Recipe for Driving India's Economic Growth Beyond 10%
As India's economy stands on the cusp of significant growth, a crucial question arises: should India maintain a pro-Russia yet neutral foreign policy, or seize emerging opportunities in the global economic landscape?
At this pivotal moment, India's economic growth must be the foremost priority for policymakers. Capitalizing on the growing anti-China sentiment in the West presents a unique opportunity. The U.S. and its allies are increasingly frustrated by China's aggressive behavior in the Indo-Pacific region and its efforts to diminish American influence in Japan, Taiwan, the Philippines, and beyond. China has antagonized nearly every country in the South China Sea, including India along the Himalayan border. This has led the West, especially the U.S., to focus on curbing China's ability to threaten its neighbors.
Contrary to popular belief, China’s military prowess is not its most formidable asset. A closer analysis reveals that the Chinese military may not be as advanced as often portrayed, hence China aggressiveness is sustained by its trillion-dollar exports, which keeps its factories running and generates immense cash. This surplus, combined with aggressive borrowing, is funding their rapid military expansion, aimed at pushing American influence out of the Indo-Pacific.
For India, this creates a strategic window. By aligning more closely with the West economically including in most foreign policy matters, while maintaining its independence in foreign policy, India can position itself as a critical alternative to Chinese dominance in global supply chains.
In 2022, China exported approximately $550 billion worth of goods to the U.S., with a similar amount to European countries. However, China imported very little in return, resulting in a massive dollar surplus. Let's take a closer look at how the U.S. has attempted to curb its dependence on Chinese imports.
In 2019, President Trump initiated the first significant move by imposing a 10% tariff on $300 billion incoming Chinese goods. While Wall Street reacted strongly, leading to a pause on further tariffs, the idea of reducing dependence on China remained in play. The Biden administration, however, made little progress in this area, allowing China to continue exporting to the West despite the tariffs.
It was the COVID-19 shutdowns in China during 2020-2022 that truly awakened the West to the risks of relying too heavily on a single source for imports. The need for a diversified supply chain became clear. While Chinese products remain attractive due to their low cost, the West began exploring alternative countries for their supply chains, though without decisive action so far.
India, with its vast and capable labor force, is emerging as a key alternative. However, to truly seize this opportunity, India would require a massive influx of foreign direct investment (FDI) — potentially up to a trillion dollars — along with relaxed restrictions on technology exports to enable rapid industrial growth. On India's part, a business-friendly environment would require a shift in foreign policy, reducing Russia’s influence, and constitutional amendments to eliminate outdated socialist laws, particularly labor laws.
There is a general sentiment in India that once the U.S. abandons its historically unfavorable policies towards the country, India will be able to fully unlock its potential, fostering mutually beneficial policies for both nations.
As India strengthens its economic ties with the West, China's influence will likely diminish. The reduction in their export-driven cash flow could force China to adopt a more restrained and pragmatic approach, particularly in the Indo-Pacific.
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