The Centre for Research in Economics and
Strategic Studies (CRESS),
Hyderabad, INDIA
Shaping India in the Post Covid-19 Era
The Center for Research in Economics and Strategic Studies (CRESS) is a
nonpartisan, nonprofit organization founded in 1994 and headquartered in Hyderabad
Deccan, India. It seeks to advance global security and prosperity by providing economic
analysis, strategic insights and policy solutions to decision makers.
Shaping India in the Post Covid-19 Era
The world seems to have woken up to a new reality with one swift event
happening across the globe, taking everybody by surprise, even though skeptics would
not want to accept it as a black swan event. The covid-19 pandemic has brought out the
realities of the existing world, which were not so clearly visible, earlier to the crisis. The
impact it had on China as a country in the Global scenario is not only of importance to
China itself, but also to the rest of the world. In the recent past, the rise of China has
been noticed and discussed quite widely, especially so in the advanced economies. The
growing influence of China in the international economic sphere and in the diplomatic
and global strategic affairs has been quite noticeable. Every major think tank on
international relations observed that China was a force to reckon with. The reasons are
not difficult to fathom. We don’t have to look far or deep; China manufactures around
1/4th of the world’s manufactured group of products, consumes around 17 to 19% of the
total goods and services of the world, is considered for its advancements in science and
technology (5G and AI), has a huge reserve capital which is state owned, is a nation of
single party government, has the second largest army in the world, has a nuclear
arsenal to reckon with, has been influencing the Latin American and the African world in
a big way with its investments, has stood its ground in the South China Sea in spite of
the US’s aggressive stand in the recent past, has bilateral trade agreements with Iran,
Russia and Japan outside of the US dollar and much more.. At the same time, China is
also known for its closed-door policies, it’s not so transparent decision making process
as a state, and is not the least dependable with respect to the numbers, be they
economic or otherwise.
But the post covid-19 China looks quite different. With its position in the global
value chain broken, and losing its primacy in the global supply chain, world trade having
come to a standstill, it looks like as if it’ll take a while for China to regain its place even if
it were able to. With the rest of the world keeping its borders closed and not trusting
China with its goods, it seems to be an uphill task for China to come back to its normal
1
position. That being the case, due to the failing demographic advantage that it earlier
had and due to the origin of the crisis at home, it can really be seen that China may no
longer hold the same status as it used to, at least with respect to its soft power, if the
turn of events with US and Europe are taken as indicative of the impact of
demographics as degenerative on any state. .
But then, the leaders of the liberal world that we have known for the last century
or two, also have not proven themselves this time around. The United States of America
and Europe are not able to lead the rest of the world during the crisis, or out of it. They
seem to fumble more than the emerging economies, contrary to what one would have
expected, i.e., to be better organized during the crisis. Look at this from the background
of the global financial machine making noises on the faith it had on the leading
currencies (the US dollar, the Euro and the Yen (leaving alone the Renminbi) due to the
unconventional monetary policy of Quantitative Easing they adopted in the last two
decades. The rising debt in US close to $ 23 trillion, expected to go upto $ 29 trillion,
well beyond its $ 22 trillion GDP, a $2.2 trillion dollar rescue package and so on, with
interest rates below zero, meaning the savings and pension holders losing their
incomes, does not auger well for the unipolar world, that one might wish, would continue
to be.
Europe, the traditional leaders due to the colonial world of the past centuries, do
not seem to have the stomach for the cause, with its trailing economies, and keeping
themselves united being their immediate challenge. In any case, the demographics of
the advanced economies do not support their place at the top, even so is the situation
with Russia with its contracting population. The colonial power, on whose empire the
sun would never set seems to be in the middle of its struggle with Brexit. In any case,
the growing nationalistic tendencies in the Industrialised economies only exert
pressures on them to look inwards with likely protectionist policies of trade and
commerce in the near future.
The leadership role in the community of nations, post of covid-19 crisis seems to
be open for the taker.
2
Knowing this to be the background, let us try and assess whether India can take
up the challenge and lead the rest of the world into a better state of affairs in the post
covid-19 era.
India, in spite of not being an economy anywhere near the technological
advancements or size of US, Japan, China or Germany still has certain potential‘s that
could prove to be the game changers for it. It has the largest sizeable pool of human
resources in the world. It is unique in recorded human history that one country of
substantial size with a stable nation state and a sizeable economy, alone, has the
largest manpower resources in all the community of nations for a period of not less than
half a century. India, the youngest nation with a sizable population of more than a billion
people in the working age group for the coming four to five decades, with a dependency
ratio of 10 to 1, seems to be a good bet. It is the third largest economy, has the third
largest army, has the third largest road network, is the third largest contributor of troops
to the UN peace keeping forces. With sizable defense forces, equipped with nuclear
missiles, it’s advancements in space technology in which it leaves behind the likes of
Germany, France and Canada, it’s position in the information technology world with
respect to the trained manpower it has.
India with a meaningful policy effort can position itself as the country with the
most sophisticated infrastructure of the modern times which is more dependent on
information and communication technology rather than physical infrastructure. India’s
strength also lies in its social protection program implementation which is the largest in
the world. The Mahatma Gandhi National Rural Employment Guarantee Program with
around twenty seven crore participants and fourteen lakh regular and five to six lakh
semi-trained field staff, and around one lakh implementing officers, is one of its kind, the
largest such program without comparison in the world. With an expanded fiscal deficit of
12 to 14 % of GDP and it’s hugely unutilized soft power with Africa and Latin America,
India can hope to export its ability to set the house in order for those countries, with the
expertise it has in its social protection programs. Coupled with this, if India can
manufacture a large quantity of essential commodities without having to use too much
of conventional power it could lead the world in manufacturing technologies which are
3
less polluting and are less harmful to the environment. As such the small and the rural
manufacturing technologies of India are age old and found to be the most conservative
in use of fossil fuels or conventional power, and the most sustainable and environment
friendly.
Harnessing this ability would and could be the turning point for India in the most
immediate short run. India’s biggest crisis issue would be to keep its huge labour force
from the unorganized sector occupied in a fruitful and strategic way. The largest part of
the employment segment comes from the informal sectors of rural and the small and
micro sectors of the urban industrial belts, in this vast country of around more than 100
crores of working age group population and has around 50 crores of active working
labour force. Productivity of labour was never a case in issue for India like it was for
China. In fact in the post covid-19 national boundaries bound markets, if policy
perception and market push combine together, the manufacturing sector in rural, small
and medium sectors could find itself saving the poorer countries of Africa and Latin
America. This work force with improved productivity levels would be the best pull factor
for the already existing push factors of QE and near Recession in the western
economies coupled with the Chinese trade problems. But in order to achieve such a
state of affairs, India not only needs to tread cautiously with respect to its capital
controls and macro prudential policies but also has to act quickly, showing to the world,
that it can put its act together with the help of its inclusive financial institutions.
Keeping its influence growing into the Latin American and African countries, India
could help those countries which are in distress due to the crisis created by the virus, as
it did in the past. Going forward India can aspire to take the position of a liberal
democratic and transparent leader whose cause lies more with the welfare of all the
nations, specially the poorer ones, rather than wielding hegemonic power. With the help
of its soft power, defense might, leadership in space and information technology India
should be quick in setting the narrative going in its favour in the global media. But in
order to achieve that India will have to take the lead as early as possible so as to gain
the pioneer’s advantage in the post covid-19 scenario. To start with, it will have to set it
house in order in the shortest possible time in a fashion that will give confidence to the
4
rest of the world that it can lead the rest of the nations into a better state of affairs. In
order to do this India will have to come up with a unique solution which is a combination
of the Gandhian gramudyog economics and the Washington consensus model. This
India can achieve with a combination of consumption of homemade goods and
manufacture of export oriented goods with FDI investments. At the same time India will
have to keep the narrative going so that the rest of the world, especially the poorest
countries of Africa and Latin America can have hope and confidence in its Ability.
The first steps would be, to harness its networks of social protection programs to
alleviate the poor and needy from hunger and unemployment. The rural MGNREGA
network coupled with a Aadhar linked urban disbursal of economic impact dole through
a simple online tool with direct benefit transfer could be put in place at the earliest. A
moratorium on indirect taxes on the SME and Rural sectors could be the possible
solution. Let us not forget the unemployment doles out of helicopter money that the
advanced economies have been dishing out to their populations, leading close to a debt
close to 100 % of GDP. In any case no nation can and should stand and be a spectator
when there are people dying of hunger and economies crumbling to halt. With the push
and pull factors already existing in the market of non availability of imported raw
material, intermediate goods and finished products for the mass producing units,
coupled with the growing nationalistic sentiments amongst the consumers, it should not
be difficult nor a distant goal to achieve a given level of production, employment and
excess capacity in a short time. That is the challenge that the nation has to determine to
choose to rise up to, at this momentous point of time.
Needless to say that India will have to formulate a new grand strategy with grand
tactics in place, conceive the medium term strategy and consider the short term tactics
it will require. In the process India needs to be aware of the fact that there are going to
be circumstances and factors in the international arena which would be adverse to its
liking. The all-too-familiar impression created by the Brettenwood twins, centrally
organizing numbers like the monetary policy tinkering by central banks, debts and
rollovers in the international funding markets and so on; Not accounting for the
demographic factors in a consumption driven global economic model; Excessive
5
dependence on the fiat dollar in the international trade arena; All-too-familiar noise in
favor of international cooperation and the danger of nationalism in the developing world
to global economy, advocated by the global advisory bodies; advanced economies
trying to put their house in order which is in a state of high imbalance, if not beyond
recovery, in the name of the welfare of the international financial architecture; the too
familiar failure of G-20 and its FSB (The financial stability board); The advanced
economies financial market’s all-too-familiar hidden and non-transparent game of
accumulating risks at the wrong end in the name of rolling over the debts of globally run
economy; are some. There is a need to be wary of the dollar appreciating, making it
more difficult to fulfill international payments and purchase obligations for the emerging
economies. India on its part will have the need for building up trust between central
banks especially of African, Latin American and Asian countries so as to allow mutual
settlements outside of the dollar. In the process India will have to highlight the non-
representative nature of UN and its bodies like IMF, World Bank and the WTO in terms
of its disproportionate representation in comparison to the demographics of each
country.
