National Strategy Lecture - India and the World – the Economic Dimension

As the world grapples with the after effects of the economic downturn, India has emerged out of it relatively unscathed and is being noticed increasingly on the world stage as an economic powerhouse. IDSA National Strategy Project organized a lecture by former media advisor to PM Manmohan Singh, Dr. Sanjaya Baru, to enlighten the audience about the challenges the Indian economy faces in this transformative environment.

The Director General of IDSA, Mr. N.S. Sisodia, set the context by noting that in this increasingly globalised world, a robust economy in a large way enhances a country’s Comprehensive National Power (CNP). Dr. Sanjaya Baru commenced his lecture by pointing out that the days when national strategies were driven solely by security implications are long gone. He elaborated his point by first explaining the erstwhile policies that were adopted by India during the earlier decades. India followed a reactive policy with no clear planning, sidelining the economists from any policy formulation in matters related to foreign affairs. At that time, India suffered from a paradox of a large country with a large self image, but without the resources to match its ambitions. Due to autarkic policies, India’s trade declined and, as a result, its economic and political clout shrank.

The situation changed completely after 1991, when India began opening up its economy to the outside world. He mentioned that apart from the reforms initiated during that time, several other critical aspects were responsible for the turnaround. Firstly, the collapse of the Soviet Union left India with no credible partners and therefore forced it to change its economic outlook. Secondly, the parallel rise of China as an economic power and the constraints it imposed on India’s strategic options affected the policy decisions at that time. Lastly, the emerging business and middle class demanded growth promoting policies.

Dr. Baru went on to argue that foreign policy is not complete until the aspect of economic relations is clearly defined. He mentioned the Chinese economic juggernaut which is wholly responsible for the change in the attitude of the Chinese establishment towards other countries. In this regard, he called for better understanding of strategic effects of economic issues by security experts in India and vice-versa in the case of economists.

Dr. Baru expressed confidence that positive demographics would be catalyzing India’s economy in the future as it will be attracting foreign investment and integrating deeper with the rest of the world. In his last comments, he emphasized that India will maintain its non-alignment with major powers in the future. To maintain such pace in economic growth, India will have to tackle its resource constraints in a more efficient manner and scout for resources globally. Dr. Baru ended his lecture by insisting that contemporary state to state relations are based on the foundations of people to people and business to business relations.

In the discussion that followed, an apprehension was expressed about the possibility of the demographic dividend turning into loss since the government will be incapable of generating enough jobs for the masses thereby leading to disenchantment amongst the people. One scholar raised a question about India’s low leverage vis-à-vis other countries due to meagre trade levels. Questions were also raised about India’s stagnant manufacturing industry as compared to services.

Dr. Sanjaya Baru acknowledged that much needs to be done to boost the manufacturing sector. In replying to the question on demographic dividend he stated that creating employment for the youth is vital and agreed that the services sector alone would not be able to absorb the burgeoning population. There was a discussion about the effect of economic transition on the national identity and what it means for the relationship between the state and its citizens. Dr. Baru believed that India’s national identity will be of an economic powerhouse with a plural and secular democracy. India’s rise as a global power will be welcomed because of its espousal and sustenance of universal values such as democracy and rule of law. He went on to suggest that the world is moving towards the ‘New Delhi Consensus’ where the mixed economy model will ensure sustainability of the economy as well as of a democratic polity.

When asked to identify key ideas for sustaining economic growth, he cautioned about getting carried away by success, lest complacency sets in. Secondly, to sustain such growth rates, domestic political stability is crucial. Thirdly, improving the social sector in terms of setting up new hospitals and schools to providing qualitative health care and education is essential. Lastly, the bureaucratic system needs to be reformed and reinvented to bring in more efficiency to improve governance.

Mr. Sisodia thanked Dr. Baru for enlightening the audience and concluded the session by stressing that infrastructure development and speeding up economic reforms are the two main areas where much still remains to be done.

Report prepared by Pratik Jakhar, Intern, and M. S. Sundar, Research Assistant, at IDSA