Challenges to India's Economic Interests

Recent actions, such as China’s export restrictions on rare earths and fertilizers and the reported withdrawal of Foxconn’s engineers and technicians from India, have posed significant challenges to India's economic interests. These developments demand a strategic response to mitigate supply chain disruptions and raise broader questions about India's long-term economic strategies and policy architecture.

Historical Economic Policies

• Post-Independence, India prioritised the stability of the Union over economic growth, influenced by the need to integrate princely states and manage the repercussions of partition.
• The centralised planning model was adopted to ensure stability, though it led to sluggish growth over the years.
• In the 1980s, some pro-business policy changes emerged but were aimed more at garnering political support than enhancing economic efficiency.
• A major shift occurred during the 1991 economic crisis, shifting focus towards a growth-oriented development bargain.

The 1990s Development Bargain

• Economist Stefan Dercon defined the 1990s policy shift as a development bargain, emphasising growth and development shaped by the political and economic elite.
• This period transitioned away from one-party dominance to coalition politics, gaining consensus across political parties.

Globalisation and Economic Growth

• The era coincided with the peak of globalisation, boosting trade, investment, and poverty reduction.
• Despite a slowdown during UPA's second term, efforts were made to regain momentum, setting the stage for the 2014 elections.

Shift in Economic Focus Post-2014

• The new government characterised by a promise of good governance and high growth, was facilitated by a full majority in parliament.
• Early actions of the new government continued previous reforms, like inflation targeting and GST implementation.
• However, the growth imperative weakened over time, exacerbated by the pandemic and increasing inequality.

Current Economic Challenges

• The consensus around economic growth has weakened, with a shift towards populism and short-term electoral gains through cash transfers and tax giveaways.
• India faces significant changes in the global order, where strategies reliant solely on trade deals may fall short without deeper integration into global supply chains.
• The rapid growth of AI threatens large sectors like IT, which have been crucial for India's middle class.

Future Economic Vision

• India aspires to become a developed nation by 2047, but challenges such as sustaining a high per capita income growth rate persist.
• Attaining such growth requires a renewed development bargain and an elite compact, without which the goal remains elusive.