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Covid19 can give India’s geopolitical ambitions new wings

The screeching halt that Covid19 crisis has brought to the pace of global economy reminds us of the year 1945 when due to the destruction created by the second world war it was declared as a zero year for economic growth. The way 2020 has arrested pace of life in big Indian cities such as Delhi and Mumbai are reminiscent of how the second world war reduced great cities such as Warsaw, Kiev, Tokyo and Berlin to piles of rubble and ash. But just like great wars create a new set of great powers, major crisis such as the covid19 pandemic also bring new opportunities in disguise. It has been a long time that India last implemented a major reform program in the 1990s. India was already late in liberalising its economy. In 1950, India and China had a similar GDP size of around $222 and $239 billion respectively. But in 1978, China under the chairmanship of Deng Xiao Ping started opening up its economy whereas Indian Prime Minister Morarji Desai imposed a 97% income tax and 3% wealth tax that every year. The next 20 years were very crucial as China’s economy grew at an average rate of around 10% whereas Indian economy grew at a rate of just 3%. While the reform programme initiated in the 1990s has opened up India to international opportunities to a great extent but its true potential is yet to be realised.

Today, China contributes around 17% to global trade whereas India’s contribution to international trade stands at just 2.6%. Under the leadership of Prime Minister Narendra Modi, India is envisioning to become a 5 trillion economy but this is not possible until India takes its share of international trade seriously. This means India must increase its share in the global trade to at least 8 to 10%. According to a study by OECD, about 70% of international trade today involves global value chains (GVC) where services, raw materials, parts and components cross national borders more than once. However, India’s link to the global value chains remains weak. India’s participation in GVCs has increased to 45th place in 2009 from 57th in 1995 according to statistics available with the OECD. Though this is a welcome change but provided India’s low labour cost and huge workforce, there is still a great scope for India to improve this rank.

Covid19 has indeed brought an important opportunity for India by bringing it a chance to increase its participation in the global supply chains. While praising New Delhi for lifting the export ban on hydroxychloroquine, US Secretary of State Mike Pompeo discussed the possibility of restructuring the global supply chains with a greater role for its friends such as India. Pompeo made a case for cooperation between democracies such as Australia, India, Japan, New Zealand and the Republic of Korea to share information and take the global economy forward. Similarly, Japan has announced an initiative to set up a fund of $2.2 billion to encourage companies to shift base from China. Corona pandemic and its cover-up by China has disenchanted the world with its dependence on an authoritarian, unaccountable and insecure China which has a track record of following opaque processes and unfair means. It is here that Indian can play its cards well by inviting foreign companies moving out of China to invest in India. India was quick to use its diplomatic channels to invite these companies to relocate from China. In April alone, India reached out to more than thousand US companies including medical devices giant Abbott laboratories.

In addition to the efforts by the central government, Indian states are also working hard to implement labour reforms. Land and labour reforms have been a long-standing demand from the India Inc. which believes such reforms can take India’s GDP growth rate to double digit. Madhya Pradesh was one of the first states to implement labour reforms followed by Uttar Pradesh, Gujarat and Punjab etc. UP Chief Minister Yogi Adityanath has given a target of creating 15 lakh jobs to various departments including five lakh jobs to the MSME sector alone. His government has also set up three desks for United States, Japan and South Korea in order to facilitate entry of international companies from these countries to set up business in the state.

No country in the world can dream of having big geopolitical ambitions without having a thriving economy in place. Covid19 has brought India its own zero year. In the short term, many analysts are predicting that India will grow at a rate of 0% this year but in the long run this is going to be the reset that India badly needed. India has smartly seized the diplomatic opportunity in Covid19 pandemic by reviving SAARC through its leadership and by sending necessary medical aid to countries worldwide. It is time for India to use this crisis as an opportunity in disguise by realizing its dream of becoming a $5 trillion economy.

About the Author

Monica is a PhD Candidate at Department of International Relations, South Asian University where she is assessing the political economy of regional integration in South Asia. She tweets at: @trulymonica

Keywords: Covid19, India, Geopolitical, Economic impact, China

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