The Leader and the Sign of the Times
India today continues to be the world’s fastest growing major economy. At nearly 8% annual GDP growth, India handily outgrows its closest major competitors and neighbours such as China (at c.6.0% growth) and Indonesia (at c.5.5% growth). In addition to this fundamental shift in growth, there is another equally important shift occurring, that of risk. With India entering into a phase of increasing political and economic stability, and with the momentum of structural reforms building up at a strong pace under the Modi government, the country’s fundamental risk profile is changing at the exact moment when developments in other major markets, developed and developing, are either leading to increased risk, lower growth, or both. The United States is rapidly reaching political stasis as both the executive and legislative branches find themselves encumbered by effective resistance, while the problems of Brexit and the need to rethink the European programme are creating uncertainty in the EU and the potential exhaustion of Abenomics in Japan is leading to doubts over its economic path ahead. Meanwhile, China, after two decades of rapid growth, has moved to a lower growth trajectory with an increasing risk profile. At this stage, the global risk-reward profile is fundamentally shifting, with major regions being re-rated across both axes. India appears to be a strong beneficiary, away from the global trend-line, improving its relative positioning in terms of risk-adjusted returns vis-a-vis other major markets. It is a good time for India to continue its focus on executing the reforms that address structural and systemic risks while driving economic higher to potentially double digits.
Last month’s Sign of the Times highlighted what appear to be a series of US retreats from global leadership positions. With the geopolitical cards, apparently being reshuffled across a wide range of defence, political and economic areas, America’s apparent withdrawal is creating opportunities for countries seeking to fill the resulting void, with China currently taking the most proactive steps among the potential contenders. Beijing has already made clear its intent to play a more active role in matters of globalisation, international trade and climate change, global issues that also align well with China’s domestic agenda and where it can leverage significant political and financial assets. Despite China’s head start over others and its apparent desire to lead, its efforts will likely face not only resistance from the West but also competition from a number of countries, both within Asia and abroad. Further, China’s inability to lead on a broader set of issues related to matters such as human rights or regional security acts as a counter-weight to its leadership efforts and provides opportunities for other countries to fill the gaps being left by the United States. Among potential contenders for regional and international leadership, India, as the world’s fastest growing economy, the largest democracy and (potentially ) the most populous country, clearly has critical assets to leverage across a number of spheres. Bringing these to bear though will require India to be far more bold and strategic in handling both international affairs and in making strong domestic progress, both are matters that have proved elusive to date. However, if India can achieve this, it has the potential to create a virtuous circle of domestic development and international leadership similar to the one that has underwritten US prosperity for over two generations.
The first 120-odd days of the Trump administration have taught us to expect the unexpected. Events are moving so quickly news and even White House officials are struggling to keep up with the new cycle. While speed and the uncertainty it brings are unsettling to many people in America, it is perhaps even more alarming to its diplomats, who have spent decades carefully crafting policies to shape the relations with both America’s partners and competitors abroad. Among these relationships, arguably none is more important than the one with China, being the defining geopolitical relationship of the first half of the 21st century given the potential of China to be a rival or an ally, and so none is more critical to keep on stable and manageable tram lines. As a 5,000 year old civilisation, China takes short term events within the context of a long-term perspective of events and relationships and defines its strategies and policies accordingly. Its current leaders have a ten-year mandate to rule without the risks and distractions of mid-term elections or legislatives controlled by opposition parties and there has developed a continuity of vision regarding China’s development that has been in place since its opening up 35 years ago.
Last month’s Sign of the Times focused on India’s growing links to the rest of the world, and their important role in the country’s growth and development over the near- to medium term. Looking a decade or further out however, there are a number of broader macro-themes, demographic, social, economic, and political, playing out that will fundamentally reshape India as we know it today. These themes give rise to a set of “certainties” (in so much as anything is certain in our world) that will define India in 2025 and beyond. Over the longer-term India stands to benefit significantly from the transformation these macro-themes promise to bring about. While the drivers of these trends are more or less inexorable, and their impact will inevitably continue to gather momentum, there are a number of implications for India’s policy makers over the coming years that will determine whether these certainties are harnessed to create long-term value, or remain a set of impressive but inconsequential statistics.