“Good economics is good politics”, according to Paul Keating.
Diplomacy can be defined as the art of maintaining negotiable international relationships without conflicts. The economy of a nation is dependent on the money circulation in its domestic economy. This money supply can be controlled by a Central Bank, which is bound to maintain fiscal equilibrium, thus balancing the supply and demand side of the economy.
The monetary policy of a Central Bank is the determinant result of the geopolitical and diplomatic transformations taking place in a nation. It is also contingent upon how other countries are responding to global conflicts, including geographical face-offs, revengeful economic encounters, political hostilities and medical emergencies.
The COVID-19 pandemic has wrecked a cataclysmic havoc in the international economy, with most countries opting for import substitution industrialisation. Amidst growing slowbalisation, digital autocracy, reduced decentralisation, shifting of power-poles, changing supremacy, social recession and the threat of a New Cold War, India can play a greater role in uniting like-minded nations in a new multilateral world and carrying out their common political and economic agendas.
Pre-COVID19 economic and political fragmentation
It is a recognised fact that the British were the paramount world power in the nineteenth and the early twentieth centuries. The Sykes-Picot Agreement (1916), The Great Game between Russia and Britain as a part of their Asian Expansionist Policy, and the rule of almost half of the world by Britain are all but specimens of the arbitrary policies of those who attain supremacy.
John Acton’s words, “Power corrupts and absolute power corrupts absolutely”, have stood the test of time, both in pre– and post-Cold War era. Yet, there’s always an end to power and for Britain it came after the Great Suez Crisis (1956), when Egypt defeated Britain, France and Israel to attain territorial hegemony.
Likewise, the Soviet Union’s dominance ended after its failure in the Afghanistan Crisis of the 1980s, which led to the rise of the US – a major world power that had long been gaining power since the end of World War II, but emerged as the single-most paramount power only after the Soviet collapse.
The American nation has a long history of using other nations for its own interests, with Afghanistan and Pakistan, being mere exemplar. However, the role of America was overshadowed by the recent power-swaying staged by China – the once strayed and unremembered nation has now economically and geographically empowered itself, owing to strategies such as Salami Tactics, Cartographic Aggression, Five-Finger Palm Technique and Debtbook Diplomacy.
China has also managed to gain global influence in sectors like technology, research, science and communications. However, this was unacceptable to the US, and hence, the constant and incessant movement of China in numerous sectors triggered the US-China Trade War two years ago. This led to shifting of power poles and Washington DC nudging nations to choose sides.
The ensuing power struggle led to the ‘trade diversion effect‘ and huge economic losses. Under the cover of its economic activities, China has undertaken disruptive and expansionist activities in the South China Sea, leading to an uproar by the neighbouring island nations and India over the Malacca Strait maritime sector. This has resulted in generating tensions between Beijing and Southeast Asian nations.
Determinatively, it must be noted that there’s always an event in the history that marks the transition of power from one pole to another. The COVID-19 pandemic is yet another event of this kind, but beware – it could be the deadliest of all. History always has a unique yet funny way of ending an epoch.
Thus, it can be noted that even before COVID-19 knocked our collectively sanity out, the world was already facing a multi-dimensional threat. Be it environmental degradation, economic slowdown, new political formations, trade wars or increasing geographical and diplomatic ambitions of a few resulting in loss to the maximum, the world was already in a state of unrest and flux.
Age of ‘slowbalisation’
The present status of the world due to the ongoing pandemic is understood well by the general public in a common parlance. ‘Deglobalisation’ and ‘slowbalisation’ have emerged as the keywords of the current and post-Coronavirus economic order.
Slowbalisation is being defined as the ‘New Globalisation’. It is understood as the slow pace of growth of globalisation or global growth. Economy of an individual nation and the world as a whole have been adversely affected, with the health of the world population endangered. It is only the environment that has benefited, although in an arguably temporary and reversible mode, as argued by environmentalists.
However, global recession is an inevitable characteristic of the current pandemic, with supply-side constraints being an important constituent. Developing nations can economically fail due to negative growth rate and less money circulation, resulting in reduced imports and heightened dependency on loans, either from the International Monetary Fund (IMF) or powerful donor nations such as China. For diplomatically weaker nations, the harmful effects of borrowing in such a critical time include increased debts and exposure of their political as well as economic sovereignty to developed, yet preying States.
In the latest World Economic Outlook Update (WEO) 2020 by the IMF, the pandemic has been described as “A Crisis Like no Other, An Uncertain Recovery.” The report predicts a global growth of -4.9% in 2020. The 2021 growth rate is estimated to be 5.4%, or 6.5% lower than the pre-pandemic predictions. The April 2020 WEO Report had gauged uncertainty for the global economic future with slower recovery paths in even economies that have declining infection rates, due to sustained social distancing in the latter part of 2020.
With lengthier lockdowns and reduced economic activity, the June 2020 Global Financial Stability Report has predicted rise in insolvencies, much more than the baseline estimates. The Asian Development Bank (ADB) estimates have put the economic loss of India at a whopping $29 billion.
With sectoral division of the loss, the ADB has predicted $6.89 billion loss for mining and quarrying sector; $15.86 billion for business, trade and public services; $3.39 billion for light, heavy manufacturing and construction; $1.83 billion for hotels and restaurants; and $1.93 billion for the transport sector. In another IMF projection, expected economic growth in India will tend to be much higher than others, subject to changes in the pandemic’s course.
A more serious impact of the pandemic is likely to be seen on the Gulf Economies, already marred by the Qatar-Saudi Arabia and Yemen crises. The Gulf countries are majorly-to-wholly dependent on oil extraction. Because of lesser transportation activities taking place right now, there is no or reduced demand for oil. With less demand, the Gulf economies are competing among each other for the little revenue that is coming in.
To capture the small demand, various tactics are being used such as Saudi Arabia and Russia reducing their oil prices and increasing supply. Diversification is being done to secure a robust future and greater financial stability. Gulf hotspots, like Dubai, mostly dependent on hospitality and construction businesses, are likely to close down 70% of their business activities due to the pandemic.
Remittances received by India from these Gulf countries is one of the highest, but is likely to take a 23% negative hit due to the pandemic. This will not only result in reduced foreign exchange revenue for India, but also a huge unemployment crisis for Indians employed abroad. Remittances are an important source of health, education and other facilities for the people who receive it.
A recent Goldman Sachs report has predicted a reduction of 28 million bpd in crude oil consumption. Negative oil prices in the US in early April reflect reduced oil demands. Global projections are an important source of economic gain or loss for the nations, as these projections can either bring out or push an economy towards the Junk Status. Junk Status in turn has a negative impact on foreign investments (FPI, FDI, and FII) and GDP growth.
OPEC (Organisation of Petroleum Exporting Countries) and IEA (International Energy Agency) have predicted a depletion of 50%-85% in energy resources of developing nations, having far-reaching social and economic consequences. India and Gulf countries have a symbiotic economic relationship, and the relationship is more personal due to the presence of huge Indian expatriate community (9 million) in the Gulf.
All these factors can lead to a serious crisis for this expatriate community, economic cooperation, healthcare and pharmaceutical industry. The Indian diamond industry at Surat and the industrial hotspot of Telangana have been pushed back to their origin due to the virus. MSME sector is also harshly affected due to virus. However, the recent reforms in the sector have showcased a more positive outlook.
Headwinds for multilateralism
Nation-States like Greece were a common phenomenon during the time of Aristotle. However, fuelled by anxiety, economic loss, unemployment and survival battles of the local industries, nations today are focussing more inwardly than globally. This has led to the sudden re-emergence of Nation-States.
Countries today have experienced a change in their attitude and behaviour. With a more nationalistic behaviour, societies have confined themselves in their own boundary walls, segregated more deeply by imaginary geographical boundaries. The typical attributes of a Nation-State include – a centralised government, less decentralisation, a reluctance to be a part of regional economic and political blocs, furthering one’s own agenda without giving a thought to the sovereignty of another nation and policies that benefit local industries but jeopardise the interests of the nations exporting their goods to that particular country.
But it isn’t something completely fuelled by Coronavirus. Even before the pandemic, the European Union (EU) had a vulnerable status with the uncertainty of Brexit. Italy was getting help from China instead of the European Nations during a critical time of Coronavirus in the country. The US has already left some United Nations bodies, such as the UN Human Rights Council (UNHRC) and UNESCO, and has begun formal withdrawal proceedings from the World Health Organisation (WHO) over its allegedly lackadaisical handling of the present pandemic and tilt towards China.
With the US arbitrarily pulling out of the Joint Comprehensive Plan of Action (JCOPA), the stability of the eternally terse US-Iran relationship was thrown out of the window, leaving other countries with good relations to both (like India), in a dilemma.
The Chinese claim over the Spartly Islands, Paracel Islands and the Scarborough Shoal shows its eagerness to hold on to the Indian Ocean Region (IOR) without any suitable basis. The fight in the South China Sea is to counter both India and the US. Growing closeness between New Delhi and Washington DC, coupled with the control of Malacca Strait by India, is a serious threat to China’s growing ambitions.
India is historically, diplomatically and socially close to the countries with which China has disputes in the South China Sea. The Regional Forum of ASEAN has helped India diplomatically counter China across spaces. Lately, at an Inter-Ministerial Meeting of the ICR (India-China-Russia), India has highlighted the need to look after the interests of other nations and partners in the world, instead of fulfilling one’s own agendas. China is trying to come closer to Russia as well, with whom India already has a strong defence and economic cooperation.
Multilateralist economy is the grouping of many nations coming together for fulfilling their common agendas and objectives. It can be achieved through better trade relations, agreements or political cooperation. A multilateral organisation is made of different people, belonging to different countries. But factors such as the geographical location of the organisation and the number of people from a certain country who are a part of that organisation can affect the functioning of the institutions.
For instance, the UNSC consists of only five permanent members with the veto power. They are inclined to look after their own interests with more depth and intensity, ignoring the interests of the others. China repeatedly blocking the Masood Azhar resolution is an example of the same. WHO, backed by China, has recently brought a resolution to look into the origins of the pandemic. But the UNSC (United Nations Security Council) has still not brought a resolution to look into the origin.
The capture of the existing multilateral order by a new hegemon is antithetic to the ethos of multilateralism. Multilateralism strives on the notion of Lilliputians tying up Gulliver. The wooing over of Nepal through diplomatic manipulations, that of Sri Lanka through the conniving economic takeover of the Hambantota Port, the building of China Pakistan Economic Corridor (CPEC), conflict on the Indo-China border and the New Silk Road are just some of the examples of the growing unilateral world, showcased by China.
China’s role in the biological origin of Coronavirus and the trade benefit earned through it is still disputed. A New Cold War era is set to emerge with no ideological conflicts, worsened economic ties and reduced military conflicts. The US had earlier termed China a revisionist power that is trying to change the current world order and tilting it in its own favour.
The formation of the D10 Club by the G7 (USA,UK, Italy, Germany, Japan, Canada and France), and Australia, South Korea and India coming together in an economic cooperation group signals a the prime objective of outbidding Huawei. The opposition of the UNSC reforms by the Coffee Club is likely to continue in the future as well, thus maintaining global power in the hands of a select few.
Digital autocracy is likely to increase with everything including education, health and business taking place on the digital platforms. But in a world divided by the global digital disparity, only technologically powerful countries are likely to rise. These countries are poised to possess the potential of controlling the world through their technological prowess.
For instance, China has its own Geo-Positioning System (GPS) named BeiDou, an alternative banking system in the Asian Development Bank (ADB) and New Development Bank (NDB), a digital payment platform called WeChat and AliPay as well as the reputed and much-wanted 5G Technology. All of these Chinese Apps and digital platforms are exported all over the world, thus earning high revenues.
Inevitability of India’s role
Recently, India was elected as a non-permanent member of the UNSC with a thumping majority of 184/193 votes. It was the eighth election of India to the coveted council. India has been always pushing for UNSC reforms and expanding the permanent member list, because the present permanent members do not adequately reflect global population dynamics. The G4 nations have been continuously pushing for the same.
The recent denunciation and the redundancy of the G7 by US President Donald Trump, is an indication of how multilateral forums comprising of developed and rich countries are failing on a myriad fronts. Unreformed and under-representative institutions are incapable of handling the present situation.
India has always pushed for N.O.R.M.S. (New Orientation for Reformed Multilateral Systems) and a collective effort to counter the unilateral world. With reduced global trade, India has already announced the Aatmanirbhar Bharat Abhiyan to rejuvenate the domestic economy and revive economic growth. Greater decentralisation in terms of states taking their respective lockdown decisions is an example of how, even in a growing centralised world, decentralisation is possible. The announcement of migrant packages informs how India is capable of taking care of its domestic interests better than other countries. With regard to handling China at the border, New Delhi has already shown its strategic acumen.
If India has been so successful in maintaining an equilibrium of all kinds during a tough time like this, then there is no reason to think that it is not equally capable of handling global crisis as well, streamlining the energy of serious and engaged nations towards issues that really matter to the world; instead of engaging in the routine economic or military conflicts.
The rejuvenation of multilateral forums is the need of the hour. This is the time when countries must help each other, instead of challenging their sovereignty. In that sense, India is well-placed to set defining standards of managing a host of conflicts and challenges at the same time.
The Asian century
The global order is undergoing metamorphosis with Asia ascending and the West descending. A part of this is also because of the fact that Asian countries were much more efficient and serious in handling the pandemic. With the now-sighted downfall of the US and the EU, Asian countries have a chance to rise and show the world that even small countries, when banded together, can lead the world in the right direction.
During such trying times, the world needs leaders who can bring it together and not divide it further. Cooperation on multiple fronts, such as environment, terrorism, money laundering, healthcare, education and care-giving, is needed. Special focus must be laid on reviving multilateralism to foster sustainable development to ensure swift realisation of the the sustainable development goals.
Views expressed are the author’s own.
Sanighdha S is a student of law at the University Institute of Legal Studies, Panjab University. She has a keen interest in international political and economic relationships.
Featured image from torange.biz.