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Home / Opinion / Columns /  India’s path to the Cornwall Consensus goes via China

The consensus is dead, long live the consensus. Just as the global economy finished burying the Washington Consensus has come a new document, christened the Cornwall Consensus. Presented during the UK-hosted G7 meeting in Cornwall, the document has many grey areas and unanswered questions, especially for India.

The Washington Consensus was shorthand for a 10-page economic reforms policy document prepared by economist John Williamson in 1990 to specifically address the Latin American debt crisis, but which morphed and acquired a life of its own. It became a receptacle for myriad policy variants of a neoliberal economic agenda, essentially codifying the tenet of market supremacy and minimizing state participation, even in areas like healthcare and education. It even inspired multilateral financial institutions to weave this philosophy into lending programmes.

Williamson, otherwise an established and respected international economist, passed away in April 2021, prompting this newspaper to speculate (bit.ly/3zuV103) about what is likely to supplant the Washington Consensus, which had been losing adherents after the 2008 financial crisis. The covid pandemic accelerated the trend once it became obvious that existing economic shibboleths were past their sell-by dates. The Cornwall Consensus is claiming to be a rightful heir, but doubts persist. It is time to view the consensus through a made-in-India lens.

Two immediate concerns stand out. First the geopolitics. The ‘C’ word looms like a menacing shadow over the G7 communication, a sign of the group’s repurposing to counter China’s ascendant strategic and economic power. While China is not mentioned explicitly in any G7 communique, a 12 June White House fact-sheet has no such compunctions. The UK’s decision to invite India, Australia, South Korea and South Africa into the G7 tent as guest countries reinforces the perception of the West co-opting ‘partners’ for the power rebalancing act.

India has already been a fellow traveller on this path, because China’s border exertions and muscle-flexing pose an immediate security threat. India has been seeking alternative partnerships to countervail the China threat; India’s membership of the Quadrilateral Security Dialogue and its associated joint military exercises, such as Malabar, are part of that strategy.

But the problem lies in China’s tight commercial grip over India. China has been among India’s top trading partners for some years now. In fact, China is likely to be India’s top trade partner for 2020-21, with total trade (exports plus imports) touching $86.4 billion, compared with the US’s $80.5 billion. Importantly, this was in a year when border incursions sent patriotic temperatures soaring and Prime Minister Narendra Modi militarized a quotidian term like ‘atma-nirbharta’ (self-reliance), implying reduced trade relations with China. Worse, India’s trade deficit with China is still very high ($44 billion in 2020-21).

Clearly, there is some divergence between security rhetoric and trade reality. One would have expected concerted policy efforts to shift trade reliance away from China, especially during 2020-21, but data shows otherwise. This raises questions whether this is indeed part of a settled policy rubric, and, if so, whether India can sustain this balancing game between security imperatives and trade compulsions.

The second area of concern—or perhaps dilemma—for India is the Cornwall Consensus desire to step up infrastructure investment in developing and poor nations. The plan, called Build Back Better World, or B3W, is to provide an alternative to China’s Belt and Road Initiative, which rich countries see as opaque, extortive and a security threat. B3W is predicated on private capital and multilateral financial institutions; as the B3W lead country, USA’s institutions and offices (such as, USAID or US Exim) are also bound to be involved in the programme.

This is not exactly unique. Leaders at the 2014 G20 Brisbane summit had also provided a special role for infrastructure, with private sector in the vanguard, as a path out of an economic slowdown. Nothing much came of it. The problem perhaps is of misaligned expectations: private entities are not keen to finance long-term projects in difficult ‘geographies’ where they have no control over political, macroeconomic, fiscal or even project implementation risks.

The bigger problem for India is China’s continuing stranglehold over certain infrastructure segments. For example, two categories topped Chinese imports during 2019-20 (the latest disaggregated data): “electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts" ($19.1 billion), and “nuclear reactors, boilers, machinery and mechanical appliances; parts thereof" ($13.32 billion), amounting to almost 50% of the total Chinese imports that year. China has already supplied a significant chunk of India’s installed turbine-boiler-generator capacity, sweetening the deal with dirt-cheap financing. The critical question here is: Can the private sector in the West finance Indian infrastructure at comparably low rates?

The practical problem for many developing and poor countries, including India, is that the road bridging the Washington and Cornwall consensuses continues to run through China.

Rajrishi Singhal is a policy consultant, journalist and author. His Twitter handle is @rajrishisinghal.

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