Month: October 2016

Economic diplomacy and development partnerships: Rethinking India’s role and relevance

Samir Saran  and Urvashi Aneja, ORF Website, Oct 28, 2016

Original link is here

There are two prisms through which India’s role as a provider of global public goods and as a contributor to the evolving global growth and development agenda can be assessed. The first is a continuum starting from the independence of the erstwhile colonies, the Bandung conference and the Non Aligned Movement, to a more recent focus on south–south cooperation. This continuum is located within the narrative of solidarity, justice, economic reparations, development rights, and more recently, around the texture of assistance forthcoming from the emerging economies willing to share their growing available surpluses with their G–77 compatriots. India and its development sector analysts have, for the most part, framed its development partnerships through this prism. The recent BIMSTEC–BRICS meet in Goa, followed this course.

The second view of India’s role could be understood through the phenomenon of ’emergence’, one that breaks away from the above continuum and instead positions India (and some other nations) at a juncture where, beyond solidarity and rights, it is the responsibility of being a global power (and attendant benefits that flow from being one) that compels a certain development partnership agenda. In this view, India has new opportunities that necessitate new responsibilities driven by its expanding global interests, both of which shape the country’s development partnership initiatives. This assessment replaces romanticism with realism and is less frequently voiced for this very reason. India must be careful that this hesitation does not reduce the scope and ambition of its development partnership agenda to one limited to the vocabulary of south–south cooperation.

India has new opportunities that necessitate new responsibilities driven by its expanding global interests, both of which shape the country’s development partnership initiatives. This assessment replaces romanticism with realism and is less frequently voiced for this very reason.

This is not to suggest that south–south cooperation is not important and has not influenced contemporary conversations on development and growth. It certainly has redefined ‘aid’ by introducing new financial and technical ethics and cemented the concepts of ‘partnership’ and ‘national ownership’ as normative benchmarks. Even more importantly, new southern partnerships for development finance and international economic support have shaken up the institutions of the OECD from their ambivalent slumber characterised by a prescriptive development policy agenda and conditional financing. It has made the traditional donors more reflective and considerate in their economic engagements.

But, taken too far, the south–south cooperation framework can reduce the role and ambition of a country like India in global development to a mere extension or function of southern solidarity, one proscribed by the limits to south–south cooperation reflected in its description; one by the ‘south’ for the ‘south’. The global south must be the core constituency and ethical mooring of India’s development partnerships but not its ambition or the philosophical anchor of its economic diplomacy responsibility.

Taken too far, the south–south cooperation framework can reduce the role and ambition of a country like India in global development to a mere extension or function of southern solidarity.

It is too limited a world view for a country of 1.3 billion people that has set itself a goal of becoming a USD 8 trillion dollar economy in the next decade and half. It is inevitably poised to become a net provider of global public goods. It is perhaps destined to inherit the task of managing global institutions that exist and building new institutions that this century will demand. These likely eventualities must steer policy formulation and implementation of India’s economic diplomacy objectives, even as it indulges in the grammar of historic solidarity.

India’s role for itself must be redefined through the prism of its ’emergence’, as an actor with agency already far above its economic weight, and likely to increase significantly over time. This is due to a number of factors. First, the largest incremental capital for global development and infrastructure beyond what exists today will be contributed by India, its institutions and corporations in the next fifteen years or so. Even if this incremental capital only comprises a modest proportion of the total development finance pie, the fact that India will make the largest new contribution will augment its global agenda–setting power in the age of climate change and renewed commitment to sustainable development. In absolute terms as well, back–of–the–envelope calculations suggest that the current $2.35 billion earmarked for overseas grants, concessional loans, and technical training will rise to approximately $10 billion by 2030 if deployment follows GDP growth. To put this in perspective, the UK Department for International Development’s (DfID) annual budget for 2015–16 is $12 billion, a figure likely to come under stress in the days ahead. Other agencies like the German GIZ will also at best be able to maintain their level of contributions.

normative benchmarks, development finance, policy agenda, conditional financing, solidarity, responsibility, emergence, finance pie, climate change, sustainable development, DfID, budget, development narrative, low-income, mid-income, fossil fuel, policy assumptions, human rights

Second, beyond the numbers, India may also have a new path to offer, a new development narrative to share. In all likelihood it will be the first country to move from low–income existence to a mid–income economy in a fossil fuel constrained and climate aware world. It will have to make this transition discarding the key economic choices and policy assumptions that aided Europe and America, Japan and China. Cheap labour, bulk manufacturing, cheap energy, exploitative economic policies with scant regards for human rights and even perhaps the liberal and open trade regimes that have defined the past decades of growth. The India story, if and when mature, will resemble none; it could be a unique and contemporary blueprint for other developing countries attempting similar transitions. While it is impossible to predict the details of India’s transition, some aspects can be anticipated. The economic change will ride on frugal innovation helping a frugal service economy. It will be buttressed by the capacity to at the same time offer high–quality low–cost services to domestic and global markets. It would have also created a new framework to provide skilling, education, employment and security to not only the half a billion population added in the past three decades, but also to the burgeoning senior citizenry growing each year.

The India story, if and when mature, will resemble none; it could be a unique and contemporary blueprint for other developing countries attempting similar transitions.

And finally, India may also lead the way in crafting a new trade architecture in South Asia and with partners in the developing and emerging world. The current global trade regime is under strain as restrictive agreements amongst the OECD countries and some others are undermining the WTO, and the benefits to developing countries are dwindling. The current trading system is also based on an incomplete globalisation. It is biased towards the movement of capital and goods, but much less towards the movement of services and peoples. For developing countries compelled to respond to 21st century challenges through the acceleration of a service economy, this partial globalisation poses clear challenges. For India, its South Asian neighbours, Africa and some others herein lies an opportunity to re–craft their trading arrangements to support their 21st century development trajectories.

Looking through an emergence prism, India’s development partnerships and economic diplomacy must be built around three concentric circles of interest and influence. The first must encompass India’s immediate neighbourhood and the big powers; the second, would cover its extended neighbourhood extending across Asia and the Indian Ocean littoral with some localities important for what they offer; and the third may include some distant geographies, all global commons and vital global issues and institutions to manage them. Development partnerships and economic diplomacy in each should be driven by a specific set of interests, capabilities and priorities.

Development partnerships built around these three concentric circles will allow India to build direction, specificity, and flexibility into its initiatives; to create a differentiated approach across various geographies; to build alliances and institutions that cut across the north and south; to find a balance between its immediate economic and strategic interests and its global responsibilities; and to manage and respond to the complex and multifarious requirements of a global development provider.

To be clear though, to argue for an emergence prism over a south–south narrative does not imply that India’s economic diplomacy should reject the importance of communities and collective norms for a singularly realpolitik logic; on the contrary, sustaining the role of a leading development provider will require India to be a normative power more than ever before and build communities, create opportunities and discover growth across the binary North–South and East–West divides. As a leading power it must cross this bridge first.

 

BRICS remains on course for bigger, more effective projects in the years to come

Updated: Oct 17, 2016 21:23 IST, Hindustan Times

Original link is here

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(From Left) Brazilian President Michel Temer, Russian President Vladimir Putin, Prime Minister Narendra Modi, Chinese President Xi Jinping and South African President Jacob Zuma, at BRICS summit, Benaulim, Goa, October 16 (PTI)

Heading into the BRICS summit in Goa last weekend, Indian diplomacy sought four key objectives. First, use the forum to strengthen bilateral relationships with all four countries, especially Russia and China. BRICS as a grouping will undoubtedly be served well, and its mandate strengthened, as a result of political exchanges at the bilateral level. Second, stabilise the BRICS regime at a time when some of its major constituents have been perceived as disruptive forces in the international order. Third, leverage the platform to highlight concerns of cross-border terrorism emanating from Pakistan, and lend momentum to India’s efforts to promote a comprehensive, multilateral instrument to tackle terrorism. And fourth, consolidate and build on the institutionalisation of intra-BRICS initiatives, aimed mainly at promoting economic growth.

All four objectives were materially advanced by New Delhi at the summit, with varying degrees of success. At a time of general turbulence in the international system, whether it is armed conflict in Syria, contestation in the South China Sea or the imminent overhaul of global climate and trading regimes, India can take credit that the summit concluded on a sober, even footing, without letting the political predilections of each power holding sway over the group.

On the subject of terrorism, the Goa declaration strongly endorsed multi-national efforts to tackle the spread of terror networks, and specifically urged countries to crack down on terrorist organisations designated by the United Nations Security Council. It is frankly besides the point that groups based in Pakistan. such as Lashkar-e-Taiba and Jaish-e-Mohammed did not find mention by name in the declaration, since they are groups that are listed by the UNSC under its anti-terror sanctions regime. The references to terrorism in Afghanistan in particular are significant, as they cast a shadow over Islamabad’s conduct in preventing its neighbour from pursuing its “independent political and economic course”. India’s pointed references to Pakistan’s less-than-constructive role in tackling home grown terror networks indicate New Delhi is prepared to sustain its recent efforts to draw ever more global attention to the subject.

The conversations on terrorism in Goa, however, should not detract from the substantial progress that BRICS countries have made in the last year in charting a common economic narrative. Thrown into sharp relief by Britain’s exit from the European Union, the diminishing appetite for integrated markets and indeed, globalisation as we know it, has not deterred BRICS countries from pushing ahead with key economic initiatives.

The Goa declaration correctly highlights the critical role of the New Development Bank (NDB) in attracting foreign investment and supporting renewable energy and infrastructure projects in the global South. Consensus on a BRICS credit rating mechanism was not forthcoming at the 8th summit, given that a consolidated view on perception of financial risk and regulation is a sensitive matter. It is worth noting here that the NDB itself was the product of many such BRICS meetings, both at the level of leaders and sector experts. The credit ratings mechanism is an important initiative that should be pursued with vigour when BRICS finance ministers, industry associations and independent experts now meet over the course of the calendar year to flesh out its details.

Among the biggest takeaways from the summit’s deliberations is BRICS’ continued willingness to take on the unfavourable economic headwinds together, whether by pushing towards greater integration of its markets, facilitating the mutual ease of doing business or providing accessible capital to its businesses. India’s hosting of the BRICS and BIMSTEC summits helped in highlighting that trade ties need to be significantly enhanced, not just among BRICS, but also between BRICS and BIMSTEC countries. On this count, the declaration’s heightened attention and call to build the capacity of micro, small and medium enterprises to ensure they are included in global value chains are significant as they are crucial sources of employment.

The summit declaration also brought the focus back to international norms that promote stability and inclusion in common spaces. At a time when mega-regional trading agreements have significantly altered the discourse on cross-border trade, the summit stressed the need for co-operation in crucial matters relating to Intellectual Property Rights and the digital economy. BRICS members have always attributed a position of “centrality” to the WTO-led trading system, but their endorsement this year is significant.

The Goa declaration reflects an important moment in the group’s history, which has seen the “alternative” powers weighing on the side of liberal, multilateral trading institutions that were conceived by the West. References to the “open and non-fragmented” nature of digital spaces should not be viewed from the prism of Internet governance alone. It is also a pointed reference to the need to keep cyberspace open for commerce, and prevent its “stratification” by exclusive trading regimes.

The BRICS summit in Goa reinforces India’s position as a “bridge” between the liberal institutional order and the potential disruptive impulses of major powers that have opened up the possibility for contestation. Its concurrent hosting of the BIMSTEC heads of state meeting allowed New Delhi to raise the grouping’s profile, and signal its importance to India’s neighbourhood diplomacy in the days to come.

As for the Goa declaration, India may not have had its way on every issue – this is only natural, just as New Delhi sought to moderate the influence of Moscow’s holding the pen at the BRICS Ufa summit last year, the gives and takes of diplomacy ensure a document that is acceptable to all. The Goa declaration ensured the BRICS ship continues to sail steady, and remains on course for bigger and more effective projects in the years to come.

Samir Saran is vice president, Observer Research Foundation, New Delhi

 

Why India should sign a free-trade deal with itself

World Economic Forum, Monday 3 October 2016,  in collaboration with Quartz.

Original link is here

High-rise residential towers under construction are pictured behind an old residential building in central Mumbai September 9, 2011.

Image: REUTERS/Vivek Prakash

India is currently in the midst of two large but different endeavours.

The first is to complete the unfinished agenda of the previous decade, providing the country with the modern infrastructure, rural amenities, social services and connectivity that any developed economy needs. And the second, the most ambitious of the two, is to create jobs, wealth and value to accommodate a young and aspiring population, eradicate poverty and boost GDP growth.

 

But these two projects are being undertaken at a time when global headwinds are deeply unfavourable. Today there are five hurdles that stand between India and its ambition to join the club of developed economies.

 

India’s challenges

 

The first is the advent of this new age where the open, free, and democratic global trading system has become a pale shadow of its previous self. The multilateral trading system—and the preference for this kind of model—has waned considerably. It is being replaced by free trade arrangements between smaller groups of countries and regions, where a handful of stakeholders are able to decide the terms of trade.

 

This is coupled with a stagnation in global financial flows, because of weak growth, and the growing disquiet over globalization, curiously enough, in the developed world. From the European Union to the United Kingdom to the United States, politicians are using globalization as a convenient culprit for all that ails domestic economies and societies.

 

It’s against this backdrop that India has to discover new markets, new sources of funding and new trading arrangements.

 

Second, the advance of technology and the expansion of the digital economy, along with the advance of robotics, is in many ways closing the window for export-led manufacturing growth. They have significantly eroded the advantages that cheap labour typically provides for developing countries. Industrialization, when seen through the narrow prism of manufacturing, therefore already looks improbable, if not impossible.

 

End of manufacturing as we know it

 

Emerging economies will be stuck with the traditional disadvantages of weak governance, cumbersome bureaucracies, quality and competence issues, fragile supply chains and a lack of skilled labour, even as they compete with machines and machine learning. Large labour pools are unlikely to provide any competitive advantage unless the labour force is reoriented, retrained and reimagined.

 

That’s going to make things difficult for India. Even though the country might benefit in the next 5-10 years from weak energy prices, industries exiting China, and inflows of foreign direct investment, it’s going to get harder to compete in manufacturing.

A case in point is the relocation of textile and garment production to the developed world. This was previously a sector most sensitive to cheap labour and therefore the first to be off-shored to the developing world. Today, it’s now returning to robotized factories in the US and the EU.

 

Indeed, it can be argued that with 3D printing and artificial intelligence, manufacturing as we know it may be coming to an end. Whatever form that manufacturing takes in the future, we can safely assume that it will based on high competencies in design, material science, resource management, super-computing, and precision engineering, all delivered by machines or sets of machines and requiring minimal labour.

 

Third, energy derived from fossil fuels may no longer be a given in any new industrialization effort. In a “climate-aware” world, it is apparent that there is a willingness to compromise with low incomes and poverty but little appetite to allow the developing world too much carbon space.

 

Fourth, global finance is increasingly agnostic, if not outright unfriendly, to the idea of traditional industrial growth. An IMF working paper suggests that “investors such as pension funds, insurance companies and mutual funds, and other investors such as sovereign wealth funds, hold around $100 trillion in assets under management.” This study estimates the infrastructure-funding gap between $1 trillion and $1.5 trillion each year, with the deficit significantly higher in developing countries. This paper and other studies have argued that this stems from a lack of financial instruments and a lack of appetite to invest in the industrial ventures of the past. Global capital and even local commercial capital in developing countries are being crowded away from investing in infrastructure.

 

Fifth, innovation itself has a spatial flaw. Discovery and invention are still the preserve of the Atlantic system while consumption and absorption are witnessing greater uptake in the Asian economies and in Africa. This new innovation divide, when combined with restrictive intellectual property regimes set up for the benefit of Western corporations, is bad news for developing countries. It’s likely that they will merely transform from being labour sources, marginal consumers, and resource-rich spaces to markets for innovation, sources for the data that drives the process, and part of a value chain where the largest wealth will still be created in the old economies.

This will ensure that their purchasing power remains low. Without large-scale, export-driven manufacturing, and without the revenues that would accrue to the owners of technology, there is a high possibility that developing countries that are not yet middle-income will remain trapped in a low-productivity, low-wage spiral.

India: GDP in current prices from 2010 to 2020

Image: Statista

The better way forward

 

So what should India do, given these five trends in global economic development?

 

First, India must get its own house in order. One-fifth of humanity is a market and a productive base in and of itself. But for the country to take advantage of its size, it must sign a free trade deal with itself.

 

Currently the 30-odd states and union territories that comprise the Republic of India are nominally a single economy. But in reality they’re less integrated than the economies of Europe. India’s states and union territories often have sharply different regulations and incompatible tax systems. As a result, trading across state boundaries is a nightmare and India really needs to focus on creating a trade association among these regions.

 

As a single tax, the GST is the first step in the right direction as it will allow new manufacturing units set up under the “Make in India” programme to have access to multiple markets.

 

And there are other government policies that also fit well with this endeavour:Digital India knits markets together, allowing for vast e-commerce and business-to-business opportunities, and Start-up India gives new entrepreneurs access to the finance and incubation required for them to take advantage of these opportunities.

 

Secondly, the attitude towards informal employment needs to change. It’s time to stop thinking of the informal economy as a bad thing, particularly since an overwhelmingly large number of Indian workers (over 90% by some estimates) are currently employed in the sector. The government should instead focus on creating support systems that will allow for India’s vast informal workforce to become more secure, productive, and, where feasible, more entrepreneurial.

 

Finally, India must think big. It must consider the possibility that it will have to leapfrog over the industrialisation process itself. It must imagine itself becoming the epicentre of the robotics and AI world, much like Japan become the hub for electronics, Germany for automobiles, and China for manufacturing everything at a tenth of the cost.

To prosper in a world that is suffering from the absence of growth and the disruption of old models, India must strive to become the principal stakeholder of the digital revolution—and ensure that its teeming millions partake in it gainfully, even if informally.