Editorials, GS-3, Indian Economy, Uncategorized

With connectivity comes growth

Livemint

Issue:

  • The paramount measure of power in the 21st century is connectivity, specifically to global infrastructure networks, trade flows, capital markets and the digital economy.
  • India is now getting connected in each of these arenas and is thus taken much more seriously as a long-term pillar of the global system.

India in its neighbourhood:

  • India and Pakistan should move forward with the Most Favoured Nation trade agreement, Iran-Pakistan-India (IPI) gas pipeline from Iran, and even by revitalizing and upgrading the railway connections between Delhi and Lahore, and Karachi and Mumbai.
  • The ancient Grand Trunk (GT) Road from Kabul to Kolkata should be actively resurrected as a Central to South-East Asian trade artery which will enable Indian commercial leadership across this high-growth region in ways traditional moribund groups such as South Asian Association for Regional Cooperation never could.
  • Indians must remember that India’s neighbours are not waiting for it to take a leadership role in leveraging connectivity for influence.
  • The Chinese-led Asian Infrastructure and Investment Bank will strengthen China’s connectivity with Central and West Asia, while the China-Pakistan Economic Corridor reaching Karachi and the port of Gwadar will effectively make China an Indian Ocean power through its client partner Pakistan.
  • To not connect to Pakistan and beyond is to further cede strategic ground along the 21st century’s new Silk Roads.

In South-East Asia:

  • Despite the long border India shares with Myanmar, trade relations and airline connections are minimal.
  • The country still depends on China for most of its exports and most of its inbound investment.
  • Not only should the future GT Road extend through Bangladesh all the way to Yangon, but the three governments should accelerate efforts to construct a gas pipeline stretching from Sittwe on the Bay of Bengal through India’s northeastern states of Mizoram and Tripura and across central Bangladesh to Kolkata.
  • The BCIM (Bangladesh, China, India, Myanmar) trade corridor along the old Stilwell Road should also be upgraded more rapidly in order to facilitate trade connectivity between India, Bangladesh, Myanmar and China, uplifting the neglected populations along the route.
  • The Association of Southeast Asian Nations region has half the population of India but a larger gross domestic product, and now attracts more foreign direct investment (FDI) year on year than China does. South-East Asia is now the world’s factory floor.
  • India too is expected to surpass China in inward FDI this year, complementing its now higher growth rate as well.
  • The combination of fast growth and rising FDI are mutually reinforcing, with global markets bearish on China and favourable towards India’s long-term demographic fundamentals, opening economy and long overdue focus on infrastructure.

Ties with China:

  • Ties with China is also essential to any grand strategy premised on connectedness.
  • China ranks as the top trade partner of more than 120 countries in the world, double the number for the US (56), and far higher than for India (only one).
  • Even as India seeks to boost trade relations with countries along the Indian Ocean periphery, it must remain focused on improving its trade balance with China through higher value-added exports, while also attracting ever more FDI from China into power, transportation and other sectors.

What government can do?

  • So long as commodities’ prices remain low, Current government can keep inflation in check and continue its major commitments to roads and railways, ports and airports, and modernizing dozens of cities across the nation.
  • All of these are investments in making India more connected both internally and externally so that its population can reach its full potential.

Beyond transportation and energy, the third category of connectivity is, communications:

  • India and China represent the two largest online populations in the world—but as a percentage of the total population, only about half of Indians have functional Internet access.
  • And yet, developing countries gain a 1-2% increase in GDP with every 10% of the population that gets online.
  • The Indian government and major telecom firms may not want Facebook to be the agent of digital connectivity, but then they should step up and fulfil the responsibility themselves.
  • The Digital India initiative, which aims to boost 4G coverage and deliver last-mile Internet connectivity, is a good step in this regard, but India still ranks 44 on Huawei’s most recent 2016 Global Connectivity Index.

Conclusion:

  • The 21st century will be permanently multi-polar, with the US, Europe, China, India, Russia and other powers all playing crucial roles.
  • But it will also feature an intense tug-of-war over global financial flows and industrial supply chains.
  • Make in India is a strong example of how India can become more relevant by becoming more intertwined with global production networks in the manner that the Indian software industry has already achieved.
  • Ultimately, it is this commercial and technological connectivity with the rest of the world that will enable India to earn—and retain—a commanding position on the world stage.

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