[Answered] What do you understand by the term geo-economics? Discuss the need for India to align its policies to structural changes in the international economic order.

Although there is not yet an authoritative definition of geoeconomics, the term was used by Edward Luttwak during the end of the Cold War. It can be defined as the state’s economic power and foreign policy goals achievement by economic means. For example, China has been leveraging its growing economic powers for political gain. 

How International economic order is changing  

In the post-Cold War era, it was believed that contestation between nation-states would be eliminated due to their economic interdependence. However, the eruption of the global financial crisis interrupted the process and called into question the liberal international economic system. 

The trade openness index, which was steadily rising in the post-war period, started declining after 2008. 

China became a driving force for trade and growth in recent decades. Further Covid pandemic has induced the process of ‘deglobalization’. Trade tension between the US and China during the Donald Trump years also contributed to the process. 

All these developments gave birth to Economic nationalism. Both China and US are focusing on strengthening their domestic capabilities. Similarly, other large economies are also reconsidering their dependence on international supply chains.

Why India needs to align its policies with the global economic order?  

International trade constitutes 40 percent of India’s GDP. India is on its way to become 3rd largest economy by the end of this decade, but, it is not possible without consistent or increasing international trade. Thus, India needs to adapt to significant changes in the global economic order. 

RCEP: In 2019, India has walked out from the Regional Comprehensive Economic Partnership (RCEP). The reason was the agreement was favouring China. However, it was a lost opportunity to integrate India’s economy to ASEAN countries, which is becoming a major economic hub.  

Strengthening Domestic capabilities: 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”. However, in majority of the industries like electronics, India relies heavily on other countries like China. Thus, India needs to frame its domestic policies in a way that doesn’t hurt domestic industry’s requirements.  

Protectionism: India has a high tariff rate. For example, high import tariff on electronic components is hurting India’s domestic electronics industry. As other countries like China and US are also adopting inward looking policies, thus it might result in revenge tariff on Indian goods.  

Way forward:  

India is signing free trade agreements with countries like Australia, Britain, UAE, and Israel to increase trade opportunities. It is a good step towards diversification of India’s international trade. More such agreements must be signed.  

Lastly, India needs to integrate its financial, trade, technological, security and foreign policies.