The world is in an era of disruption, be it politics, economy or technology. In any such era, uncertainty increases. Among nations, there will inevitably be winners and losers. Business as usual or maintaining the status quo may seem like a safe option, but it is not. Only those nations will succeed that embrace disruptions and are agile enough to capture progress. What should India do?
With Donald Trump leading America, there are going to be unusual times in global politics. From all indications, his second term is likely to be more disruptive to the global order, whether on war, multilateral/bilateral economic structures or climate change. On their tail, the most disruptive entrepreneur of this era is Elon Musk, who has now made it his mission to also become a disruptive global political influencer. Both men want to change not only America but also the world according to their worldview and interests.
The global economy is going through difficult times. Even India, the star of the show, is slowing down. The dominant policy response around the world has been to abandon the long-standing consensus on openness and look inward. Almost every major economy is pursuing a strategy of some version of self-reliance, which does not mean complete rejection of the outside world. This means there needs to be greater reciprocity in concessions and preference to politically aligned partners.
an uncertain world
At the same time, an extremely disruptive industrial revolution is underway. The continued rise of AI and other automated technologies is calling into question the future of traditional jobs. This is bringing new challenges, such as the need to secure supply chains of critical minerals that are the core of emerging technologies.
It’s a tough world. But even in uncertainty, there are certain certainties that can be taken advantage of, especially by India. Trump is unlikely to view India’s high tariff barriers favourably. Neither is Elon Musk. But there lies an opportunity in their interest. Both Trump and Musk will view India positively as a destination for US investment. And welcoming it will also open the door to greater market access for exports to the US. The best chance for India to make full use of the China-plus-one spirit for manufacturing is during Trump’s time as President. However, this may require some disruptive policy changes in India, including cutting tariffs in some sectors where they are unusually high. It may also require comprehensive simplification of processes and clearances by moving towards self-certification, time bound clearances and deemed clearances. Complexity and delays are the bane of foreign investors.
The global economic slowdown affects India’s exports, but it is not a downside to India’s 8% growth prospects. Again, disruption to business as usual may be required. An immediate easing of monetary policy by at least 50 basis points and substantial tax relief to the middle class will boost domestic consumption, which has been sluggish for the last few quarters. The increase in demand will accelerate capital expenditure plans of corporations and boost private investment, which has also been struggling.
The answer to technology disruption and its impact on jobs is not clear. This will end with time. But it is clear that the nature of the jobs of the future will involve more skills, not less. In particular, arithmetic, basic mathematics and science will be key. India’s school education needs an overhaul with learning rather than enrollment as the primary goal. The Center and states should work together to reimagine pedagogy to prepare the next generation for the future.
be agile
That said, there will still be more uncertainties in the world than certainties. Not all challenges can be predicted in advance. In terms of agility in response, there is no comparison between market forces and the government. Countries that give more importance to market forces and entrepreneurship will be more successful than countries that position their governments at the top. This is already evident in the widely differing economic outcomes in Europe and the US. Europe, which is much more statist than the US, is in real decline. America’s alleged decline makes headlines but is greatly exaggerated. East Asia has performed better than South Asia because it has been open to market forces.
In India, political economy still favors the government over the private sector. The biggest disruption must occur here if India is to continue its journey towards prosperity in a turbulent and uncertain world.
(The author is Chief Economist of Vedanta)
Disclaimer: These are the personal opinions of the author
