The world economic order has been changing — quite perceptibly — during the past two or three decades. Despite the high-pitched propaganda, there had been discomfort experienced in the course of the spread of the globalisation project of neoliberal thought. Capital and manufacturing production shifted locations across continents. There were growing movements of international migrants too, both legal and illegal, in search of a better life. As a result of these disruptions, the incidence of sporadic social violence increased even in societies that were materially affluent. The violence reflected deep-rooted frustration and anger. Many people were economically displaced, especially workers, while a handful of businessmen and corporations enriched themselves beyond imagination. The violence ranged from mindless shootings to more formal, armed conflicts. War, like many other aspects of globalisation, became privatised in the form of terror. Acts of terror became commonplace, unpredictable and frequent. Alongside the growth of economic inequalities, many social, religious and cultural divisions became visible. There was growing anger about the discontents of globalisation; yet, the lure of the good life that capitalism promised lingered.
This state of affairs was observed in many parts of the world — both in developed as well as developing nations — leading to challenges to the liberal order as well as the emergence of illiberal democracies with strong authoritarian features. These governments, with strongmen as their leaders, emerged through electoral processes. The power of money and modern technologies helped influence voters’ views like never before. A core belief emerged: if this disquiet had to be harnessed, power would have to be concentrated in the hands of a strong ruler shorn of the checks and the balances provided by free speech, dissent, civil liberties, and political rights. It is as if the solutions to the problems of globalisation could be found only in a movement towards darker times and more terrifying places.
It is in the backdrop of this changing world that India recently celebrated a landmark by becoming the fourth-largest economy in the world — behind the United States of America, China and Germany. While this is no mean achievement, India has miles to go to be in the same league as the other developed nations in terms of the quality of life and individual well-being. India has successfully built a large economy and the political influence of the ruling party is strong. Narendra Modi seems to have been well accepted in the international club of strongmen who rule the world. His distinct agenda of strengthening cultural nationalism based on Hindutva, replacing the liberal order of the Nehru-Gandhi era, seems to be gaining traction. However, the winds of global change will force India to take a relook at a fresh set of emerging challenges — economic as well as diplomatic.
For one, the pattern of international trade is likely to change beyond recognition in the near future. In that process, India will have to search for new and unfamiliar trading partners. The post-liberal world will also create new centres of military power and strategic alliances. Where would India fit in? Would it be worthwhile to stay under the wings of an increasingly unreliable US? In the aftermath of Operation Sindoor, India might have got a taste of the new world of friends and foes. In the world of super-fast technological change, how well would we adapt? Finally, on the more existential question of sustainable development and climate change, how do we manage the rising risks and prevent disasters from taking place?
One aspirational target on India’s list of priorities is to become, as quickly as possible, the third-largest economy of the world in terms of gross domestic product. However, India would still remain a very distant third. This is merely a feel-good factor for India’s rich and powerful as well as for the gullible middle class. This is not an achievement that translates into increased material well-being or more secure livelihoods and incomes for the vast majority of Indians. The nation will become the third-largest economy, almost automatically, in about five years. Even if that goal is achieved, India’s economy will be less than one-third the size of China’s and one-fifth the size of the US’s. What matters is not growth itself but the composition of that growth and how it improves the lives of the poorest of the poor. It is also true that given the degree of income inequality in India, if the income of the top 10% is taken away, the per capita income of the remaining 90% will look alarmingly low. Effectively, while India is the fourth-going-on-third-largest economy in terms of ranking in GDP, its ranking in terms of per capita income falls well below 100.
India cannot honestly claim to be a powerful economy in terms of inclusive growth in the way the US or Germany or Japan can. India still contains a large informal sector with growing economic inequalities in income and wealth. The richest 10% earn, according to one estimate, around 57.7% of the total income. The bottom 50% earn only 13%. It is also worth remembering that social and economic safety nets in India are by and large absent. Hence, in the event of any resetting of the economy, there could be large-scale venting of frustration and anger as the recent farmers’ protests revealed.
The inevitable reorganising of the economy would also entail the surmounting of a large-scale problem — that of employment generation and the creation of new livelihoods. India is one of the youngest nations in terms of demographic profiles. There is a proliferation of young people under the age of 30 and this cohort is referred to as comprising the demographic dividend. This means that India has the potential to become the factory hub of the world with an abundance of young and energetic people. This is very unlikely now on two counts. First, with more countries looking inwards and turning protectionist by choice or compulsion, global manufacturing hubs may not reflect the same architecture of the recent past. Local demand for labour would be lower than that in the globalised world. The second reason is the advent of Artificial Intelligence and its rapid impact on production processes. Countries with a shortage of young, energetic labour would not face constraints thanks to AI. The demand for Indian workers could be reduced on that count too. Little wonder then that the developed nations are becoming increasingly strict in terms of immigration rules and access to universities.
As far as the Indian export basket is concerned, there would be pressure to switch to new markets in, say, pharmaceuticals, textiles and chemicals. What happens to services exports is still anybody’s guess. Whatever might emerge, the old days of cheap armies of coders manning back-end offices are over for the information technology sector. Fewer people, with much brighter intellects and a new array of skills, will still be in demand. But the numbers will be dramatically lower.
The world is resetting. India, too, will have to be quick and decisive in its responses. That, in turn, is likely to create a reallocation of resources and people. India continues to be vulnerable on three major fronts: an ailing agricultural sector, the lack of adequate new employment for the youth, and an untested ability to face stiff international competition. India’s journey towards democracy, relying on the wisdom of poor and illiterate voters, is over. Money and the guiles of social media rule over elections. The norms of tolerance, equality, and shared prosperity have effectively disappeared beneath a sheath of simmering violence. All these changes have been accompanied by much faster macroeconomic growth. Is that all that we want as a nation?
Anup Sinha is former Professor of Economics, IIM Calcutta