India's economic slowdown is a potential threat to national security: Govt can't afford to take eye off the ball
Right from the time it was first elected in 2014, this government has been at pains to be perceived as being strong on national security and defence
Defence and the state of the economy are more closely interlinked than is appreciated
It's worth remembering that the foundation on which the higher global profile and strong national security approach rests is the quarter century of rapid growth of the Indian economy
Rapid and sustained growth over the years has enabled governments to devote higher outlays to defence and security without straining budgetary or forex resources
The creation of the post of Chief of Defence Staff towards the end of the calendar year fulfils the third of the trinity of long-standing issues of the armed forces. Other long-pending demands dear to the services like the One Rank One Pension (OROP) and the establishment of a National War Memorial have already been implemented. These together signal the Narendra Modi government's keenness to project an unwavering focus on defence.
Right from the time it was first elected in 2014, this government has been at pains to be perceived as being strong on national security and defence. As a result, there is a popular sense of a more muscular foreign policy, greater attention to defence issues, and constant efforts to boost the morale of the armed forces. Aggressive posturing and action, eg the surgical strikes and air attacks, on perceived acts of hostility by neighbouring countries has also helped build this perception, and this perception has been much supported by the electorate.
In the larger world, no longer does the country have to seek the attention of the big powers. Strategic partnerships are being stitched together at the highest levels with like-minded countries, notably the US and Japan. At the same time, high-level dialogue with major powers like China and Russia has also stepped up. More significantly, all these global powers are as willing to engage with India as India is to engage with them. It is a heady time indeed in the strategic space for India.
There was a similar determined focus on the economy in the first term of the government. There was a game plan. Piloted by the redoubtable Arun Jaitley, major structural financial reforms were pursued and implemented. The path breaking Insolvency and Bankruptcy Code regime brought about a sea-change in the banking and corporate landscape. Consensus was finally brought about on the Goods and Services Tax, which came into being and unified the indirect tax regime across the country. Inflation targeting through the Monetary Policy Committee of the Reserve Bank of India led to a stable price environment. Public and investor confidence remained high, despite the blip of demonetisation.
As the GDP growth rates starting dipping, and there were signs of faltering consumption and employment, one would have expected a renewed focus on the economy and push for reform. Surprisingly, the opposite seemed to happen.
Initially the decision-makers remained in denial, questioning the statistics rather than accepting the situation and doing something about it. The later part of the year saw acceptance bordering on panic, with knee-jerk reactions passing for policy. A regular Budget was passed by Parliament in July, in which it was business as usual. Significant financial decisions majorly affecting budgeting like the corporate tax cut were taken barely two months later. With the attention of the government more on pushing its internal political agenda, it still seems that the economy is not in prime focus.
Things are hopefully not as bad as they seem. The first-term reforms will sooner or later begin to pay off. Many more reforms have been fleshed out and are on the anvil. If implemented, the purported current GDP growth rate of four to five percent may pick up. But on the whole, there's definitely a lukewarm perception on the economy right now — just as there is a favourable perception right now of the government being strong on defence.
Defence and the state of the economy are more closely interlinked than is appreciated. It's worth remembering that the foundation on which the higher global profile and strong national security approach rests is the quarter century of rapid growth of the Indian economy. Recall that in the 1990s, India had to physically transport gold abroad before lenders were ready to advance a foreign exchange loan to the country. In international fora, representatives of the country went as supplicants. Defence budgets were forever stressed, even with a higher proportion of GDP going to them.
Rapid and sustained growth over the years has had the effect of creating income and opportunities for the people, easing foreign exchange constraints, and strengthening the fiscal capacity of the State. It has also enabled governments to devote higher outlays to defence and security without straining budgetary or forex resources. In the past few years, the issue has been more of fully utilising the budgetary allocations for defence, rather than facing a shortfall in budgeting. The more aggressive strategic approach of today is made possible not just due to "strong" leadership, but largely because of the economic strength built up over the years. Perceptions abroad have improved, and yes, the stronger foundation has been fully leveraged by the prime minister in national image building.
The best example of the importance of this linkage is the case of China. From an economy comparable to India’s in the 1980s, four decades of extraordinarily rapid growth has seen it grow to almost five times that of India. No longer a comparable country, it's in another league now — a major world power. China has the wherewithal to build military assets and launch expensive projects like the Belt and Road Initiative to expand its strategic influence even in our neighbourhood. Even if we wanted to, such initiatives just cannot be matched at our present level of development.
In the single-minded attention to public plaudits and decisive actions on defence, let's not lose track of the reality of this linkage.
Economic growth is indeed the best defence for the country. All governments need to take the economy seriously, or risk not being taken seriously. This government can't afford to take its eyes off the ball. It needs to get its act together, and be seen doing so, with a clear-cut agenda of growth oriented reform. A prolonged economic slowdown is the real threat, not demons from across the border.
If growth fizzles out, we may find it tough to finance our defence and security aspirations. We may also find it tough to retain the enthusiasm of the rest of the world to support and do business with India. To continue to strengthen and expand our strategic space, government needs to be lot more worried about fixing the economy than it seems to be — even if for nothing else.
The writer is former secretary in the Department of Heavy Industry (DHI)
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