As India returns to a high growth path after a slowdown in the last decade, its geopolitical salience in the world will continue to rise. India’s GDP has grown manifold since 1991-92 when it stood at $270 billion. Today, India’s GDP is $3.1 trillion and could cross, according to some estimates, $8 trillion by the end of this decade.
India is now the sixth-largest economy and could become the third-largest by the end of the decade if the current projections hold. India’s total trade, which was about $38 billion in 1991-92, is expected to touch $1.3 trillion this year. This is about 40 per cent of India’s GDP and underlines the fact that India is more deeply tied to the world than ever before.
But the GDP’s journey from three to eight trillion will not be a linear process; nor would it be easy to secure India’s interests amidst the deeper integration with the world. That the world itself is in a geo-economic churn makes the transition a challenging one.
Elevating India to a higher economic orbit would involve a recalibration of its assumptions, taken for granted in the last three decades of reform. For, the international context in which India has rapidly grown has begun to change. If globalisation was seen as inevitable and irreversible during the last three decades, India’s task now is to adapt to significant changes in the global economic order.
First, a word about the current buzz on geoeconomics. It was Edward Luttwak, the well-known American strategist, who triggered a global discourse on the idea of geoeconomics in a seminal article in 1990 amidst the end of the Cold War and a new wave of economic globalisation.
Luttwak — who is speaking to the Indian strategic community this week on the legacy of the Indian strategist late K Subrahmanyam — addressed the emerging consensus on the new importance of economics in global affairs, as opposed to the dominance of military competition during the Cold War years.
The rapid economic rise of China in the last three decades and Beijing’s success in leveraging its growing economic clout for political gain is widely seen as a classic example of geoeconomics. But Luttwak was not really talking about economics replacing politics in the international system. Luttwak was offering a more powerful argument on the relationship between geopolitics and geoeconomics.
Luttwak warned against the excessive optimism that was enveloping the post-Cold War era — that economic interdependence would eliminate the contestation among nation-states. The idea of a borderless world promoting perpetual peace and prosperity across the world had indeed become a powerful force amidst the fall of the Berlin Wall and the collapse of the Soviet Union. Luttwak argued that the “logic of conflict” between states is likely to persist in the age of globalisation if only in the “grammar of commerce”. He suggested that the emphasis on “national interest” will remain as powerful in the economic domain as in the geopolitical domain. He also insisted that states will continue to do what matters more within their frontiers than the presumed imperatives of global good.
Luttwak posits that zero-sum situations that prevail in military conflicts are not exclusive to geopolitics. They also exist in the economic domain inevitably triggering conflicts, some of which could escalate to the military level. But the popular notion of geoeconomics as a metaphor for the replacement of politics by economics endures. The latest example is the recently issued document on Pakistan’s national security policy.
Pakistan’s real challenge is not replacing geopolitics with geoeconomics. What Pakistan needs is a long-overdue transition from a rentier national security state to a developmental state. This, in turn, demands ending the dominance of the military, the feudals and a kleptocratic elite over the country’s economy. Rearranging the Pakistani state is in the end a political task rather than an economic one.
Luttwak’s warning against illusions of economic interdependence and globalisation have been borne out by major changes in US-China relations in recent years. The dramatic expansion of economic interdependence between China and America over the last four decades — what some called “Chimerica” — was the principal evidence for the thesis that geopolitics and ideology no longer mattered.
That “capitalist” America and “communist” China would form such an expansive economic partnership reinforced by a massive linkage between their business elite and civil societies reinforced the power of geo-economics. Chimerica was held up as an efficient economic fusion that underscored the virtues of economic globalisation. That mythology is now being shredded by developments in the US and China.
Economic nationalism has re-emerged in both countries today. In the US, President Joe Biden has persisted with his predecessor Donald Trump’s emphasis on “America First” economic policies. He has gone one step forward by making the effort at rebooting America a more purposeful one. The US is also strengthening domestic research and industrial capabilities to compete more effectively with China.
Biden is resisting strong pressures from the American financial capital and other interested groups to restore the old economic engagement with China. It is not the US alone that is backtracking from globalisation. China too has adopted the economic strategy of “dual circulation” that focuses on strengthening domestic capabilities and reducing exposure to external factors.
The question of China has also shaped India’s recent policies on free trade. At the end of 2019, India has walked out from the Regional Comprehensive Economic Partnership (RCEP) suggesting that the costs of joining a China-centred regional economic order are unacceptable.
Although there is widespread criticism of India’s decision to turn its back on Asian economic integration, there are others who share Delhi’s concerns about China’s dominant economic position. In a recent book, China’s Rise and Asia’s Decline, William Bratton argues that the short-term benefits for Asia from China’s growth might be temporary and will be overshadowed by the long-term costs of economic, industrial, financial, and technological dependence on China.
After abandoning RCEP, Delhi has turned towards free trade agreements with countries like Australia, Britain, UAE, and Israel. This must be seen as the beginning of a process of deepening India’s engagement with countries whose economies are complementary. Trade liberalisation with Europe and the US will be difficult but important next steps.
India is also arguing, much like the US and China, that no large country can simply abandon domestic manufacturing to other countries in the name of economic efficiency and globalisation. India is now taking a number of initiatives to promote domestic manufacturing in a range of sectors — from mobile phones to armaments — under the banner of “Atmanirbhar Bharat”.
India’s selective trade arrangements and the policies to promote domestic manufacturing have drawn much criticism at home as a dangerous return to economic protectionism and deglobalisation. While those arguments must continue, they must be related more closely to the structural changes in the international economic order.
Until now, India had the luxury of treating its foreign, economic and strategic policies as separate domains pursued by different bureaucracies with different agendas. Adapting to the current global geo-economic churn demands that Delhi find better ways to integrate its financial, trade, technological, security and foreign policies. Above all India needs a strategy that can respond to the imperatives of building domestic capabilities, developing geo-economic partnerships, and constructing geopolitical coalitions with like-minded countries.
This column first appeared in the print edition on February 1, 2022 under the title ‘Doing business in a new world’. The writer is a contributing editor on international affairs for The Indian Express
Today, India’s GDP is $3.1 trillion and could cross, according to some estimates, $8 trillion by the end of this decade. (C R Sasikumar) 
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