Geopolitics and India’s Growth

New Delhi: The growth of any large economy in today’s times is dependent on global trends, shifts and political affiliations. Oil prices, interest rates, tariffs, free trade agreements, most favoured nation agreements, trading blocs…all play a big part in how an economy–especially a large and emerging one like India– is able to grow.

Who are India’s two biggest trading partners? It’s the United States of America and China. India exports most to the US. India imports most from China. For the year 2023-24, USA accounted for eighteen percent of all of India’s exports. For the same year imports from China were eighteen percent. Quite a curious coincident there.

What’s Changing?

Things are changing in both these nations. USA has a new president in Mr Donald Trump–who is expected to keep most world economies on tenterhooks with his capricious ways– and China is in the midst of shifting its manufacturing focus to the next frontier sectors…quantum computing, data center technologies, large language models and the like…

The US economy has had significant influence on India in recent times. Their interest rates–which did not come down as much as the markets expected– have enticed FIIs away from India’s shores in the last month of the year 2024.

India’s balance of trade has always been in the negative bar one odd month post the pandemic. All the effects of PLI and Make in India–both still very much in their infancy–have not really boost exports enough to match imports. We’re an agriculture rich nation, but agri-products do not feature anywhere on the list of products we export most.

We want to compete in the manufacturing space and ‘China+1’ has helped matters, but there again we’re not the biggest beneficiary…up until now at least. We’ve been lagging as far as free trade agreements are concerned—India still does not have a free-trade agreement with the European Union—and our shyness in becoming part of many economic and trade blocks too may not have helped matters. Case to point being RCEP.

While microchips and hardware for the next frontier sectors may still be a pipe dream…space tech, satellites, defence are some sectors where India may be moving ahead faster than observers and commentators may have predicted a few years ago. Our scientists know how to be cost effective…question is could they turn the tide in our favour…

Strategic Decoupling and India

There is a term that has begun to do the rounds in economic lexicon–especially in the US post election results–which is ’strategic decoupling’. The target is of course the manufacturing hub of the world: China. To put it simply, it means a reduction in interdependence between these superpowers. It would also reduce their combined hold on world economy. Just now there are three major economic blocks: North America, Europe and China.

India has in recent times upped its game to become the fourth power center in the equation. We have the biggest market.

But the manufacturing of all these blocks is mostly happening in China. Now most of the world is in the process of course correction but that takes time with so much at stake. And the immediate result would be prices. China made manufacturing cheap. Strategic Decoupling could be advantage India? We have cheap labour. We have a big market. And we have skilled engineers, coders, designers…in thousands and thousands.

Foriegn direct investment inflows exceeding 1 trillion dollars since the April of year 2000 according to the Department of Promotion of Industry and Internal Trade (DPIIT).

Of the $1 trillion in total FDI inflows, $709.84 billion was recorded in the last decade (April 2014 to September 2024). That is nearly 69 percent of all FDI received since the turn of the century. India’s recent economic policies have been instrumental in effecting this acceleration.

Talking of policy…

Finance Ministry ‘s latest reformist proposals on amendments to the Insurance Act 1938 like increasing the foreign direct investment (FDI) limit to 100 per cent from the current 74 per cent.

Some things are looking good…