'Critical nature of national economic interests invariably shapes foreign policy'

Geo-strategic affairs commentator Saurav Jha likes to think of a book as something that germinates within the writer, nourished by early impressions, then feeding on new data and experiences, but ultimately shaped by a crystallizing worldview. The interaction between geoeconomics and geopolitics has always fascinated him and his commentaries over the years have reflected this.

"I have found that the analysis of so-called 'large affairs' does not really lend itself to a siloed approach. No geoeconomic paradigm arises in a geopolitical vacuum. On the other hand, the critical nature of certain national economic interests invariably shapes foreign policy. It is at the intersection of these currents that extant geostrategic trends may be identified," Jha told IANS in an interview of his book, "Negotiating The New Normal - How India Must Grow in a Pandemic-Ridden World" (Hachette).

Noting that all those trends need to be analysed without prejudice, he said: "In India, one finds that the public discourse related to global power dynamics, such as say the competition between America and China, or possible strategies for India's industrial growth, is often tinged with concepts that have fallen prey to regime change. Moreover, most analyses tend to focus on India's interactions with the world. In 'Negotiating the New Normal', I have first sought to understand the World Economic Order as it is and then examined India's place in it."

"Obviously, this effort predates the pandemic and the intervention of this colossal human tragedy required renewed examination of all that I had worked upon. However, I found that the pandemic has essentially hastened many pre-existing trends that date back to the Global Financial Crisis (GFC) of 2008, which was a watershed moment in world economic history," he added.

Considerable research has gone into the book.

"In a word, the journey from conception to completion could easily be described as 'tortuous'. In all, the book has gone through two-and-a-half drafts over a course of six years. As you can see, the book is heavily footnoted since I have not just referenced factual assertions, but looked to provide added context and explanation to assist the reader's process. Given my worldview, the book draws on not just the discipline of macroeconomics, but industrial and trade policy, economic history and international affairs as well. Specifically, I have attempted to delineate how policymakers in the four main economic centres of the world see things going forward before putting forth my own thoughts.

To this end, the book:

* Offers realistic solutions for India's economic slowdown, by uniquely combining geopolitics and economics based on an analysis of the current global context.

* Examines and explains from an Indian perspective the current states of major economic centres of the world (the US, EU, China, Japan, etc.) in the post-COVID world.

* Explains the real constraints India faces in trying to escape the middle-income trap.

* Discusses in depth the lessons that India must learn -- and avoid -- from the growth stories of Japan and China.

* Provides urgent and invaluable analyses for policymakers and interested laypersons alike.

In addition, it addresses today's hot topics, including:

* Is the world headed into stagflation?

* Should India be worried about a ratings downgrade?

* Will India face the same fate as Sri Lanka?

* Is the RBI's policymaking on the right path?

* Should India give importance to manufacturing?

* Is the US-China tech war for real?

* Can the Chinese Yuan replace the US Dollar?

* Did India do the right thing by leaving the China-led RCEP?

Pointing out in the book that "all eyes are on India to see if it can overcome its challenges and deliver on its potential", Jha said: "Since the GFC of 2008, the international investor community has hoped that India would serve as a key engine of global growth. After all, it is in an environment of rapid economic growth that one is likely to find a range of financial opportunities with appreciable returns. Given that India has been a chronic net importer (as reflected by its persistent current account deficits), its economic growth driven by domestic consumption was also seen as a major market opportunity for beleaguered Western and Japanese firms."

"However, today India is being seen as more than a market by the West. The decoupling with the Chinese worker due to concerns about disruption, technological security and military competition will lead to sustained inflationary pressure unless the Indian worker steps up to the plate. The pandemic has laid bare that the cost of disruption can outweigh the cost of a supposedly efficient distribution of manufacturing capacity.

"This has also convinced the advanced economies that they need to 'reshore' parts of the supply chain and re-create domestic capacity for certain key sectors. But as I discuss in the book, there are hard limits to reshoring and a more resilient supply-chain will ultimately have to be affordable. Moreover, America's and Japan's success in the fourth industrial revolution is contingent upon the availability of a manufacturing estate that can ultimately match China's scale for network equipment. Despite its impressive performance, Vietnam cannot fulfill that role and it in any case is very much in China's industrial and geographic shadow," Jha maintained.

But before that, India has to overcome various challenges to serve as a key centre of global production.

"For one, it has to improve its logistics performance, which currently puts it at a disability vis-a-vis both China and Vietnam, through sustained infrastructure investment. Even prior to the pandemic owing to policy missteps like demonetization duly supplemented by a complex GST framework and the RBI's own rate hikes of 2018, India was in a structural growth slowdown.

"The Corona-shock further dented domestic demand and the supply-side as well. The government will have to focus on upskilling manufacturing workers previously employed in the informal sector and make them ready for what promises to be India's last window to industrialize rapidly," Jha elaborated.

How optimistic is he of Finance Minister Nirmala Sitharaman's statement that India is set to become the world's third largest economy by 2029, ahead of Japan and Germany? Given the level of industrialisation in these countries just how will India overtake them?

"On this count, I am actually quite optimistic. In fact, there is almost an arithmetic inevitability to it. The FM's statement is essentially a reference to India surpassing Germany and Japan in terms of nominal GDP (i.e. the current market value of goods and services produced in an economy for a particular time period) expressed in terms of whatever the dollar exchange rates prevail at the time i.e. 2029. Even at the moment, India's nominal GDP is already around 70 per cent of Japan's and 80 per cent of Germany's in dollar terms," Jha asserted.

Explaining that nominal GDP growth rate is simply the sum of the real GDP (i.e. GDP adjusted for inflation) growth rate and the rate of inflation, he said: "Despite India's growth potential not being what it could have been, it is still a lot more than that of either Germany or Japan. And though consumer price inflation in Germany is currently running at a higher pace than India, one can expect it to ease as weakening global demand pushes down energy prices despite the Russia-Ukraine conflict and supply-chain disruptions settle down. Naturally, I expect inflationary pressures in India to ease as well, but it could well be that monetary policy tightening by the European Central Bank pushes Germany's economy back into the pre-pandemic lowflation mode."

"Japan, of course, had been near deflation since the bursting of the Hesei Bubble in 1991 and the subsequent lost decades of very low or not real GDP growth. The pandemic-era disruptions have moved the consumer price inflation needle but not by as much as elsewhere. It is currently only in the order of two per cent or so as opposed to seven per cent or more in India and Germany.

"So, as you can see, on both counts i.e. real GDP growth and rate of inflation, India is likely to surpass Germany and Japan going forward. So, if the relevant dollar exchange rates remain where they are at the moment, India will emerge as a 'larger' economy in dollar terms than either by 2029. Given India's relatively better growth performance and possibly increased competitiveness, the rupee may even gain strength vis-a-vis the dollar going forward relative to the euro or yen and this will further contribute to India's relative position with respect to Germany or Japan in the nominal GDP sweepstakes," Jha elaborated.

"Having said that, it should it be clear that Japan and Germany will both have much higher per-capita incomes than India in 2029, and in that arena, India will require a further two decades of appreciable growth to catch up with them. Although in the interim, there is a lot of latent productivity growth that India can tap to surpass them in overall economic size," he maintained.

What next? What's his next book going to be on?

"My next work is a joint effort with Dr V.K. Saraswat, former DRDO Chairman and currently Member, NITI Aayog. It is a techno-economic history of the Integrated Guided Missile Development Programme which laid the foundations for India's military-industrial sector," Jha concluded.