The somewhat precipitate decline of India’s economic growth during the last couple of years has obvious national security implications.

As the economy falters, the current account deficit widens to crisis levels, government spending continues to grow unchecked and inflation wipes out the savings of the poor, the country as a whole grows weaker and less capable of addressing security needs. Adding to the country’s economic gloom are the severe financial imbalances in the global financial and trading systems, the downturn in the Eurozone and China’s inexhaustible appetite for accumulating export surpluses.
Most of us know the economic outlook is bleak but just how bad is it? What should we focus on and how can we hedge for the future? These and many related questions are of great relevance to policymakers in India’s national security establishment. Perhaps this is a reason why the latest volume of Professor Satish Kumar’s annual review of the country’s national security contains a collection of essays on various facets of the country’s economy, apart from the usual reviews of the neighbourhood, global and internal security scenarios during 2012 and so on. The economic analyses in this volume seek to address some of the key problem areas of the economy and offer an insight into possible future developments.
Perhaps the most thought-provoking of these essays in one by former foreign secretary Shyam Saran on the “Geopolitical Consequences of the Global Financial and Economic Crisis”. Saran argues that the global financial order has undergone a fundamental shift since 2008 and that this crisis is continuing as nations struggle to respond to the compulsions of global imbalances. The notion that things will revert to the pattern of the past with a few changes and adjustments is flawed, he writes, adding that “no recovery to the pre-crisis state is possible. The world which is emerging before our eyes will have very little in common with the world we left behind in 2008.”
Saran believes that the on-going crisis is marked with several unique features, the first of which is its global proportions. The crisis, he observes, “erupted at the epicentre of the capitalist system, the US, and rapidly spread to the entire global economy through multiple, interconnected, increasingly digital and therefore, virtually instant transmissions channels.” The root cause of this crisis, according to him, “is the massive and persistent fiscal and trade deficits of some major economies with corresponding surpluses in others.”
Another factor of today’s crisis is energy constrains and the concomitant risks of maritime security. “The search for energy security may create new threats of geopolitical competition, as it is already doing in the Arctic Ocean, in Africa and in Central Asia,” Saran points out. The fourth and perhaps the most significant long-term trend, he believes, “is the steady diffusion of political and economic power away from the trans-Atlantic, radiating in different directions, but with the Indo-Pacific region gaining the most in terms of relative weight”. The problem is that this region is also one of intense competition and the resulting rivalries could well lead to conflict. While these shifts in the global order have opened up space for India to emerge as a truly global power, the country is “unable to leverage the opportunities that are constantly emerging”, Saran concludes. Given that India lives in a severely resource-constrained world, the writer suggests the country must adopt a “resource-frugal” instead of a “resource-intensive” for economic development.
This, he believes, would not only lead India to faster growth but would also show an alternative development path for the rest of the world.
The current volume of the national security review contains a number of other insightful economic essays, including one on manufacturing by industrialist Jamshyd N. Godrej, on agriculture by economist T. Haque, on science and technology by defence technologist Amitav Mallik, and on economic infrastructure by financial analyst Shailesh Pathak.
Chandrajit Banerjee, the current director-general of the trade body Confederation of Indian Industries (CII), has contributed an essay on the state of the economy titled “India’s Economic Security: The Long View” where he argues that although the international economic scenario remains fraught with vulnerabilities, “India is fortunate to have large and vibrant internal markets that can compensate for a vitiated global economic environment.” He also asserts that despite India’s macroeconomic fundamentals being on “shaky ground”, the “underlying foundation for fast recovery to a higher growth trajectory remains intact.”
Banerjee’s analysis, which was written in 2012, lists a number of positives including adequate foreign exchange reserves, high savings and investment rates, a robust financial sector, continued foreign equity investments and favourable demographics. However, things appear to have got worse a year later with a burgeoning balance of payments deficit eroding forex reserves, declining savings rate, people buying gold to offset unattractive investment opportunities, foreign institutional investors pulling out their money and bursting population levels.
In other words, the fundamentals actually do not look that good at all. In the end, it adds up to more bad news for the country’s national security.