Strategic Consequences of India's Economic Performance

Sanjaya Baru

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415431965
• eBook ISBN: 9781134709731
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

In this book, Sanjaya Baru, one of India's most respected commentators on political and economic issues, pays close attention to the strategic consequences of India's increasingly impressive economic performance. The new turn in India's economic policies and performance in the last decade of the twentieth century; the success of Indian enterprise in the post-WTO world; the emergence of a confident professional middle-class; a demonstrated nuclear capability; and the resilience of an open society and an open economy, in the face of multiple and complex challenges, have all shaped India's response to the tectonic shifts in the global balance of power in the post-Cold War era.

In this collection of academic essays and newspaper columns, Baru explores the business of diplomacy and the diplomacy of business in a rising India. The role of India's cultural and intellectual 'soft power' in shaping global perceptions of India are examined. The book offers a panoramic view of the geopolitics and the geo-economics of India's recent rise as a free market democracy, and as such will interest both experts and lay readers.

1 ESSAY

The strategic consequences of India’s economic performance

AT a time when the world was still coming to grips with the implications of the end of the Cold War for the global balance of power, for the role and relevance of different nations in the emergent global system, and, before there was as yet any considered appreciation of the impact of the turnaround of the Indian economy on the global and Asian balance of power, one of Harvard’s most distinguished strategic thinkers made an interesting forecast about the nature of the post-Cold War international system that resonates to this day among strategic policy analysts in India. Prefacing his study of western diplomacy with a reflection on the ‘New World Order’, Henry Kissinger (Diplomacy, 1994), hypothesised that:

“The international system of the twenty-first century will be marked by a seeming contradiction – on the one hand, fragmentation; on the other, growing globalisation. On the level of the relations among states, the new order will be more like the European State system of the 18th and 19th centuries than the rigid patterns of the cold war. It will contain at least six major powers – the United States, Europe, China, Japan, Russia, and probably India – as well as a multiplicity of medium-sized and smaller countries” (p. 23).

Admittedly, the US remains the dominant military power but it has come to accept the emergence of other centres of economic power. Reiterating his earlier formulation more recently Kissinger (2000) has again spoken of India’s ‘potential’ as a major power underscoring the importance of its economic performance. In 1994 India had neither convincingly demonstrated its ability to generate the kind of economic growth that it did in the period 1992–98, nor had it as yet declared itself a nuclear weapons power. Was Kissinger prescient in 1994 or was he drawing our attention to historical factors and underlying strengths in classifying India as a nation en route to ‘major power’ status? As a student of power and realpolitik Kissinger may well have come to understand by then that not only was India capable of sustaining the acceleration of economic growth it had already initiated in the 1980s but that its economic policies would be marked by a greater degree of realism, as in fact was the case by then with respect to its foreign policy, a fact that Kissinger readily acknowledges. However, if Kissinger, like so many other analysts, continues to only see the ‘potential’ of an as yet unarticulated Indian power, the question is what must India do to translate that potential into reality?

The analysts of power may suggest that notwithstanding India’s declared nuclear power status there is still a credibility and a capability gap that has to be bridged before India can truly be viewed as a military and nuclear power with relevance to the world beyond her immediate neighbourhood. Nothing can be more important in bridging this gap between ‘potential’ and ‘reality’, between ‘promise’ and ‘performance’ than the sustained growth of the Indian economy. Economic development and growth is fundamental to India’s re-emergence as a ‘Great Power’. If India succeeds in sustaining a high rate of economic growth and can generate the resources needed not only for its defence and security but to invest in human capabilities and well-being and ensure peace and security in its neighbourhood, Kissinger’s qualification can finally be dropped.

Emerging perceptions

Whatever western, and in particular American, perceptions of India during the Cold War, by the end of the 20th century two dominant factors seem to have shaped a new thinking about India in the western hemisphere – first, India’s economic performance in the last decade of the century and the shift in economic policy and thinking in India; and, second, India’s declared nuclear weapons status. Both these elements are factors endogenous to economic and political developments in India to which the US has had to respond. There are two other elements shaping US perceptions about India more recently, which are ‘exogenous’ to India but have a bearing on India-US relations. These are the rise of jehadi terrorism in the Muslim world and China’s rising profile within Asia. Together, these factors, namely, India’s economic empowerment, her military and technological capability and her role as a liberal and secular democracy in the fight against sectarianism and terrorism will shape the bilateral relationship with the US and the western world in the 21st century and, in turn, this will define American perceptions of India’s global role in decades to come.

The challenge for India is to be able to deal with each one of these elements – economic growth and development, national security, jehadi terrorism and China’s growing power and influence in a manner which will enhance national security and ensure national well-being in the foreseeable future. How India deals with each of these challenges will define the extent and nature of India’s power in the 21st century and its national security.

Economic imperative

In a recent classic, the Oxford historian, Neil Ferguson (2001) while rejecting the more simplistic recent theories of the economic foundation of national power, has argued:

“Tolstoy’s question was: ‘What is the power that moves nations?’ Substitute the word ‘mobilise’ and the question is perhaps easier to answer. Clearly, it is something more than purchasing power. Economic resources are important, of course, but they are not the sole determinant of power. A state’s means of destruction consist of more than the output of its steel industry. As we have seen, a state can defeat an economically superior foe if it has better strategic, operational and tactical ability. Nor is the effectiveness of military mobilisation sufficient. We also need to take into account a state’s financial sophistication: its ability to appropriate resources from taxpayers and to borrow from investors. And in major conflicts a state must also be able to mobilise civilians optimally. The right balance must be struck between the different sectors of the economy in order to maximise war-making resources without undermining domestic well-being. The quality of bureaucratic organisation in both the state and the private sector can therefore be as important as the quality of military organisation” (p. 418).

Ferguson draws attention to what he regards as the four key institutional pillars of financial strength, constituting the economic ‘square of power’, namely, a tax-collecting bureaucracy; a representative parliament; a national debt; and a central bank. Admittedly, Ferguson shies away from an economic deterministic theory of state power and says as much:

“No matter how efficient the tax system, no matter how representative the parliament, no matter how liquid the bond market and no matter how well managed the currency, in the end the legitimacy of a state is bound up with such intangibles as tradition (the memory of past benefits), charisma (the appeal of present leaders), popular belief (faith in future rewards, material and spiritual) and propaganda (the state’s use of available media to bolster all these). Though Carlyle feared that modernity would turn all human relations into economic relations, the true ‘homo economicus’ – constantly aiming to maximise his utility with every transaction – remains a rarity, and to most of us rather a monstrous one. Every day, men and women subordinate their economic self-interest to some other motive, be it the urge to play, to idle, to copulate or to wreck” (p. 422).

Thus, states can pursue power and increase their strategic relevance even without the economic wherewithal, but in the long run sustainable power is built on the foundations of sustainable development.

For India, there is no doubt that the first and most important challenge is that of accelerating the rate of economic growth and development. Economic performance and capability certainly constitute the foundation of national security and power even more so for a developing nation like India. It will define the limits to military capability and alter the relationship between India and its neighbourhood, especially its two major adversaries, namely, China and Pakistan. India has the military capability to defend her territorial integrity and security, however, it will have to sustain higher rates of economic growth to be able to alter the strategic balance in Asia, and globally, to her developmental advantage. For this reason, her enemies will act to keep her economically weak. This only underscores the economic imperative and the strategic consequences of sustained economic development.

In his survey of the ‘potential and promise’ of Indian power, Stephen Cohen (2001) offers a balanced appreciation of both economic and military strengths in the making of a major power, posing the question: “Can India develop the technological, logistic, and military capacity to be more than a south Asian power in years to come?” However, Cohen focuses far too much on India’s military, diplomatic and political capabilities, treating economic capability only cursorily. Cohen correctly draws attention to the disjunction between the ‘worldview’ and ‘self-image’ of Indian elites, and India’s real capabilities. But in defining the latter he shows inadequate appreciation of the centrality of economic performance. A robust performance on the economic front is critical to the full realisation of India’s strategic potential and national security.

The economic dimension was introduced more directly into the calculus of evolving strategic power equations in Asia in a RAND study (Yeh and Zycher, 2000) that says that if India can sustain into the period 2000–2015 the economic growth performance it recorded in 1992–1998, then there would be a major reordering of Asian power equations. Following this argument, Ashley Tellis (2001) analysed the many strategic consequences of India’s improved economic performance.

“The moral of the story,” says Tellis, is that “If India can sustain an average growth rate of even 5.5 per cent or thereabouts for the next two decades or so, it will become a significant actor on the Asian stage. If it can accelerate its growth rates to levels beyond this 5.5 per cent band, then its significance for Asian geopolitics only increases further.” Tellis then defines a new marker, “A realisation of a growth rate consistently 7 per cent or higher, an economic performance that inexorably transforms India into a great power, positions it as an effective pole in the Asian geopolitical balance, and compels international attention to itself as a strategic entity with continentwide significance” (p. 240).

These ideas also find reflection in Teresita Schaffer’s Rising India and US Policy Options in Asia in which the robustness of economic growth and governance are seen as key variables determining the nature of Indian power. Says Schaffer, “The extent of India’s rise as an economy and as an international actor will be determined primarily by factors internal to India. Two factors emerged as central drivers in our scenario analysis. The first is economic change, which will profoundly affect the political climate, the leadership contests, and India’s international behaviour … The second driver,… is the quality of political leadership,…”

The idea that economic performance and capability is a necessary, though by no means a sufficient, foundation of political and diplomatic influence and military power is now widely acknowledged, more so after the implosion of the Soviet Union under the burden of its economic weightlessness, and the role that rapid economic development has played in China’s emergence as a major power.

Having said this, it will be our contention that it is not economic growth in itself that holds the key to India’s global profile and power, its strategic role and relevance and its national security, but the nature of that growth process and the manner in which the economic challenges it faces today are addressed. By ‘nature’ we mean the distributional aspects of growth, the impact of growth on global competitiveness and integration with the global economy and the sectoral composition of that growth, that is the extent of industrialisation, and its fiscal sustainability. This is relevant because India’s bigger security challenge, in its journey to major power status, is largely internal both economic and political. The threat to, what more recently has come to be defined as ‘homeland security’, is posed by social and economic backwardness, the inequalities and the political uncertainty this generates, and the quality of economic development.

India’s primary external security challenge, that posed by cross-border terrorism in the north-western region bordering Pakistan, cannot be addressed without dealing with its domestic counterpart which feeds on social and economic backwardness of minorities, and communal and caste tensions. Inegalitarian growth can only feed such threats to national security. Equally, economic backwardness holds the Indian economy back from competing globally and thereby limits the range of her global engagement. Sustained and sustainable economic growth and development are, therefore, the foundation of India’s power and security.

I: India’s past economic performance and contemporary power

If accelerated economic growth holds the key to realising India’s strategic potential, the question arises how has India done and what exactly is the gap between performance and potential.

It is useful to acknowledge at this point that several factors, other than economic growth, contribute to India’s self-image as a major power – her civilisational history, her contribution to religion and philosophy, her intellectual, especially scientific and mathematical achievements, her demographic size and composition, her geographical size and location, her military strength and capability. As John Garver (2001) notes in the opening line of his study of the rivalry between India and China “Two of the most brilliant civilisations yet produced by humanity, those of China and India, lie side by side on the continent of Eurasia. The peoples that have produced these civilisations are both rightly proud of their histories and achievements, and determined that their nations will play a major role in the modern world” (p. 3).

A recent statistical enterprise of the Organisation of Economic Cooperation and Development (OECD) captures this notion of historic potential through striking economic numbers. Angus Maddison’s (1998) study of China’s economic performance has thrown up a set of numbers on world income for the period 1700–1995 that draws attention to India’s and China’s dominant position in the world economy in the pre-industrial and pre-colonial era, and their more recent journey to regain this lost share. In 1700 China and India accounted for 45.7 per cent of world’s national income. (Table 1.1) By the end of the 19th century this share had fallen to 24.2 per cent and by the middle of the 20th century ...

Table of contents

• Front Cover
• Strategic Consequences of India's Economic Performance
• Title Page
• Copyright
• Dedication
• CONTENTS
• Foreward
• Acknowledgements
• Introduction
• 1. The strategic consequences of India’s economic performance
• 2. The economic dimension of India’s foreign policy
• 3. Conceptualising economic security
• 4. National security in an open economy
• 5. Stewing in our own juice
• 6. India and the world: Learning to walk on two legs
• 7. The economics of national security
• 8. The Bombay plea
• 9. Competitive advantage: Merit, markets and the middle class
• 10. The fruits of economic diplomacy
• 11. The Madrid impasse: India and G-9 stand up to be counted
• 12. Intimations of greatness: The challenge of realising India’s potential
• 13. Diplomatic business: Trade and flag in today’s world
• 14. The strategic imperative
• 15. Brinkmanship blues: Memories of a near forgotten crisis
• 16. Economic sanctions in war on terror
• 17. Not an advisable advisory
• 18. Who wants charity?
• 19. Who is afraid of globalisation?
• 20. Sizing up the competition
• 21. Doing our own thing
• 22. A Jaswant Singh doctrine on foreign aid
• 23. India launches FTA spree before Cancun
• 24. The business of foreign policy
• 25. Slower track WTO versus fast track FTAs
• 26. Foreign trade is also about imports
• 27. An open market and an open society
• 28. How Asian is India?
• 29. India and ASEAN: The emerging economic relationship towards a Bay of Bengal community
• 30. The Asian economic crisis and India’s external economic relations
• 31. South Asian dialogue: Business of peace and security
• 32. Tackling trust, trade and terrorism
• 33. A win-win race in South Asia
• 34. South Asia can rise and shine together
• 35. Economic consequences of J& K elections
• 36. The business of other neighbours
• 37. IT and the e-Economy: The ballast for India-US relations
• 38. India, China and the Asian neighbourhood: Issues in external trade and foreign policy
• 39. Mr. Rao goes to Washington
• 40. Beyond nuclear policy: A wider perspective on signing CTBT
• 41. Who’s afraid of Entities List?
• 42. Dotcom diaspora: World wide web of overseas Indians
• 43. Terms of engagement
• 44. Long and short of India-US relations
• 45. The big deal about no big deal
• 46. India and US: Out of the South Asia box
• 47. Putin Russia in perspective
• 48. G-8 Summit: Not just because it’s there
• 49. Business in command: China’s cultural counter-revolution
• 50. Manhattan of the East: Wandering and wondering in China
• 51. Pacific blues: The US-China face-off
• 52. The Chinese art of economic diplomacy
• 53. The ‘New Great Game’: APEC, ASEAN+3 and now JACIK, an alphabet soup in a changing Asia
• 54. Business beyond borders: India-China relations show the way for India-Pakistan relations
• 55. An eagle’s eye on the dragon
• 56. Is India a paper tiger?
• 57. The coming of age of Korea Inc
• 58. State and market in foreign policy
• 59. The economic consequences of the Kargil conflict for India and Pakistan
• 60. Geography of business: Time, space and technology
• 61. Media multiplier: Soft power of Indian software
• 62. Widen that lens
• 63. An India of Narayana Murthy or Sudarshan?
• Appendix: India’s emergence in world affairs
• Sources
• Index