CAD and effect

Apr 19 2013, 02:26 IST
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SummaryHave the economic slowdown and rising deficits hurt India’s global profile?

Have the economic slowdown and rising deficits hurt India’s global profile?

Last summer, at the Shangri-la Dialogue in Singapore, when France’s newly appointed defence minister, Jean-Yves Le Drian, spoke eloquently about his country’s stake in Asia-Pacific security, he was asked a straight question from the audience — had France’s finance minister assured him that he would get the budget needed to ensure France’s continued investment in Asian security? Le Drian was honest and candid enough to admit that his colleague had given him no such assurance. Rather, he confessed, money would be a problem. Finance ministers around the world, especially in democracies experiencing fiscal pressure, are slashing defence budgets. Indeed, some are even cutting their budget for diplomacy. As fiscal constraints impinge on defence and diplomacy, governments find themselves increasingly homebound, even if diplomats happily travel to summits.

Not surprisingly, Finance Minister P. Chidambaram has also had to squeeze defence spending to get his fiscal numbers right, as his colleague across Raisina Hill does his best to maintain India’s external profile while dealing with spending cuts.

Through the 1990s and the 2000s, as its economy grew and the government’s fiscal capacity improved, India too derived strategic and foreign policy benefits from its improved economic performance. India’s defence spending increased and its strategic sight was set higher. The widening global footprint of Indian business, a consequence of a more open and robust economy, also helped. Support for India grew, for example, even in the US Congress, as more and more congressmen and senators voted in favour of India on issues relating to India’s national security.

While in the 1970s and 1980s, India’s finance minister would travel to Western capitals in search of aid and the external affairs minister would go around lecturing the world, in the 2000s, India’s finance and foreign ministers travelled to sell Brand India. India became more expansive in its relations with its own neighbours and declared a new policy of “unilateral trade liberalisation” in favour of less developed countries. India’s south-south trade increased as trade’s share in the GDP went up. India’s foreign aid budget too increased and an entire new bureaucracy was created to pursue trade, aid and investment policies aimed at winning friends and influencing people.

I put together a series of essays I had written in the 1990s and early 2000s on this theme in a book entitled The Strategic Consequences of India’s Economic Performance

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