India's place in a post-COVID-19 world: Restructuring economic policy, bridging trust deficit will have to go hand-in-hand

Addressing a convocation ceremony in Indianapolis in 1959, then Senator of Massachusetts, John F. Kennedy eloquently declared: “When written in Chinese, the word ‘crisis’ is composed of two characters—one represents danger and one represents opportunity.” Although today, Kennedy’s interpretation is regarded as largely inaccurate, its essence of a crisis resulting in opportunity must not be overlooked, especially as the COVID-19 pandemic rages through the world. The ‘Covidisation’ of the globe has not only smashed the façade of the present world order, making visible the unsightly cobwebs of realpolitik, but has also markedly catalysed a China-US fallout that is stretching the already strained international order to its limit. The prospects after the pandemic do not offer much consolation either, with the possibility of a Great Recession looming on the horizon. [caption id=“attachment_8128911” align=“alignleft” width=“380”] Representational image. PTI[/caption] For India and the world, the significance of President Kennedy’s interpretation of ‘crisis’ couldn’t be any more important than now. With the risk of continuing business in China now evident, companies will seek to reappraise their manufacturing operations. Furthermore, the overdependence of global supply chains on China has caused firms throughout the globe to reconsider their business operations in China. With a background of a Sino-US trade war and the rise of protectionist tendencies, the clear prospect of an accelerated decoupling of the global economy has spread anxiety and panic throughout the world. To benefit from this economic crisis and offer an effective alternative, India will have to reorient its role in South Asia and beyond. While India’s initial attempt to ‘contain the contagion’ has been applauded by many for its rapid response, what remains crucial for its role in the post-COVID-19 world order is the extent to which the damage will be controlled. Certain observers have pointed out that due to China’s use of cutting edge manufacturing technology which efficiently utilises Artificial Intelligence and robotics and the prospect of it being one of the first few states to restart its supply chains, China is likely not to experience a significant ‘supply chain drain’. Furthermore, China’s lead in automation can be gauged from the fact that it accounted for 36 percent of total global industrial robot sales in 2017. While China’s present technological superiority stands, what has been overlooked so far is the intangible ‘trust deficit’ which seems to be constantly widening between China and the western world. This trust deficit appears to have presently reached its nadir with the world questioning China’s role in the spread of COVID-19. This heightened ‘Sino-Western mistrust’ indeed has a historical antecedent built on the western perception of China’s rise as a ‘revisionist power’, questioning the global order and seeking its domination. While China continues to deny these allegations and instead views itself as a more benign and responsible part of the international system, the correlation between its participation in international institutions and its realisation of larger strategic objectives through them would prove otherwise. China’s excessively debated Belt and Road Initiative (BRI), portrayed as a global infrastructure project is now infamous for its ‘debt-trap diplomacy’. Through the BRI and it’s complicated norms of international development financing, China has taken control of physical strategic assets of other sovereign states like the Hambantota Port in Sri Lanka. China has also used multilateral institutions like the Association of South-East Asian Nations +3 (ASEAN+3) and the East-Asia Summit (EAS) to fulfil their own objectives, once achieved, they have strategically managed the risk of preventing these institutions from outpacing their own development. As a consequence, questions do get raised as to whether China is keen to do away with the present rules-based order. As a result, this pivotal position of providing the world with an alternative manufacturing hub with access to labour, land markets, and state subsidies, is precisely where India finds itself. China may maintain a sizable amount of its global supply chains in the post-COVID-19 world, but it will be unable to stop the outflow of certain firms which will begin diversifying their supply chains. This process may be slow, but will nonetheless be set into motion. While the overhaul of Indian economic policy and strategy in areas like land and labour reforms, building a robust network of roads and ports, ensuring uninterrupted power supplies, the easing of bureaucratic bottlenecks and a nuanced FDI policy are all critical to successfully attract any of this economic spillover, what seems to have been overlooked is the centrality of bridging the global trust deficit, which could be the key difference for India in the long-run. Essentially, the restructuring of economic policy and the bridging of the trust deficit will have to go hand-in-hand for India. To leverage this ‘Sino-Western trust-deficit’, championing the waning rules-based world order and reinforcing its norms of healthy interdependence, democratic values and an unprejudiced support of international institutions will be crucial for India. For this, assuming leadership of regional and multilateral institutions will be critical to effectively build an arsenal of trust and mutual understanding between itself and the liberal world. This advocacy will be vital to ensure an efficient economic spillover from China in terms of diversification of supply chains and manufacturing. This would be pivotal as the world will enter a post-pandemic period of ‘contained globalisation’ - where cross-border investments will be guided by politics and perhaps social trust, instead of just market rationality. This leadership could include regional institutions like the South Asian Association of Regional Countries (SAARC) and Bay of Bengal Initiative for Multi-Sectoral Technical & Economic Cooperation (BIMSTEC) and extend to agreements like the Quadrilateral Security Agreement (Quad) with like-minded states. Taking leadership of institutions and guiding their objectives, especially during times of crisis is something that India is not unfamiliar with. India took early action to ensure mechanisms were set up for SAARC countries to coordinate responses, share best practices and pool resources to effectively tackle the pandemic in South Asia. Building from this effort, New Delhi should sustain this momentum and work to ensure mutual gains for the whole region in the post-pandemic scenario. This could involve relooking into the idea of a South Asian Economic Union, proposed by the South Asian Forum (SAF) in 2011. In essence, South Asia and “the world needs more institutional governance, not less”. By rallying together like-minded states and regional institutions under the erstwhile principles of international engagement, India might be able to gulf the mutual suspicion that overcomes the world after the pandemic for not only itself but others too. This coupled with efficient economic restructuring could ensure an effective spillover beyond the immediate term and be a real ‘win-win’ for all. India is set to host the G20 summit in 2022, which would coincide with the 75th year of her Independence. As host, India would be in a position to use this opportunity to set the agenda of the summit to prioritise multilateral institutional reform and catalyse support for an enhanced Indian role in the international order. Indeed, India should go regional before it goes global. Just as Pax-Romana did not disintegrate overnight, similarly the present world order will perhaps not disappear instantly, with the possible emergence of a new variant of globalisation. In this global institutional reshuffle that takes place, India has to ‘place herself well’ as there will be pivotal roles and positions to fill. However, unlike past decades, this time India cannot afford to overpromise and underdeliver on this opportunity.