continually challenged by an aggressive China, there are strong responses from US and other affected countries. ASEAN has been struggling for two decades now to lock China into a code of conduct. China ally Cambodia taking over as Chairman of ASEAN this year will complicate said attempts. The pandemic, economic downturn, Afghanistan turmoil and oil prices have all impinged on Middle East regional dynamics. 2021 was the year of dialogue among West Asian regional actors. US also continues to be preoccupied with Iran as the Iranian nuclear issue remains a major area of concern. The situation in Afghanistan poses a serious humanitarian challenge. Though many nations have started icebreaking with the Taliban while not necessarily recognising the government.

In view of rising tensions in Eurasia, the threat of sanctions on Russia in purview of the Ukraine conflict raises challenges for India. India is already facing confrontation over CAATSA (Countering America’s Adversaries Through Sanctions Act), and in case of sanctions, India’s relations with both US and Russia may face new upheaval. There has not been much progress in the military commanders’ talks between India and China after initial breakthrough in February 2021. The emphasis is on managing conflict rather than de-escalation. Overall, India’s relative position in international system continues to improve with its economic prospects and its being the sixth largest economy in GDP terms. Positive relations with all major powers except China and an expanding regional profile provides good base to deal with the expanding uncertainty in international affairs.