UPSC Syllabus Topic: GS Paper 2 – International relation
Introduction
The U.S. and China are shaping rival geo-economic systems. Trade, finance, and strategy are being rewired. This disruption threatens open flows but creates a window to build a fairer order. Choices by India and the Global South will decide whether the future is more equitable or more extractive. Navigating the Global Economic Transformation.
New economic paradigms
- Populist-autocracy and the state–capital knot
- Populist-autocracy means power-centric governance fused with big business. States place loyal oligopolies above competitive markets and public interest. Policy bends to private gain, public assets are pledged, and the social contract weakens as citizen welfare is sidelined.
- In practice, Policy concessions and public-asset deals increasingly serve oligopolies, not citizens, tightening a state–capital Gordian knot.
- Return of raw statecraft
- Raw statecraft means security-first economics. States put power, control, and leverage above open markets and multilateral rules. They weaponise supply chains, technology, finance, and geography to shape outcomes. Efficiency yields to strategic control, and cooperation gives way to managed dependence.
For Example, the United States is pulling chip capacity from Taiwan, securing rare-earth supply chains in Central Asia and Africa, and pressing Arctic-rim states to align with its interests.
- Big Tech, cloud capital, and digital colonialism
- Digital colonialism means platform and cloud owners extracting value and influence across borders. Data control and algorithmic reach shape public opinion and reward leaders who curb digital rights. This trend deepens with AI action plans, the CLOUD Act, SWIFT weaponisation, and state-backed digital currencies (piloted by ~100 central banks).
- Retreat of development aid
- Aid retreat means shrinking support for vulnerable populations and vacuum-creating cutbacks that open space for undemocratic forces. Welfare cushions thin out, distress migration rises, and conflicts find new recruits as safety nets fray.
- For Example: A $44 billion reduction by the G-7 could push 5.7 million Africans into poverty by 2026. In Nepal, falling grants triggered an exodus of 8 lakh people. WFP cuts hit 16.7 million in 2023, fuelling distress migration and militia recruitment in the Sahel.
- Tariffs, sanctions, and fragmented flows
- Coercive economics means using tariffs and sanctions to steer trade, capital, people, and ideas. Openness narrows as surplus-producers face barriers and dependencies are punished, prompting self-reliance and bloc formation.
- For Example, US has tariffs on more than 70 countries and sanctions on more than 30 countries, which is pushing parts of the Global South toward bilateral deals, localised production, higher gold reserves, and currency alternatives.
Concerns
- Structural imbalances: Neoliberal globalisation relied on cheap labour, environmental extraction, and trickle-down claims. This model prioritised efficiency over equity and left many economies exposed to external shocks and political capture.
- Crony concentration: Sovereign debt became unsustainable, shrinking fiscal space for developmental and welfare goals. Public assets and policies shifted toward crony interests, weakening the social contract and public trust.
- Poverty and hunger pressures: 47% of the world’s population lives below $6.85/day, and 735 million people face hunger. These strains push societies toward identity-based cohesion, which autocrats exploit to mobilise support and undermine democracies.
- Volatile partnerships: When ties rely on one leader or one party, they become unstable. Lack of bipartisan bridges has strained ties with the U.S., Bangladesh, and Nepal, reducing room for steady, long-term cooperation.
- Gap in digital governance: There is no common framework for digital-currency interoperability and political-funding transparency. Without such rules, sovereignty and oversight are at risk, and vulnerabilities in Anti-Money Laundering ( AML)/ Financial Action Task Force (FATF) safeguards can widen.
Way forward
- Reform the global financial architecture
- New Economic Deal for the Global South: Seek fairer representation in international financial institutions.
- Debt-relief framework: Replace austerity-heavy adjustments that trigger democratic backsliding with solutions that free fiscal space for development and welfare.
- Rules-based fairness: There is a need for fair trade that protects domestic sectors while keeping markets open to genuine competition, not cronyism.
- Build strategic alliances
- Form new economic alliances that reduce over-dependence on any single bloc (use BRICS and South–South platforms)
- Recalibrate the Indian economy at home
- Strategic state leadership: The state should lead in energy, infrastructure, data/digital finance, defence, space, water, education, health care, and agriculture—areas vital for security and for serving all citizens.
- Check concentration of power: Enforce anti-monopoly rules and establish sovereign wealth funds (Norway model) to channel national resources into long-term public goals.
- Invest in knowledge: Fund science, universities, and pedagogic autonomy to build true competitiveness.
- Redeploy PSUs smartly: Do not privatise by default; Use PSUs like strategic tools (as China does with SOEs, or as development agencies) to earn revenue, advance technology, and serve geopolitical aims—rather than defaulting to privatisation.
- Aligned digital finance: Any Central Bank Digital Currency (CBDC), and the wider data/finance stack around it, must protect privacy, have clear audit trails and independent oversight for accountability, and include strict safeguards so it cannot be misused for political funding.
- Practice principled diplomacy
- Substantive non-alignment (not performative): Take positions case by case. Put India’s interests first. Do not take sides because of party politics. Say the same thing on similar issues every time.
- Common plan at home: Get major parties to agree on long-term foreign policy goals and how to achieve them. This keeps India’s external policy stable and believable even when governments change.
Question for practice:
Examine the new economic paradigm and discuss its implications for India’s economic and foreign-policy choices.
Source: The Hindu
