Navigating a Mercantile World

 GEOPOLITICS HAS TURNED mercantile. Trade is the battlefield. Tariff is the weapon. Economic might is the determinant of power. Technological capability too. The soft power of democracy, future potential, shared prosperity, global public goods are all relegated, most of them find their place in the wastebin of the present. India is not a winner by default in this new world order as it was poised to be in the order that just went past its expiry date. It will require considerable hard work and ingenuity to navigate the new world.

There are only two countries which matter—the US and China, together 45 per cent of the global GDP. China was always mercantilist dressed as a free market, always a hawk dressed as a dove until Xi Jinping removed the cloak that his predecessors from Deng onwards had consciously chosen to don—bide your time, peaceful rise being the defining tone for four decades after 1978. The US was genuinely free market over the same period, aiding China’s rise to a position where the latter became a real competitor. Now, the US is downing the shutters not only on China but the rest of the world.

Except that China, because of its economic might, its cornering of rare earths and its tremendous advance in technology is ironically the only one able to resist America’s changed position. We now have a situation where the average US effective rate of tariff on China is lower than of India. Once upon a time, not so long ago, India was the fulcrum around which the China-plus-one diversification strategy (both economically and geopolitically) was being built.

With an economy of $4.1 trillion, even if it’s the fourth-largest in the world, India doesn’t have much leverage with either of the two largest economies. The only countries which may still have geopolitical heft are those which have unique technological prowess, like Japan, South Korea or Israel in electronics or which have extraordinary natural resources like Saudi Arabia, Qatar, the UAE. India is in neither category, which is why America can impose any tariff at will.

What about Pakistan? Surely, their rise to prominence, as a friend of both China and the US (ahead of India), isn’t because of economic might, technological prowess or natural resources. It isn’t. But Pakistan has perfected the art and science of being a client state which effectively barters away its sovereignty and economic autonomy in exchange for favoured treatment from the great powers. This isn’t the first time in its history that Pakistan has positioned itself as such. But, maybe, the first time that it has on its side both the top powers of the world.

India cannot, should not and will not be a client state to any power. For us, there is no substitute for rapid economic growth and equally rapid technological advance to make our place of note in the world. India need not embrace mercantilism of the US-China kind, but it needs to appreciate the power of business and wealth. India’s political economy is still far too redistributionist at the expense of growth. It is far too statist. Government action is not guided by the profit motive (it shouldn’t be) and hence it should keep its intervention in the business of business at a minimum. It should certainly not be the promoter of 250 companies. Or an extensive regulator of how business is done, at what scale and at which speed.

What about India in the world? India tends to ‘sell’ its potential to the world—the largest democracy, the third-largest economy by 2027, youngest population, the third-largest startup ecosystem. That is fine. But it also needs to sell its policies. For those to be saleable, they need to change. Reform can send our growth rate to double digits. At that speed, a mercantile world will sit up and take notice.