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Why India and China must take the lead in the Asian century

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Alibaba Group Executive Chairman Jack Ma speaks during the Business Forum at the 11th World Trade Organization's ministerial conference in Buenos Aires, Argentina, 12 December 2017 (Photo: Reuters/Marcos Brindicci).

In Brief

Eighteen years ago, thousands of street protestors derailed a World Trade Organization (WTO) ministerial meeting in Seattle. The protestors denounced the forces of globalisation and the governments that promulgated them. At the dusk of 2017, a WTO ministerial meeting in Buenos Aires ended with a whimper as the United States led a general apathy towards free trade and globalisation.


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Perhaps 2017 will be remembered as the year when the liberal economic consensus on free markets and globalisation was finally buried in its homelands: the United States and the United Kingdom. One wonders what the street protesters of Seattle make of the cast of characters administering the last rites to the ‘Washington Consensus’. Not Fidel Castro nor Hugo Chavez nor even Lula da Silva are acting as undertaker. Instead, these undertakers are a Republican president of the United Unites States (who also happens to be a billionaire) and a powerful faction of the United Kingdom’s Conservative Party.

For many anti-globalist forces, the ‘victory’ must be bittersweet.

For ordinary citizens of the world, the ideological and policy shifts in several advanced economies are likely to be more bitter than sweet. Consider the view from emerging economies. Over half a billion people have been lifted out of absolute poverty in the last three decades — more than in any other period of human history. That is largely because the world’s two most populous nations (China and India) made rapid strides in terms of economic growth over this period.

China, which embraced openness and internal reform more vigorously than India, has been the bigger beneficiary of globalisation. With its limited openness and gradual internal reform process, India has registered lower growth than China — but it has also registered higher growth rates than at any other point in its history. It would be cynical to say that globalisation and free markets have only enriched a minority in these countries.

There are flaws in the system. Wall Street and global finance precipitated the 2008 financial crisis that sowed the seeds for a public backlash. Some politicians have curiously targeted free trade and relatively free movement of labour — soft targets compared to the powerful world of finance. There is a grave danger for both emerging and advanced economies with this form of backlash.

In advanced economies, it is convenient to blame free trade for job losses in manufacturing while ignoring the huge benefits of trade for consumers, who are clearly better off as a result of cheaper products and services. It is easy to target immigrants without acknowledging the huge value they bring to all sectors of their host economies. Any sustained backlash against free trade and immigration will ultimately hurt the economic and geopolitical interests of the developed world.

Advanced economies may be wealthy enough to delay the day of reckoning. For emerging economies, a closed world means missed opportunities and a longer journey out of poverty for those who remain poor. They have the most important stake in ensuring that the world does not descend into wealth-destroying autarky.

Before batting for openness abroad, emerging economies need to put their houses in order. For many emerging economies the backlash against free markets is likely to stem from domestic free market systems that crony capitalism has vitiated. It is not surprising that the leaders of both China and India have devoted a considerable amount of political capital to combatting corruption. Corruption and cronyism are complex and chronic but must be fought to retain the legitimacy of open market economies, which have delivered more prosperity than any alternative system in the last hundred years.

Reform at home must be accompanied by a willingness to open up to the world. China is aggressive about exporting its goods and about attracting foreign investment, but it is more protectionist regarding imports (particularly services and agricultural goods) and its state-owned enterprises.

India has never quite embraced an export-oriented development strategy due to the belief that its domestic market is ‘large enough’ — even when it is apparent that the global market is several times that size. India needs to capture a much larger share of the global market than its present 1.6 per cent and it needs a greater share of foreign investment. To do so, India should give up its traditionally defensive posture on trade. The opportunity has never been better as China’s wages rise and Beijing reorients its economic strategy from export- to consumption-led growth.

India and China hold the key to a new global political economy. Joining the United States and other advanced economies in closing up economically will only slow growth. The challenge for India and China as the two fastest-growing major economies is to engage with each other and with other willing partner nations to maintain openness and embrace globalisation. The Regional Comprehensive Economic Partnership is one forum where this engagement can happen. India can engage on free trade and investment in other groups like the BBIN and BIMSTEC and via these groups engage with the entire ASEAN region.

The scenario is set for an Asian century. For it to materialise, India, China and the rest of the region need to look beyond rivalry and defensiveness to explore the possibilities of economic integration as the once dominant West marginalises and isolates itself.

Dhiraj Nayyar is Officer on Special Duty and Head, Economics, Finance and Commerce, NITI Aayog, Government of India. The views expressed in this article are personal and do not reflect the views of NITI Aayog.

A version of this article was originally published here in The Hindu.

3 responses to “Why India and China must take the lead in the Asian century”

  1. India’s interest will be served if it spend its time and energy improving the lives of its citizens instead of wasting it on buying fancy weapons and manipulating and bullying its smaller neighbors.

  2. It is clear that India needs to improve its export performance. Whether this should be in parternship with China is open to question for several reasons, mostly having to do with history.
    There is evidence to support that internal liberalisation will bring greater benefits for India than external liberalisation (Van Leemput, E. (2016) “A Passage to India: Quantifying Barriers to Internal and External Trade” International Finance Discussion Paper 1185, Washington DC: Board of Governors of the Federal Reserve System. Does the author have hard evidence that the reverse is true?
    Although India has made a start the country has a way to go in attaining full internal liberalisation. But, the gains from this are likely to be very high.

    • There is no doubt that India needs internal liberalisation but to boost exports it also needs to participate in global value chains or at least regional value chains in Asia. That won’t happen without greater openness to the outside world. Internal and external liberalisation must go side by side, and not be an either/or choice.
      Despite history and the complexity of the present relationship, the fact is that China is India’s largest trading partner. Of course, India has a huge trade deficit with China. At the same time, given China’s large and growing exports to India, it has a stake in economic cooperation and maintaining openness.
      The way to address the imbalance in trade isn’t to closeup to China but to press China to open up sectors in which India is competitive, including services, pharmaceutical formulations and agricultural goods as also to attract Chinese investment in manufacturing in India.

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