India in a changing global order

This speech was delivered at ‘Industry Meet 2018’, organised by the Indian Institute of Management, Indore, in collaboration with the Ministry of External Affairs, Government of India, on 7 July 2018.

This world order that we live in was created in 1944-45, the post-World War II period, to deal with the problems faced by the United States and its Western European allies. That order is now crumbling and we need to examine whether the changes that came about in 1945 work against our interests since that construct was designed to maintain western domination. I will argue that while the changes underway are disruptive at the micro level, they should be appreciated at the macro level as an opportunity to participate in the shaping of an emerging new order.

The old order constructed both political and economic institutions. They were the United Nations Organisation, established in 1944 to manage political and security matters. The UN Security Council had five veto wielding members, the U.S., United Soviet Socialist Republics, UK, France and Taiwan, to deal with matters of war and peace.

Shortly thereafter, a conference was held in the U.S., which created the Bretton Woods Institutions – the International Monetary Fund to prevent the devaluation of currencies and the International Bank for Reconstruction and Development (World Bank) to finance the reconstruction of devastated European economies (1945). That was followed in 1947 by the General Agreement on Trade and Tariffs (GATT), renamed the World Trade Organization in 1995, with the mandate to regulate multilateral trade. Since the U.S. was by far the biggest shareholder in these institutions the 20^th century became known as the ‘American Century’, or more accurately, ‘Pax Americana’.

At the time, India was a colony struggling for independence from the British, and its economy was a meagre $30 billion as compared to that of the U.S. ($300 billion, 10 times bigger than India) and the UK ($60 billion, twice the size of India). Not only was it not at the table when decisions were taken, it was not in a position even to articulate its own concerns. Even the British, who were supposed to uphold the interests of the colonies, did not do so.

The prevailing indifference towards Indian issues was made worse by the fact that our two most prominent individuals with an international profile – i.e. Mahatma Gandhi and Jawaharlal Nehru – were on tracks opposed to the prevailing western orthodoxy, the entrenchment of the capitalist system.

Mahatma Gandhi was promoting his ideas of village republics as the best suited to the Indian ethos. Pandit Nehru was participating in Socialist International Congresses in the 1930s. Pursuing his belief in the idea of Asian solidarity, Nehru had organised the Asian Relations Conference in New Delhi in March-April 1947 and played a prominent role in the first large-scale Afro-Asian Conference in 1955, the Bandung Conference in Indonesia. Both were seen by the U.S. and UK as a challenge to western domination.

Simultaneously, Cold War rivalries were developing between the West, led by the U.S., and the U.S.S.R. Developing countries were coerced into joining one or the other camp. So, for example, the Western European countries, Turkey and Pakistan joined western power-led alliances, such as the North Atlantic Treaty Organisation (NATO), and its Asian incarnations, like the South East Asia Treaty Organisation (SEATO) and Central Treaty Organisation (CENTO) while East European and some developing countries, like Egypt, Tanzania and Ghana, were more sympathetic to the U.S.S.R. for ideological reasons, their leaders being left leaning, but also because the U.S.S.R. took anti-colonial postures in the UN. Larger countries, like India, Indonesia and Yugoslavia, pushed back through the creation of the Non-Aligned Movement in 1961.

The Cold War ended in 1989 with the reunification of Germany and the dissolution of the Soviet Union the following year. Instead of reconciling with Russia, the U.S. used its unipolar moment to harden the political and economic supremacy of the West. Absolutely no attempt was made to adapt the post-World War II institutions to the changing political realities, which included the expansion of the EU and NATO into the former Soviet satellite states in East Europe. One consequence of this was the loss of India’s privileged relationship with the U.S.S.R., especially as a partner for defence equipment. Nevertheless, India moved rapidly to repair relations with the U.S., including through market-opening reforms in 1992 under Prime Minister Narasimha Rao.

Of a piece with western triumphalism was the destabilisation of West Asia, which began with Bush Senior’s 1991 war against Saddam after his ill-judged invasion of Kuwait, followed by decade-long sanctions. The Twin Tower attacks in September 2001 prompted the invasions of Afghanistan and Iraq by Bush Junior’s “coalition of the willing” and the endless $3-trillion “war against terror”.

These interventions are intimately connected to the Arab Spring that followed in Egypt and Tunisia and the murderous chaos in Libya and Syria. The irrelevance of the UNSC in all these conflict situations is painfully obvious, but there is still no willingness to include countries like India, Brazil, Germany and Japan as permanent members whereas former colonial, but now declining powers, like UK and France, retain their veto in the UNSC.

As short-sighted as the unwillingness to reform political institutions is the refusal to acknowledge that the weight of economic growth has shifted East with the rapid expansion of developing economies, principally China (after its admission into the WTO in 2001) but also India, Indonesia, Brazil and even Russia. These four came together in 2006 to create BRICS. At the heart of this grouping was the idea that the world needed institutions beyond the control of the West, evident in, for example, the dominance of the dollar in global trade and as a store of value, the control over the transmission of payments through SWIFT and the denomination of oil in dollars. But when the 2008 crisis began with the collapse of Lehman Brothers the G7 was found inadequate and the G20 finance ministers’ forum was upgraded to the level of heads of government.

Nevertheless, strong western resistance to the reform of the IMF-WB to increase the voting rights of developing countries continues, except for a small increase for China, bringing it on par with economies one third its size, such as Japan and Germany.

Equally unfair and even a little ridiculous is the situation in the WTO which, for example, classifies American and European subsidies for agriculture to an “amber box”, and so they are not up for discussion. But India’s Public Distribution System (PDS), which is intended to serve the poor, is constantly under pressure as a market-distorting system. While the West has pushed for the removal of all restrictions on the movement of Capital it does not allow discussion of the “Movement of natural persons” (labour and professionals) because developed countries equate it with immigration. But this is of the utmost interest to India and other labour-exporting countries. And the provisions for trade in services are both inadequate and biased against countries like India where they have a big and growing share in the GDP.

Three important developments in 2016 precipitated the unravelling of the global order, already weakened by the western resistance to reform institutions that were failing to cope with the new political and economic realities. The three precipitating events were: the Chinese rejection of the judgment of the tribunal of the Law of the Seas against its expansive claims in the South China Sea, the vote for Brexit in the UK and the election of Donald Trump in the U.S.A.

The Chinese economy has grown at an average of 10% per year, raising per capita GDP almost 50-fold, from $155 to nearly $8,000 since 1978. It is the biggest trading partner of the world’s major economies, including the U.S., Germany, Japan, South Korea etc. China is the largest investor in most Asian, Arab, African and Latin American countries. Clearly, the Chinese have judged that their moment has arrived. President Xi Jinping said at the 19^th Communist Party Congress in October 2017, “The Chinese nation, with an entirely new posture, now stands tall and firm in the East.” He also proclaimed, “It will be an era that sees China moving closer to centre stage and making greater contributions to mankind.”

China’s Belt and Road Initiative is the most ambitious, but also probably the most rapacious, connectivity project in history. And it surrounds India through the China Pakistan Economic Corridor in Pakistan; the indebtedness of Sri Lanka, symbolised by the handover of the Hambantota port to China for 99 years; the defiance shown by the Maldives in making whole islands available to China; and Nepal talking about “balancing” relations with India and China. Already dominant in Asia, China now seeks parity with the U.S.A., calling it “a new type of Great Power Relations”.

Brexit, the decision of the UK to exit the EU, has shown up the weaknesses afflicting member countries of the European Union, being torn apart by the convergence of stagnant economies, the crisis of the Euro which has moved from Greece to Italy, the influx of refugees from Syria and North Africa and the strengthening of right-wing political parties opposed to immigration. Although the EU remains the richest part of the world the pursuit of nationalistic agendas by the members has gutted its internal cohesion. The slide in the EU’s influence in global affairs has been aggravated by the American President’s encouragement of Brexit, praise of extreme right wing leaders such as Marine Le Pen in France and Victor Orban in Hungary, his dismissive pronouncements on NATO and accusations that the EU was established to exploit the US.

In the U.S., Trump has shown himself to be a completely different type of leader – blatantly an America “firster”, rejecting liberal orthodoxies, and explosive in the style in which his tweets ride rough-shod over allies and rivals alike. In the 18 months that he has been in office, Trump has shaken up the old global order, which the U.S. itself had created and led since the end of World War II, much to the chagrin of western allies who depend on NATO for their security and global market access for their prosperity and economic primacy.

Trump has been dismissive of the UN system and taken his country out of the Human Rights Council. This may have had some immediate benefit for India since that Council, on 14 June 2018, issued a biased, tendentious report, alleging human rights violations in Kashmir, especially by the Indian armed forces. Under a different type of government it would have been the U.S. that led the charge against India.

The U.S. President disdains multilateral trade agreements, preferring bilateral deals. Therefore, he has demanded a renegotiation of the North American Free Trade Agreement, pulled the U.S. out of late-stage negotiations on the Trans Pacific Partnership agreement (TPP)and the Transatlantic Trade and Investment Partnership in the Asia-Pacific and Western Europe respectively and ignored WTO regulations. India was not among the countries included in the TPP negotiations because we do not have membership of the Asia Pacific Economic Cooperation forum. Nor could we have accepted the trade dispute resolution mechanisms which gave MNCs powers to override sovereignty conditions. Moreover, the government of India is in the process of reviewing (and delaying) Free Trade Agreements even with the Association of South East Asian Nations (ASEAN) countries because of our experience of rising trade deficits, especially with China.

But Trump has also disrupted global supply chains and trade flows by re-imposing sanctions against Iran, tightening those against Russia and North Korea, and begun what is being termed a “trade war” with China. Unless this progression is checked it could result in the disruption of global supply chains which will impact all economies, including India, which are plugged into China-centred production lines.

Trump has pulled the U.S. out of the Paris Climate Change Convention – but the agreement was inadequate in slowing carbon emission to prevent warming by more than 2 degrees Celsius before the end of the century. Moreover, the concerns of the developing countries were not taken into account and historical responsibility of the developed world was set aside without any assurance of financial assistance for mitigation or adaptation. India not only moved rapidly to increase the contribution of solar and wind energy to its power mix but it also took the initiative to promote a solar energy alliance, led jointly with France.

Trump has further shaken up an already inflamed West Asia by cosying up to Saudi Arabia, terminating U.S. participation in the JCPOA with Iran and moving the US embassy to Jerusalem with an undisclosed plan for resolving the Israel-Palestine dispute.

The heightened Shia-Sunni rivalries and renewed sanctions against Iran have already raised the global price of oil, with adverse effects on India’s fiscal deficit, and again disrupted the oil supply relationship, the development of the Chabahar port and the North-South connectivity project. More troublingly, the turbulence in the region can have very negative implications for the over 7 million strong Indian diaspora in the Gulf.

Those most anguished by the disruptions brought about by Trump’s “smash and grab” tactics are the already nervous West European countries. They have been deeply dependent on the U.S.-led NATO for their security and their global market access with American support. Typically introverted, the Europeans are very concerned about a resurgent Russia, but ignoring the threat posed by China’s inroads into Southern Europe through investment in Port Piraeus in Greece, into Eastern Europe through infrastructure investments in the Visegrad 4 group of countries, and its acquisition of high-tech companies, like the German Kuka.

In the latest G7 meeting in Canada in Quebec, Trump not only called for the readmittance of Russia to make it G8 again, he bluntly signalled to the leaders of the other rich countries that the U.S. was no longer prepared to enable Europe to retain influence and relevance in global affairs. This led European countries to seek to strengthen relations with China and India.

By his June 2018 meeting with the North Korean leader regarding that country’s nuclear and missile programmes which can target U.S. cities on the west coast, Trump similarly signalled Asian Treaty allies, Japan and South Korea, that they cannot expect the U.S. to assure their security at the cost of American interests.

A collateral benefit for India out of the Trump-Kim summit for the denuclearisation of North Korea was the apparent irrelevance of the Non-Proliferation of Nuclear Weapons Treaty (which had constrained India’s high-tech collaborations in the past), hopefully terminating the nuclear and missile collusion between North Korea and Pakistan.

But it is by announcing a summit with the Russian president on July 15 that Trump made clear his complete disdain for the western alliance and institutions, such as NATO and the WB-IMF, set up to sustain its dominance. It remains to be seen what will emerge from this meeting, but its significance lies in its potential reordering of global alliances. Just as the Nixon-Mao meeting in 1972 split the communist alliance between the U.S.S.R. and China so the Trump-Putin meeting could signal the end of the western alliance. A normalisation of U.S.-Russia relations and a consequent reduction in Russian reliance on China is likely to help India hedge against Chinese hegemonic tendencies.

Of course, all this turbulence affects India in numerous ways. But we should not allow the dominance and shrill outcry of the West, amplified by the English language media, to distort our perspective. India has taken numerous initiatives to hedge against the adverse consequences of the changes underway. In the security arena, it has built closer relations with the West through the Quadrilateral Security Dialogue, done defence collaborations and weapons purchases from the U.S., Israel and France and joint military exercises with ASEAN countries. Under Modi, relations with West Asian countries have become strategic – witness the exchanges with Israel, Saudi Arabia and the UAE, but also with Iran. India has entered into close cooperation with Central Asian countries against terrorism and joined Asian security organisations like the Shanghai Cooperation Organisation.

Our higher global profile should help us face the major changes underway confidently. Although we are used to operating in the existing West-dominated global order, it has not necessarily worked in our favour. We are better positioned to influence the new institutions that are being created because we are a member of many of them, such as G20, BRICS, the Asian Infrastructure Investment Bank and New Development Bank. Also in our favour are: the size of our economy at $2.85 trillion, the attractions of our large market, including as buyers of energy resources, and the high quality of our professional services and skilled labour. These attributes will at least put us on the rule-makers’ table, if not yet in a position to determine every outcome.

Neelam Deo is Director, Gateway House.

For interview requests with the author, or for permission to republish, please contact outreach@gatewayhouse.in.