It is an unusual privilege to be able to publish a column on the first day of a new year: one's thoughts are both of what has been and what might come to be. I am slightly astonished to note that 2016 will be my 13th year haunting these pages, and I thank readers of these columns and the editors of this paper for this continuing privilege.
Over these years I have come to understand that there is fundamental difference of rhythm between a weekly and a monthly column. A weekly column has an obligation to comment on contemporary developments, while a monthly column provides more opportunity to step back and to muse on the "figure in the carpet". My preference has been to provide context and perspective to the intelligent reader rather than to be excessively prescriptive.
Since my move to The Netherlands four years ago, these columns have focused more explicitly on India's interaction with the global economy, although this had been a recurrent theme from the beginning. Global economic integration has many facets: two-way trade in goods; two-way trade in services; labour flows (and their financial counterpart, net remittances); monetary integration (represented principally by the exchange-rate regime); flows of direct investment and of portfolio investment in and out. Despite the enormous shock of the 2008 trans-Atlantic financial crisis most observers would judge that there has been steady, cautious progress in most of these areas with relatively little backsliding, even if the progress in trade could have gone somewhat faster.
These numerical indicators, however, tell only a part of the story. The qualitative part is at least as interesting and is perhaps most easily, but inadequately, captured by the epithet "soft power". I have in mind here such elements as the success of the Indian diaspora in a wide variety of spheres; the global reach of Bollywood and of Indian television; the diffusion of Indian food and fashion, and the success of Indian writers in English. These trends too have gained momentum in the last 13 years. The Netherlands is perhaps unusual because of its colonial links to Surinam. But it certainly surprises me that Dilwale and Bajirao Mastani are being screened currently at the main multiplex of The Hague, the city where I live and work, and that I have a choice of Dutch radio stations featuring Hindi popular music.
While perhaps not all readers would agree with this relatively benign assessment of India's global journey, for me it raises two further questions. First, why does the Indian public rhetoric remain determinedly insular despite this record of success? Second, what are some of the newer challenges that India is likely to encounter in the global economy in the years to come?
On the first point, one should observe that India is by no means alone. France, and to a degree Brazil, come to mind as countries which also benefit from but resist the global embrace. I am not sure that I can confidently point to common factors across the three countries, although the influence of socialist ideology is strong in all three societies and may have something to do with it. In the Indian case interpretations of colonial history as part of the freedom struggle have added to the sense of victimhood, even as India has been an important and successful trading nation at least since Roman times. Changing this rhetoric is ultimately a political project, as was demonstrated by Deng Xiaoping in China in the 1980s.
As for the second point, while the challenges are many, I would list three: trade, finance, and energy. None of these are new, but they are likely to intensify in the years ahead.
In the area of trade we are already witnessing two important developments: the slowing of global trade, and the weakening of the World Trade Organisation (WTO) as the preferred forum for negotiating market access. It remains uncertain whether the US Senate will be able to ratify the Trans-Pacific Partnership before the US presidential election moves into high gear this summer, but the recent Nairobi Ministerial was not encouraging in the support shown for proceeding with the Doha Development Agenda. With its young population, growth in labour force, and its manufacturing aspirations, India - of all the major economies - has perhaps the greatest stake in maintaining a reasonably liberal trading order, both in goods and in services. While India has had skilled and knowledgeable senior trade negotiators for many years, our trade objectives will need to be more clearly enunciated than in the past, and supported by clear, strong political and diplomatic commitment and capacity.
India will also be deeply affected by the evolution of global financial intermediation in the years and decades ahead. It seems clear that for the foreseeable future the source of most net global saving will be in Asia (China and Japan) notwithstanding the ageing of the population in both countries, while India will be an important user of global saving. The immaturity of Asian financial markets has meant that the intermediation of Asian saving to Asian investors has taken place through financial institutions headquartered in the advanced countries. This will change over time even as the global regulations governing these flows continue to be written under the auspices of such institutions as the Bank for International Settlements (BIS) and the International Monetary Fund. India will need to make common cause with other large emerging markets, notably China, in ensuring that the global regulatory structure supports rather than constricts its need for stable external capital on competitive terms.
Finally, there is the world of energy and the associated challenge of emissions mitigation and climate adaptation. Much has been written on this issue, so I do not need to labour the point; but all analyses suggest that India will be a much larger player in global energy markets in the years ahead. It will therefore need to engage more whole-heartedly with issues of market structure and price benchmarking over and above its traditional concerns with physical security of supply.
There should be plenty to write about.
The writer is the chief economist at Royal Dutch Shell. The views are personal.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
