Doing Business in a New World

News: Recently, Luttwak an amercian startegist discussed the legacy of the Indian strategist late K Subrahmanyam and addressed the emerging consensus on the importance of economics in global affairs.

What is current scenario of Indian economy?

India’s is recovering after a slowdown and its geopolitical significance will continue to rise. India’s total trade is expected to touch $1.3 trillion this year which is about 40 per cent of India’s GDP. India could cross $8 trillion and become the third-largest by the end of the decade. But the world is geo-economically changing. Hence, transition for India will be a challenging one

How geo-economics plays a significant role in geopolitics?

One, globalisation which was seen as irreversible is changing. Geo-economic has become an important term now which was used by Edward Luttwak during the end of the Cold War and economic globalisation.

Two, the classic example of geo-economics is China’s rapid economic rise and its success in leveraging it for political gain. Luttwak has not said that economics will replace geo-politics, but he has offered a more powerful argument on the relationship between geopolitics and geoeconomics.

How Luttwak’s has explained the relationship between geopolitics and geoeconomics?

First, according to him, economic interdependence will not eliminate the disputes among nation-states. Hence, national interest will remain powerful in the economic domain and the geopolitical domain as well.

Two, Luttwak propounded that zero-sum situation exists in the economic domain like in military conflict, which sometimes triggers conflicts. Zero-sum is a situation in which one person’s gain is equivalent to another’s loss.

He further says the replacement of politics by geoeconomics will continue, but it cannot be completely replaced. For example, Pakistan. It needs a long transition to move from geopolitics to a developmental state.

Three, he had also warned against illusions of economic interdependence and globalization. For example, US-China relations in recent years.

Capitalist America and communist China have formed a strong economic partnership, which is complemented by the linkage between business elite and civil societies. But economic nationalism has re-emerged. The US is also strengthening domestic research and industrial capabilities to compete more effectively with China. China is also reducing exposure to external factors.

How India is adapting to new geo-economic order?

First, India has walked out from the Regional Comprehensive Economic Partnership (RCEP). India did not accept China-centred regional economic order.

Second, India has turned towards free trade agreements with countries like Australia, Britain, UAE, and Israel. India is deepening its engagement with countries whose economies are complementary.

Third, India has argued that no large country can leave domestic manufacturing to other countries in the name of economic efficiency and globalisation. That is why India is taking initiatives to promote domestic manufacturing under the banner of “Atmanirbhar Bharat”.

What is the way forward?

 First, India’s policy must be related to the structural changes in the international economic order.

Second, India should find better ways to integrate its financial, trade, technological, security and foreign policies to adapt to the current global geo-economic order.

Third, India needs a strategy to build domestic capabilities, develop geo-economic partnerships and construct geopolitical coalitions with like-minded countries.

Source: This post is based on the article “Doing Business in a New World” published in Indian Express on 1^st Feb 2022.