Opinion

Engagement in a time of turbulence

The arrival of China as an increasingly significant setter of global standards may be uncomfortable for India but is near-inevitable and needs to be planned for.

By: Date: July 5, 2017 Topic: Global Economics & Governance

This piece was also published in East Asia Forum and The Indian Express.

 

About six weeks ago India curtly and publicly declined to attend Chinese President Xi’s Belt and Road Forum in Beijing. India’s snub of Beijing was both uncharacteristic and controversial, although not unexpected. Since then, Prime Minister Modi and his senior officials have been engaged in a hectic circuit of visits and diplomacy, with a diverse set of partners and interlocutors. These have included the African Development Bank’s Annual Meetings in Gandhinagar; the meeting of the Shanghai Cooperation Organisation in Astana; a round of country visits to Russia, Spain, France and Germany; and most recently to the US, Portugal and The Netherlands.

When the Prime Minister is involved, defence and security issues dominate. But as an economist, I believe that India stands to benefit from deeper engagement with the global economy even in these uncertain times; and that India is now sufficiently influential to help shape the emerging world order should it choose to do so.

I was present at the Belt and Road Forum (BRF) in Beijing, when India issued its statement on why it was refusing to participate in the China-led summit. There seemed to be a wide gap between the concept of the Belt and Road Initiative and as understood by the Ministry of Economic Affairs (MEA). Confusingly, the “Belt” refers to east-west land connectivity between the Pacific and the Atlantic via central Asia and Europe, while the “Road” refers to the maritime arc that connects the land spokes.

India’s proximate concerns seem to be with a particular spoke, the China-Pakistan Economic Corridor (CPEC) and various points on the arc, notably Gwadar in Pakistan, as well as Hambantota and Colombo ports in Sri Lanka. There is no question that the BRI is diffuse, amorphous and Sino-centric in both conception and orientation. Yet the Belt component is already providing land connectivity to a large, resource- rich swath of Central Asia which is as much in India’s hinterland as that of Russia and Turkey and Presidents Putin and Erdogan both chose to attend.

It is also somewhat condescending to argue, as India did, that European Union members such as Hungary (a country on the Belt transit route) could easily be caught in a debt trap, although it is true that the EU has expressed concerns on the need for consistency of BRI projects with established financing and procurement protocols of EU member states.

China’s presentation of the BRI’s goals is much wider than just physical and digital connectivity and it is these additional dimensions that raise more important challenges (and opportunities) for Indian diplomacy. As articulated by President Xi in his speech at Davos in January, China sees itself as flag-bearer for continued integration of the global economy at a time when support from richer countries is waning.

Less clear is the relationship of this Globalization 2.0 with the existing institutions of global governance, whether treaty-based (United Nations, World Trade Organisation, International Monetary Fund, the World Bank and the regional development banks) or more informal organisations such as the G-20. Frustration at the slow pace of reform of the established institutions was an important motivation for China’s leadership in creating the Asian Infrastructure Investment Bank (AIIB) and for the BRICS nations jointly sponsoring the New Development Bank headquartered in Shanghai under an Indian chief executive.

As articulated by successive governments, India’s foreign policy has consistently sought to create an external environment that supports its economic and social transformation. Since India’s historic, if belated, decision in 1991 to seek deeper integration with the world economy, such conditions have included an open trade and financial order whose rules were typically set by the richer countries, essentially the G-7 and acceded to by India, perhaps with some grumbling along the way.

The arrival of China as an increasingly significant setter of global standards may be uncomfortable for India but is near-inevitable and needs to be planned for. This brings me back to the Prime Minister of India’s recent diplomatic activities, particularly the attention paid to a wide variety of European capitals in recent weeks.

While the timing may have been fortuitous, the Prime Minister’s visit came soon after an unsatisfactory G-7 summit in Italy and visible stress in the relationship between the US President and the German Chancellor. The extraordinary success of President Macron in elections to the National Assembly bodes well for a return to French-German leadership in Europe at a time when the economy in the eurozone is doing better than in a while.

This is not to deny the significant differences that continue to exist between India, the EU at the Commission level and with individual capitals on a broad range of economic and social issues. It is rather to urge Indian policy planners in two directions. The first is to engage more actively on issues of global governance than they have typically done, as being a ‘free rider’ may be less comfortable for India than in it has been in the past.

The second is to import a phrase from European diplomacy: variable geometry. India’s diplomatic efforts have created goodwill with a broad spectrum of partners, notably the US, Japan, France and Germany. As demonstrated at the SCO summit, India also maintains a working relationship with China despite many serious differences. It will take fancy footwork to develop coalitions on the issues that matter to India.

As India found in 1991, a time of global turbulence could also be a time of opportunity.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Past Event

Past Event

Vision Europe Summit 2017

The 2017 Vision Summit is titled "The Winners and Losers of Globalisation"

Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 14, 2017
Read article Download PDF More on this topic

External Publication

Central Asia—twenty-five years after the breakup of the USSR

Central Asia consists of five culturally and ethnically diverse countries that have followed different paths to political and economic transformation in the past 25 years. The main policy challenge for the five Central Asian economies is to move away from commodity-based growth strategies to market-oriented diversification and adoption of a broad spectrum of economic, institutional and political reforms

By: Marek Dabrowski and Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: November 14, 2017
Read about event More on this topic

Upcoming Event

Dec
4
13:00

Flexicurity and labour market reforms in Europe

This event will discuss the potential of the flexicurity model as employment strategy and the way it could be implemented in European countries to be successful.

Speakers: Grégory Claeys, Philip Collins, Werner Eichhorst, Antoine Foucher, Maria Jepsen and Marco Leonardi Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Blog Post

European worries about isolationist trends

Populist shocks in the UK and US threaten the multilateral order on which the EU depends. What lies behind these earthquakes, and what does it mean for Europe? Withdrawing from the world is no solution to geo-political upheavals, but Europe needs to reassess the future of globalisation.

By: Maria Demertzis Topic: European Macroeconomics & Governance, Global Economics & Governance Date: November 7, 2017
Read article

Blog Post

India’s trade ties with the UK and EU

As EU and Indian leaders meet in Delhi, we look at the figures on trade. The UK’s place in the relationship warrants special attention. EU-India trade has more than tripled since 2000, but UK-India trade is largely static. The shift is especially noticeable for EU exports to India, where the UK share has dropped from 29% to 10%.

By: Maria Demertzis and Alexander Roth Topic: European Macroeconomics & Governance, Global Economics & Governance Date: October 6, 2017
Read article More on this topic More by this author

Blog Post

Long-term growth potential, or dead in the long run?

By linking growth with both employment and the imperative for India to hold its own with China for strategic autonomy, Prime Minister Modi has brought sustainable, high quality, inclusive economic growth to the centre of political discussion, which is where it rightfully belongs.

By: Suman Bery Topic: Global Economics & Governance Date: October 5, 2017
Read article More on this topic More by this author

Blog Post

Chinese banks: An endless cat and mouse game benefitting large players

As deleveraging moves up in the scale of objectives of the Chinese leadership, banks now face more restrictions from regulators. As a result, banks have been very creative in playing the cat and mouse game in front of evolving regulations.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 26, 2017
Read article Download PDF

Policy Contribution

Capital Markets Union and the fintech opportunity

Fintech has the potential to change financial intermediation structures substantially. It could disrupt existing financial intermediation with new business models empowered by intelligent algorithms, big data, cloud computing and artificial intelligence. Policymakers need to consider four questions urgently: Develop a European or national fintech market? What regulatory framework to pursue? Should supervision of fintech be exercised at the European level? What is the overall vision for the EU’s financial system?

By: Maria Demertzis, Silvia Merler and Guntram B. Wolff Topic: Finance & Financial Regulation, Innovation & Competition Policy Date: September 15, 2017
Read article More on this topic More by this author

Opinion

Is China Deleveraging? Too Early to Cheer

This blog post was originally published on BRINK “Deleveraging” is the new buzzword in China. The leadership clearly wants to scale back its epic borrowing, but it is not necessarily ready to pay the price for it, namely, the price of having less support for growth. The question is whether the recent efforts of China’s leadership to […]

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 13, 2017
Read article More by this author

Podcast

Podcast

Surprising priorities for Europe and China

Bruegel’s Alicia García-Herrero and Robin Niblett of Chatham House discuss a new joint report on EU-China relations. How easy was it to find common ground with Chinese partners? And what should be the priorities for economic cooperation between Europe and China?

By: The Sound of Economics Topic: Global Economics & Governance Date: September 13, 2017
Read about event More on this topic

Past Event

Past Event

EU-China economic relations: looking to 2025

This event will see the launch of a report on EU-China relations and discuss issues such as trade and investment, industrial cooperation and innovation and global governance

Speakers: Victor Chu, Ian Davis, Alicia García-Herrero, Dame Clara Furse, Tony Graziano, Anatole Kaletsky, K.C. Kwok, Lawrence J. Lau, Ina Lepel, Hanna Müller, André Sapir, Robin Niblett, György Szapáry, Jean-Claude Trichet, Zhang Yansheng, H.E. Ambassador Yang Yanyi, Liu Xiangdong, Gunnar Wiegand, Guntram B. Wolff, Huang Ping and Elena Flores Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 13, 2017
Read article Download PDF More on this topic

Book/Special report

EU–China Economic Relations to 2025. Building a Common Future

The EU and China, as the world’s second and third largest economies, share a responsibility in upholding the rules-based, global free trade system and other forms of multilateral cooperation, especially on combating climate change. This report sets out the main conclusions of a research project between European and Chinese think-tanks, which addresses the prospects for the EU–China economic relationship. A Joint Report by Bruegel, Chatham House, the China Center for International Economic Exchanges and the Institute of Global Economics and Finance at The Chinese University of Hong Kong.

By: Alicia García-Herrero, K.C. Kwok, Tim Summers, Liu Xiangdong and Zhang Yansheng Topic: Global Economics & Governance Date: September 13, 2017
Load more posts