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2019-12-09

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International Relations
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The world today is undergoing a fundamental transformation and there are several facets to the emerging uncertainty. Traditional and non-traditional security threats (economic and military competition, climate change, piracy, radical ideology, cyber threats, drug and human trafficking, and energy and food security) have grown in magnitude. Power, whether economic, political or military, is fractured. Trade and technology are at the heart of a new round of competition and contestation. Nationalism and regionalism are on the rise. There is less multilateralism but greater multi-polarity. Hedging and multi-alignment are the order of the day.

All known paradigms are experiencing stress, which calls for readjustments. At the broadest level, the inadequacies of the post-World War II international institutions are showing up because of the complexities and uncertainties characterising global politics and the economy today. The old consensus is fraying and a new consensus is yet to emerge.

The liberal trading order has encountered protectionism in the form of tariff and non-tariff barriers, which explains why India’s service exports which touch $29.6 billion in the U.S. market, and pharma products, especially generic drugs, which account for 20% of global generic medicines, have barely been able to scratch the surface in the Chinese market. Cheaper imports from China, which practices “state capitalism”, threaten domestic manufacturing in India. Movement of talent and the services sector, important for India, have not received satisfactory attention. Many of these concerns are central to India’s position on the Regional Comprehensive Economic Partnership (RCEP).

There is a looming danger for developing countries on account of ‘zero-sum’ mercantilism and rising protectionism in western economies. There is no doubt that the U.S.-China trade war has been disruptive.

Geopolitical considerations are increasingly driving trade and investment decisions; on the other hand, geo-economic forces unleashed by China’s economic rise are redefining the geo-strategic landscape of the Indo-Pacific region.

Worryingly, the global economy is likely to grow at its slowest pace in a decade, at 3% in 2019.

Today, the momentum in manufacturing activity has weakened to levels unseen since the global financial crises. Investor and business confidence even in emerging markets is at a low ebb. Low productivity growth and ageing demographics in advanced economies have further compounded the problem. Most countries appear to be financially vulnerable. Key anchors in the global economy, including China, are experiencing a slowdown. Elsewhere, Europe is in the throes of a major readjustment in the context of Brexit. Yet, amidst the downturn, Asia is witnessing the simultaneous rise of several powers. Global engines of economic growth over the past three decades have shifted to Asia, first to the Asia-Pacific and now, more broadly, to the Indo-Pacific region that includes South Asia. The continent, home to over half the global population, has emerged as the new fulcrum for geo-economic and geo-strategic realignments. High economic growth rates across the region are accompanied by some of the highest military expenditures in the world.

The External Affairs Minister of India presciently said recently that if the world is different, we need to think, talk and engage accordingly. The wheels of change appear to have been set in motion. In the face of automation, countries are undertaking structural reforms and emphasising skills-training to raise productivity. Development and adoption of green technology is also a priority. Even Saudi Arabia, the quintessentially hydrocarbon-dependent economy, has endeavoured to diversify its economy through the Saudi Vision 2030 master-plan.

Both India and China are expected to contribute to global economic growth in the future. India is also transforming into a knowledge-based, skill-supported and technology-driven society. A liberal FDI regime combined with a youthful demographic profile makes India an attractive destination. India attaches great importance to its relations with China, a large trade partner in goods. Since 2015, there has been a spurt in Chinese FDI in India (at around $8 billion). There is great scope for China to participate in flagship initiatives such as the ‘Smart Cities Mission’ and ‘Skill India’ programmes. As the world’s second-largest economy, China can and must play a constructive role globally and within Asia to help the world return to higher growth rates. Bilateral trade today is approximately $95 billion. India faces a huge and rising trade imbalance. The decision at the Mamallapuram Summit, in October, to set up a new mechanism to discuss the trade imbalance, is aimed at addressing this issue.

As members of several multilateral institutions, India and China are in a unique position to give shape to their economic destinies. There are suggestions that the era of the World Trade Organisation (WTO)-anchored, Most Favoured Nation (MFN)-based regime is drawing to a close and that the future lies in a web of free trade agreements. However, there is still scope for India and China to work together to strengthen the WTO.

The RCEP should have a wider ambit, including trade in services. Many countries (especially Japan which still boasts the world’s second-largest developed economy) have openly favoured a more accommodating position that addresses India’s concerns and facilitates its joining the RCEP. China too should pro-actively work to ensure India’s membership.

Beyond jointly training Afghan diplomats under the “India-China Plus One” framework, China and India could explore the potential to work together on Asian infrastructure and connectivity development on the basis of equality and an open and transparent model under the Asian Infrastructure Investment Bank (AIIB).

As China’s presence in South Asia grows, greater transparency in its actions and closer consultations with India are also necessary to help allay concerns. China should also be mindful of its forays into the Exclusive Economic Zone of others.

Today, the global energy market is more favourable to consumers in the face of a supply side glut. OPEC and non-OPEC oil and gas producers have come together to prevent a fall in energy prices. This should be a common concern for China and India. As two of the world’s biggest importers of oil and gas, the two nations should have a joint consultative mechanism to protect the interests of consumers.

It must be remembered that Asia’s rise is predicated on peace and stability. It is a sad fact that a stable regional security architecture has yet to emerge organically in Asia. It is worth recalling what Prime Minister Narendra Modi had stated at the Raisina Dialogue in 2017: that there is enough room for all Asian countries to prosper together, and that the Asia of rivalry will hold us all back. It is the Asia of cooperation that will shape this century.

Sujan R. Chinoy, a China-specialist and former Ambassador to Japan, is Director General, Institute for Defence Studies and Analyses, New Delhi. The views expressed are personal

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