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India will soon confront many of the same choppy economic and geopolitical conditions that are affecting the rest of the world
PremiumThe human urge to be able to predict everything is probably one of the most intriguing qualities of our species. This tendency is met with the inherent inevitability of change with the potential to alter or modify our plans and the trajectories we foresee. Recently, the world witnessed this playing out during the covid pandemic. As the world came to a standstill, we saw how unparalleled some events can be, and how the force with which they impact us can never be predicted. The pandemic, however, also came with a lesson that while unpredictability and change remain inevitable, it is imperative for us to closely watch and be aware of undercurrents as a nation and Indian citizens are well served by gaining an awareness of significant underlying trends influencing the modern world. The last 20 years have seen an incredibly rapid pace of change spurred by globalization and a technological revolution. Global events can act either as headwinds posing obstacles or tailwinds presenting possibilities in a modern world where national borders do not always confine success or failure. For policies to steer the country towards higher levels of growth, these must be taken into account.
There is no denying that the macroeconomic landscape has changed dramatically. According to World Bank projections, the share of trade as a percentage of global GDP climbed from roughly 25% in 1970 to 52% in 2020. The development of Asia and developing economies is a prominent trend, in addition to the growing interdependence and interlinkages among regions. Global value chains (GVCs) have grown and spread across the globe, and Asia is expected to generate $22 trillion in new wealth between 2020 and 2025. In 2023, emerging markets will grow more than twice as quickly as developed markets, predicts the IMF. Supply chains have seen a significant transformation since the opening of the Suez Canal, invention of the shipping container and the rise of Asia as an industrial hub. Approximately 50% of current global trade involves GVCs.
In this situation, India must scout for its best prospects. Strategic integration with GVCs is one option. By ensuring that local businesses can participate in GVCs profitably, we can increase production by transferring information, investing in them and using international best practices. The combined exports of Gujarat, Tamil Nadu, and Maharashtra in 2020-21 accounted for around 60% of the nation’s entire outward shipments, demonstrating that India has a huge opportunity to increase exports by reviving underutilized resources at the subnational level.
Climate change is yet another phenomenon that has had an impact on not just the world economy, but also our entire society, and will do so in the future. The decade from 2011 to 2020 has been the warmest on record. It has become essential for nations to include climate change in all policy deliberations as the world struggles with potential catastrophic weather events, food scarcity and the ensuing poverty and displacement. Even if there is no easy fix for this problem, India can benefit from investing in climate-resilient and sustainable infrastructure. The chance to build strategically and leverage this opportunity is further complemented by the fact that three-quarters of India’s physical infrastructure will not be complete until 2050. According to a World Bank analysis, investing in more resilient infrastructure would produce an average net benefit of $4.2 trillion, or $4 for every $1 invested in low- and middle-income nations. The adoption of electric vehicles and generation of green hydrogen are only a couple of the several initiatives being undertaken by the government to meet its lofty goal of 500GW of renewable energy capacity by 2030. We have a chance to reduce our carbon footprint, achieve net-zero goals, and decouple emissions from economic growth by switching to renewable energy sources and designing buildings with climate change in mind.
In addition to the changing nature of the global macroeconomy and effects of climate change, digitalization has strongly influenced all aspects of society. This picked up steam after the pandemic struck. Although there is still much to be done to improve the quality of our technical infrastructure, the country has rapidly advanced to extraordinary levels of digitalization. A significant digital payment platform in India, the Unified Payments Interface (UPI), has enrolled 376 banks and facilitated 7.3 billion transactions, with a total value of ₹11.9 trillion. Over 1,355 million Indian citizens have signed up for the Aadhaar programme.
The country has an opportunity to continuously expand our digital endeavours and act as a model for emerging countries wishing to advance their own digital infrastructure.
How does a nation plan for growth in a system with erratic trends? Resilience has become popular in the wake of the pandemic, and for a good reason. Beyond resiliency, nations must see change as an asset that fosters creativity. The contact tracing software Aarogya Setu demonstrated India’s capacity to create innovative crisis-response mechanisms during the pandemic. Despite the negative repercussions of covid, nations used technology to offer digital solutions, from Singapore’s chatbots to Indonesia’s expansion of telemedicine.
India will soon have to deal with many of the same issues affecting the rest of the world, such as rising debt levels, inflation, food and energy crises, and geopolitical conflicts. It is acknowledged that overcoming obstacles in a changing external environment necessitates deliberate action across all socioeconomic domains. Most importantly, it necessitates a mentality change that accepts the certainty of change.
Amit Kapoor & Bibek Debroy are, respectively, chair, Institute for Competitiveness, India and lecturer at Stanford University; and chairman, Economic Advisory Council to the Prime Minister
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