India’s too frequent disconnect between ambition and reality
William Bratton is the author of “China’s Rise, Asia’s Decline”. He was previously Head of Equity Research, Asia Pacific, at HSBC.
Courted by the United States, Europe, Japan and even Russia, India’s geopolitical importance has grown rapidly in recent years.
Whether as a member of the Quad, the emerging Asian bloc, or as a participant in the potential D-10 – a grouping of the main democracies – the country is now considered by many to be an important player in the evolution of global balances. Power.
This new role in the global arena has been accelerated by the convergence of multiple interrelated factors. One is the realization of Indian Prime Minister Narendra Modi’s more muscular approach to foreign policy and his nationalist desire to see the country recognized as a great “ruling” power. Another is the West’s search for regional strategic partners to strengthen its efforts to counter China’s growing regional influence.
From an external point of view, India appears to be a natural choice to support an anti-Chinese regional bloc. It is, after all, now the third largest economy in Asia and the sixth largest in the world. Its military budget is the second after China in the region and is now the third in the world. In addition, its bilateral relations with China have become increasingly strained in recent years and, as a result, it seems more willing to develop stronger allegiances with the West.
The problem, however, is that relative size alone is not enough to exert geopolitical leverage, nor to secure great power status. Geopolitical influence is not achieved in isolation but is highly dependent on relative economic importance and power. And unfortunately for India, there is a large and persistent mismatch between its increasingly grandiose foreign policy aspirations and the underlying state, capabilities and relevance of its national economy.
This statement may seem at odds with widely held expectations that the country will again experience rapid growth once it recovers from the current pandemic. But any post-COVID rebound should not be taken as an indication of its longer-term potential: many drivers of sustainable economic development remain inherently fragile, with little evidence of material improvement over the past 10 years. It is therefore difficult to see India emerge anytime soon as a major player in the global economy.
India’s manufacturing difficulties highlight its long-term economic challenges. It is true that the government recognizes the importance of a competitive, dynamic and innovative manufacturing base to ensure sustained economic growth and increase its relevance in international trade, especially given the precedent set by China. But despite this recognition, its current industrial capabilities are dominated by lower-order, domestically-oriented and non-internationally competitive firms, which must be protected by some of the highest commercial tariffs in the world.
This explains its reluctance to enter into free trade agreements, including the Regional Comprehensive Economic Partnership, as well as its near irrelevance in most global product markets. It exports less manufactured products, by value, than Vietnam, Spain and even Belgium, and the product markets in which it is a major supplier are mainly agricultural or commodity-related.
In addition, its efforts to improve its industrial capabilities have essentially failed. Despite the “Make in India” initiative, which aims to increase the share of the manufacturing sector in its gross domestic product from 15% in 2014 to 25% in 2025, the country has in fact suffered from further deindustrialisation, the contribution manufacturing sector to GDP falling to its lowest level in three decades. in 2019 and 2020. This will complicate efforts to develop competitive industries and increase India’s relevance in international trade.
These manufacturing challenges are just one example of its frequent disconnect between ambition, implementation, and reality. Unlike China, India has failed to develop and execute a holistic, comprehensive and coordinated economic development plan. Rather, there are many but fragmented policies, with progress often being undermined by weaknesses rooted elsewhere, including poor infrastructure, poor educational standards and skills, a weak financial sector, and slow technology adoption.
This is clearly evidenced by the contrast between India’s economic performance over the past decade and that of its neighbors and, more importantly, China. Ten years ago, Bangladesh’s GDP per capita in dollars was almost half that of India. Today, it is at par. India has also failed to close the economic gap with China. Its GDP was 40% of that of China in 2000 but only 18% in 2020, while its share in world merchandise trade, at less than 2%, is only a seventh that of China.
India’s structural economic weaknesses remain its Achilles heel. It may want to be a regional counterweight to China and the West may want to see it achieve such status. But economic power underlies and determines geopolitical influence. At present, India simply does not have the economic strength, either on an absolute or relative basis, to lend credibility to its broader international aspirations. He really is a cardboard tiger: superficially powerful but, in reality, chronically weak.