Trade distortion and protectionism

How India can realize its ambitions to become a great power

Charlie Barnes

India's Great Power Ambitions Peter Drysdale

Published 23 August 2022

The size of India’s population and its standing as the world’s largest democracy deliver a measure of global political clout. Yet India’s palpable aspiration to assume its rightful place as a great power requires some big changes.

India’s population of almost 1.4 billion, its economic progress and its geopolitical appeal as a balance to China’s power in Asia point to its potential as a leading global power. That is Prime Minister Narendra Modi’s declared ambition for his country.

The size of India’s population and its standing as the world’s largest democracy already deliver a measure of global political clout. Yet India’s palpable aspiration to assume its rightful place as a great power requires some big changes. It would need a substantial increase in national wealth and a new position in the global economy. This won’t come without fundamentally re-shaping its global economic engagement in trade and investment and deepening domestic reforms.

India is a natural target in today’s contested geopolitical landscape as a partner in the newly evolving Indo-Pacific and global frameworks that seek a hedge against China. Reaching out to its enthusiastic partners on the promise of ‘untapped potential’, with shallow economic agreements as trinkets of political exchange, may be a harbinger of change but will not deliver the nation’s global and economic future.

The Indian economy, with all its promise, is still quite modest, with a GDP just over US$3.2 trillion and a population of around the same size as China. If China stopped growing tomorrow and India grew at 7–8 per cent every year and roughly doubled its income every decade, it would not catch up to China until 2050 or thereabouts. Without the economic and technological heft that China now boasts, India’s aspirations to become a great power soon will remain just that, aspirational.

The United States and its allies see India as a ‘swing’ power, more accurately a pawn, in the affairs of the world’s great powers. Indians hanker after a nobler, more independent, role in global affairs.

The possibility of India becoming a great power and a stabilising force in global geopolitics is real. There is excitement in the country about the historic choices that India has to make on its future, though there is an opaque understanding of, and undeveloped consensus on, what these choices are and how to deliver on them.

Modi captures his country’s political mood with a brilliance perhaps unequalled among the world’s top leaders today. While he seduces Indians with his vision and details a myriad of successes on the way to ultimate national success, he is yet to settle on an effective strategy to capture the promise.

India’s economic opportunity is huge — it has a vast supply of low-cost labour, with some 361 million people or 26 per cent of the population below the age of 15 in 2020. It is favoured by the migration of manufacturing as China’s labour costs rise and it sheds foreign-invested manufacturing activities to more competitive locations; and its investment and trade climate is bolstered by geopolitical tailwinds. Accelerating industrial transformation and rapid East Asian-style economic growth is achievable given the right complementary trade and investment strategies, deeper factor market reform and national investment in decarbonising the economy.

The policy choices that India faces are clear and within India’s own grasp. Whatever the uncertainties in global affairs today, India’s leadership can navigate its way through them. But what holds India back from making these choices, apart from focusing the wisdom and talent of its leadership to develop and articulate the political narrative and policy initiatives to forge ahead from a position of considerable strength?

China’s rise and US–China strategic competition, Russia’s invasion of Ukraine and the accompanying energy and food price crises, the gnawing sore of India’s dispute with China, slower global growth, high inflation and international interest rate hikes and the ongoing recovery from COVID-19 might discourage the faint-hearted from commitment to this strategic course. It should not. Global markets are still there to be had, investment is there to be won and the rest of Asia into which China is inextricably bound by its own choice is still ready to join.

To entrench the global competitiveness of its manufacturing and service industries, India needs to cut its trade barriers and open itself to international competition. Increasing competitiveness and allowing cheaper imports of inputs will enable India to exploit its comparative advantage and develop a manufacturing sector capable of absorbing its growing labour force. Export-oriented manufacturing and services will draw migration from rural to urban areas, increasing productivity and gender equality and allowing for larger, more efficient provision of government services.

A new economic diplomacy that embraces a grand transformation across East and South Asia and deep engagement via the security of the economic arrangements in East Asia (which now accounts for over 30 per cent of the global economy and trade) must be a central element in this strategy. Another element is clear-sighted understanding that the multilateral trading system is a lynchpin of continuing Indian and Asian prosperity and multipolar security. Protectionism in the name of national strength is false economics and security.

The domestic baggage of state-backed vested interests, the legacy issues of high debt, high unemployment, labor, land and other regulatory burdens — and the already-present damage from climate change that threatens lives and livelihoods — all need to be part of the national transformation agenda.

Status quo policies and a continuation of the current trajectory will ensure that claims of ‘India rising’ are little more than sloganeering and that India will fail to cash its demographic destiny. To simultaneously overcome these challenges and realize its vast potential would lock India into a new era of national reform and deliver its role as a leading, indeed a great, global power.

This article was first published in the Aug 7, 2022, edition of the East Asia Forum online publication.

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Author

Peter Drysdale

Peter Drysdale is Emeritus Professor, Editor-in-Chief of East Asia Forum and Head of the East Asian Bureau in the Crawford School of Public Policy at The Australian National University in Canberra.

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