India in the new international economic order

Updated: Jan 12 2006, 05:30am hrs
It is noticeable that an expanding group of emerging economies is challenging the traditional international order, long dominated by the US and EU with their influence spread over multilateral institutions. These emerging economies have embarked on an economic development strategy that is endogenous, linked to national interests, and increasingly financed from their own resources. China, clearly, is the leader among this band of countries that includes India, Russia, Brazil, South Africa, Thailand, Malaysia and Singapore.

The sustained growth performance of most of these countries has been spectacular in the past decade. At this rate, China will soon be the second-richest economy, behind the US, with India, Brazil and Russia not far behind. The picture is even rosier for these countries in purchasing power parity terms. The 2005 GDP growth rates of China (9.8%), India (8%), and Russia (7%) are the highest in the world.

In contrast, the US is losing its economic dominance over Southeast Asia and Latin America. China has emerged an undisputed economic leader in Southeast Asia. The principal Latin American economies are determined to follow their own development strategies that are not dictated by the US and the Bretton Woods institutions. The recent decision of Brazil and Argentina to pay off $25 billion in debts to the IMF and the governments of G-7 is a clear manifestation of this. Bolivia is about to follow suit with both the World Bank and IMF, leaving only Uruguay still a big debtor of the IMF.

This is a clear signal to IMF that their biggest debtors dont care much for their policies. India and China appear to be able to borrow massive amounts from the World Bank at favourable terms. For a change, the World Bank seems to be listening more to the economic reform experiences of economic policymakers in India. Not that Indian reform is on cruise control mode for sustained high growth. The World Bank is probably too cautious to advise a performing economy that can absorb a large volume of its lending without any debt service implications. These are the new structural realities of the global system.

This awareness is quickly spreading to the developing world. The Group of 20 and the Group of 110 played a key and constructive role in the recent Hong Kong Ministerial of the Doha Round. It is evident that the conclusions of the Round are critically linked to movement in agriculture on the part of EU and the US, before the emerging economies allow greater market access in industrial products and agriculture. What is most refreshing is to see that the coalition has remained stable since Cancun. It is clear that the developed countries cant dominate WTO the way they were dominating its predecessor, Gatt. The emerging countries are also seriously questioning their under-representation on the boards of other multilateral institutions and limited access to the deliberations of the G-7 on global policy matters.

Emerging economies have adopted an economic strategy that is endogenous
China leads this group of economies which includes India, Russia, Brazil, etc
This group is questioning its under-representation on multilateral bodies
Is India aware of its role in the new international order Several actions confirm it is. India played a very constructive role in G-20 in Hong Kong. It is very serious about integrating with the rest of Asia, especially China, Korea and Japan. And, India has helped to form a strong alliance (Ibsa) with Brazil and South Africa. But somehow, India seems to be approaching the issue in a partial, rather than a general equilibrium framework. India is striking good relationships with individual countries, but not taking into full consideration the relationship between that and a deeper association with other countries.

A stronger interest in India by the US is partly the result of the latters fear of China dominating the world. India should take advantage of this and forge visibly stronger economic ties with China. Only then will India command the respect of the US that is necessary to carry the promised economic alliance forward. India should not be seen as a strong ally of one country. It needs to focus on alliances with all emerging economies, the oil producing nations of the Middle East, the energy producers in Central Asia, and Korea and Japan. Only this will help position India into meaningful economic relationships with the US and EU.

This strategic thinking requires an economist or a former finance minister to immediately fill the ministerial vacancy in the foreign ministry.

The writer is principal advisor, CII. These are his personal views