Loading...
The Financial Express

Spillovers of India's economic climb

SCOPUS


| Updated: September 28, 2022 21:00:30


Indian truck is on the way to entering Bangladesh. 	—HBL Photo Indian truck is on the way to entering Bangladesh. —HBL Photo

One new development may soon exert enormous reverberations for a long time to come: India's economic size overtaking Great Britain's, its colonial master's. When Great Britain first arrived in India during the 17th Century (not under a country flag , but as a corporation's, the East India Company's), India's economic size accounted for over one-quarter of the global economic size. When India overtook Britain for the fifth spot over economic-size globally at the end of the first-quarter of 2022, India's economic size accounted for 3.17 trillion USD on a nominal cash basis, compared to 3.18 trillion USD for Great Britain (according to Worlddata), and as Bloomberg's Philip Aldrick and David Goodman further predict, India's GDP roaring at 7 per cent this year with Britain's at 1 per cent, India's economy could be 20 per cent larger than Britain's in five years.  That may be only the tip of a huge iceberg.

Such seismic visual changes cannot but accompany tectonic-plate changes. Free-trade as a policy approach illustrates. The East India Company first came to South Asia in 1608, eight years after being founded as an English corporation, while the name 'Great Britain' was coined under King James 1, in 1603. Like any other 'great' European powers, Great Britain was very mercantilist, that is, with a zero-sum economic mindset. It would stay that way until one-quarter of a millennium later, in 1846 precisely, when tariffs were abolished on corn, boosting imports (mostly from Europe). By mid-19th century, the 'globe' had changed vastly, in large part due to European, specifically British, colonial policies: Britain commanded "a sun that would never set," with pivotal footholds to safeguard that order in Gibraltar, Hong Kong, and Singapore, among others. Shifting from agriculture helped Britain catalyse the Second Industrial Revolution, based on steel (just as commercialising wool production in the 18th century liberated land and farmers to fuel the First Industrial Revolution). Mass-production, a market economy and free-trade emerged, all a 'first' in modern history (to be followed by the United States one century later, from 1947, through the General Agreements on Tariffs and Trade, WTO's precursor).

Though it may be a more efficient trade policy approach, free-trade is not at all 'free'. It is a policy of the 'strong', like Great Britain from 1846 or the United States from 1947. Increasing competition was part of the trade, as after the 1840s for Britain, much as it was for the United States after 1947. In one part this was because other competitors wouldn't abandon protectionism, in another a market economy invariably faces (or invites) cyclical competitiveness as it fluctuates between growth and slumps (rise and decline of great powers). These traits make a free-trade policy approach the most flexible and beneficial, but only sporadically so, rarely as a constant.

Fast-forwarding to today, we now see why India is rather niggardly about liberalising trade policy: infant-industries need protection to grow against full-blown market competitors, while protection also stabilises the economy when a country's trade-policy preferences fluctuate.

This may be one underlying feature why the 2004 South Asian Free Trade Agreement (SAFTA) did not advance much. True the India-Pakistan rift casts a darker shadow over any SAFTA future, but India has generally been a slow liberaliser, except perhaps under Manmohan Singh's tenure as finance minister (1991-96), then prime minister (2004-14).

No Bangla-India compact has yet evolved to liberalise trade, leaving Bangladesh stuck with the only policy it knows: be more restrictive than liberal, like India. At least two factors have kept it on a slow lane: not only that the successful ready-made-garment (RMGs) industry sustains its growth seemingly forever (over one full generation, that is, three decades, thus far), thus thwarting the cultivation of other 'cash cows' (which cannot but be more expensive than the low-waged RMG sector); but also, under soaring RMG performances, Bangladesh was placed on the ECOSOC 'graduation' list to become a 'developing' country from November 2026. By then it will have lost many policy exemptions that it has gotten too accustomed to. Without Bangladesh free-riding this 'poor country' noblesse oblige atmosphere, the transition will be costly.

Yet, India tipping Britain opens a window of opportunity. India cannot but seek free trade outlets somewhere just as Bangladesh must do so to 'graduate'. This may be the game-changing rendezvous of economic destiny both could find too tantalising to easily gulp or reject: their growth-rate between now and 2025, 7.2 and 6.9 per cent, top the world's scores (FocusEconomics). Though a huge accomplishment for India, relegating Britain must quickly be followed by new tracks. Trade liberalism awaits that urgent call, the sooner the better.

Pushing the 'developing' country card should see Bangladesh opening new trade items, thus new trading partners, the most lucrative being the largely non-RMG-importing Southeast Asian countries. India has similar growth-plans in this same region. Prime Minister Narendra Modi's 2014 Act East trajectory stood out in part due to its four premises of promoting culture, commerce, connectivity, and capacity-building. Not only will this approach develop India's seven backward northeast provinces, thus compelling Bangladeshi cooperation, but it would also smoothen any Southeast Asian transit for both countries. India's large and prosperous Southeast Asian diasporas have helped India target that region, but without the other most dynamic South Asian economy next door, India going solo turns a game-winner into a second-best venture.

In a nutshell, a Bangladesh-India free-trade compact would become the lever to Bangladesh's 'graduation' into a 'developing' country from 2026, thence on to the far more cherished but equally lofty and dreamy 'developed' country that Vision 2041 seeks. After Britain, India overtaking Germany and Japan (the 4th and 3rd largest economies, respectively) should be a piece of cake: both face huge demographic challenges when India ranks as the youngest of any of the top-sized economies. With Bangladesh's 33rd ranked economic size of 416.6 billion USD, India's eastern sun could blaze in the years to come.

Overtaking Britain demands a liberalised Indian foreign trade policy approach. Though more handicapped than Britain in 1846 and the United States in 1945, India's liberalism faces the ground-floor-priced presence of Chinese competition in a way no prior 'great power' claimants did. This may pose other challenges for Bangladesh: its own cordial relations with China may slow any liberal shift. Otherwise India has a clincher at its eastern doorstep.

Once the sun would never set over the British Empire, but today it is poised to go: BREXIT isolated Britain at a time when the rest of the world has more mundane problems to think about than frolic with Britain's global resurgence. Populism may be the most expensive option anytime and anywhere, but with other options petering out (not finding trading partners), populism may be the very idea Britons have waited for, Europeans yearn even more, and India thrives upon.

In the final analysis, no occasion of 'power-swapping' has ever been straightforward or painless, not after the 1840s, nor even after the 1940s. Today's aspirants carry more parachutes than artillery, exposing deep ambivalence. One consequence: with too many countries scrambling for a single leadership spot, none is likely to retain its magic too long.

A perplexing closing thought: with three of the Top-Five global economies from Asia, is this au revoir Europe and adios 'America'?

 

Imtiaz A. Hussain is Professor, Global Studies & Governance department, Independent University, Bangladesh

[email protected]

Share if you like