The “great game” in the 21st century is an economic contest. India needs to open up to global competition—It leads to short-term creative destruction, but long-term economic strength.
As usual, Shakespeare was right. As he said, “There is a tide in the affairs of men, which taken at the flood, leads to fortune.” Such a tide has now reached India’s shores. If India decides to sail out on this tide, it will achieve great fortune.
One fact is indisputable. No country has as great a gap between its potential and performance as India does. There is now global data that confirms that Indians are among the most naturally competitive animals in the economic realm, if not the most competitive. In the most competitive human laboratory in the world, the US, Indians are the ethnic group with the highest median household income (roughly $100,000). If Indians in India could achieve half the median household income of Indians in the US (say, $50,000), India would have a $20 trillion economy, about the size of the US today.
Why is this fact important? It is manifestly obvious that a new great game has begun. A major geopolitical contest has broken out between the US and China, as documented in my book, Has China Won? The Chinese Challenge to American Primacy. What will determine the outcome of this contest? Will it be the number of aircraft carriers each has? Or the size and affluence of its consumer markets? The answer is clear. It is the latter. One small piece of data indicates who is winning. In 2009, the size of the retail goods market in China was $1.8 trillion, while that of the US was more than double that, at $4 trillion. Ten years later, in 2019, the Chinese market had more than tripled to $6 trillion while that of the US rose only to $5.5 trillion. Ten years from now, especially after Covid-19, the Chinese market will be much bigger.
India is fortunate that this new great game will be played out in the economic sphere. The record shows that when there is fierce competition among different migrant communities, with each sending their best minds to the US, the ethnic community that delivers the biggest success stories is the Indian community, with Indians running two of the world’s largest corporations—Satya Nadella in Microsoft and Sundar Pichai in Google.
Yet, a great paradox surrounds the Indian condition. Overseas, in almost every country in the world, Indian business communities are among the most successful. Yet, in India, the per capita income is about to slide behind that of Bangladesh, a country Henry Kissinger famously described as a “basket-case”! In 2019, India’s per capita income was $2,092 and Bangladesh’s, $1,815. According to the IMF (International Monetary Fund), the figures for 2020 will see India drop to $1,877 while Bangladesh will rise to $1,888. What explains this paradox? Indians can compete. But to compete, they need competition.
Economic competition is not about making money. It serves a higher moral imperative: to reduce poverty and improve human well-being. Here, too, the data is clear. Countries that open up their economies to international trade reduce poverty faster. In 1992, Vietnam’s total trade was $5.1 billion and its poverty rate was 52 per cent. By 2018, because its international trade increased 100 times to $527 billion, its poverty rate plunged to 1.9 per cent. Similarly, in China, total trade was $166 billion and the poverty rate was 56.7 per cent in 1992. By 2018, its international trade went up 28 times to $4.6 trillion and, consequently, its poverty rate plunged to 0.5 per cent.
The same correlation shows up in India’s experience. Before India opened up and liberalised its economy in 1991 (under the leadership of Manmohan Singh and Montek Singh Ahluwalia), its poverty declined slowly from 63 per cent to 47.6 per cent from 1977 to 1992. In 1992, its total trade was $45 billion and its poverty rate was 47.6 per cent. By 2018, because its international trade went up 20 times to $940 billion, its poverty rate plunged to 7 per cent, according to some estimates.
This data makes it clear that the most catastrophic geopolitical decision India has made in recent times was to stay out of the Regional Comprehensive Economic Partnership (RCEP), even though Indian officials had been involved in RCEP negotiations for over a decade. Why catastrophic? Shakespeare has the answer. This was the great flood which would have taken India to great fortune.
One of the biggest misunderstandings that many people, including many Indians, have about RCEP is that it is China-led. Indeed, if China had led it, it would have failed. Why? It is not a secret that many RCEP members, including Japan and South Korea, Vietnam and Australia, have great apprehensions about China. They wouldn’t have joined a China-led RCEP.
RCEP succeeded because Asean (Association of Southeast Asian Nations) led it. Indeed, RCEP happened only because Asean had already signed several FTAs (free trade agreements) with all five other RCEP partners (and India too). Under this great protective Asean umbrella, a miracle was pulled off: China, Japan and South Korea effectively ended up signing an FTA among the three of them. If these largest economies of East Asia had tried to negotiate a trilateral FTA among themselves, they would have failed. There would have been a lack of trust. But all three trusted Asean.
Why did they trust Asean? The answer is paradoxical again. Asean is trusted not because it is strong, but because it is weak. This weakness in turn becomes a strength. Because Asean is trusted, it can succeed in creating and sustaining some of the most successful multilateral initiatives, including RCEP and EAS (East Asian Summit).
All this means that 2021 will be a difficult year for India geopolitically. It will have to make hard choices. There will be a strong temptation to join the strong consensus in the “deep state” of Washington to progressively isolate and counter-balance China. India’s strong flirtations with the Quad signal a move in that direction. While pretending to be independent and neutral, India would effectively become a quasi-ally of the US, similar to the position taken by China in the Cold War in the 1980s.
Yet, a quasi-alliance with the US could also bring significant costs. The US of the 2020s is not the confident superpower of the 1980s. It will not generously open its markets to India. Even Trump damaged India by removing it from the Generalized System of Preferences and restricting H1B visas for Indians. The Biden administration will almost certainly increase pressure on Moscow. An Indian quasi-alliance with the US in this contest will almost certainly lead to closer ties between Moscow and Islamabad. And it could be hugely ironic to see Russia and Pakistan working together in Afghanistan against the US and India.
Yet, the biggest danger of this quasi-alliance is that India will lose out in the new great game in geopolitics. The key dimension of this game is not military, it is economic. India has been campaigning for decades to become a permanent member of the UNSC (United Nations Security Council). Indeed, there is no doubt India should be admitted immediately and unconditionally as a permanent member with a veto. Yet, diplomatic campaigning would be far more effective if it was accompanied by economic clout. At the end of the day, in this new great game of the 21st century, only one statistic matters — the size of a country’s GNP. India is one of the few countries in the world that can easily aspire to have the largest economy in the world.
Indeed, for 1,800 out of the past 2,000 years, India and China were exclusive members of the G2, the two largest economies in the world. It can easily rejoin this club; as recently as 1980, the sizes of their economies were about the same. Today, China’s GNP is five times bigger. Its economy grew because it was opened up and the Chinese were allowed to compete in the large ocean of globalisation. Initially, it faced “creative destruction”. India, too, will experience short-term “creative destruction” if it joins the RCEP. However, short-term “creative destruction” leads to long-term economic strength.
To understand how short-term “creative destruction” leads to long-term economic strength, India should study the experience of Asean. With the exception of Singapore, none of the members were considered economic tigers. Indeed, Indonesian policymakers in the 1980s and 1990s were as fearful as Indian policymakers in the 2020s about economic competition. Yet, Indonesia took a brave plunge into the great flood of globalisation. Today, Indonesia and the other Asean countries are about to be uplifted by this great flood, sailing on to great fortune. If nine cultural offshoots of Indian culture and civilisation can take a brave plunge, why can’t India do the same? n
Kishore Mahbubani is Distinguished Fellow at the Asia Research Institute and the author of Has China Won? The Chinese Challenge to American Primacy