Building A New Order

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The international financial crisis and the ongoing one in the Eurozone, have underscored the weaknesses of the Bretton Woods institutions. All the more reason for India and China, given their inherent strengths, to cooperate in building the new multipolar economic and security architecture. By Dr. B R Deepak

We have witnessed the world moving away from unipolar to bipolar, and since the end of the Cold War to a multipolar system. The last also gave rise to multilateralism in the age of global interdependence. This posed a challenge to the international governance system dominated by the Westphalian and Bretton Woods institutions in which the developed countries led by the US remained at the centre and developing countries at the periphery.

The international financial crisis perhaps for the first time challenged the existing global governance structure when emerging economies like China and India not only overcame the crisis, but helped other developing countries to tide over it. As rightly remarked by the former US Secretary of state Henry Kissinger, that the ‘world order is at a turning point.’

The shift was confirmed as the economic output proportion of the emerging economies in the global economy rose to 30%, whereas the ratio of the developed G7 economies registered a substantial decline touching 47%. This shift in economic power led to the crisis surrounding the legitimacy and effectiveness of current global governance institutions with the emerging economies asking for more representation and voice in these institutions.

There followed a structural adjustment in the global governance mechanism, the G20 demonstrated that the developed and developing countries could sit together at the high table, while the birth of various new mechanisms such as BRICS, SCO, BRICS New Development Bank (NDB), Asia Infrastructure Investment Bank (AIIB), Silk Road Fund etc. indicated that the emerging economies were capable of reshaping or willing to supplement the existing governance mechanisms with new ones.

Being the founder members of many of these mechanisms, both India and China, are playing a leading role and building bridges between the developed and developing countries and adding wealth to the global economy. China’s role is extremely important since it is contributing over 30% to the G20 overall economic output. It may be remembered that emerging economies are contributing around 50% of the world GDP growth.

Both India and China need to deepen and broaden the scope of the role they are playing in global governance mechanisms. At the outset, the economic and political clout they will exert on these mechanisms hinges upon their domestic drivers. Therefore, the greatest contribution they can make to the G20 or other new mechanisms is by maintaining a robust domestic growth and regional peace and stability. It is for this reason that the emerging economies have been able to inject billions of dollars in the existing institutions of global governance and push for their reform and ask for greater representation.

Secondly, it is owing to these strong domestic drivers that emerging economies will be able to support the ideas such as a global infrastructure hub and global infrastructure fund mooted by the 2014 G20 Brisbane summit and the World Bank. President Xi Jinping has supported such moves through the ‘One Belt One Road (OBOR)’ initiative, the AIIB, the Silk Road Fund and other mechanisms.

Thirdly, domestic growth could be stimulated in various ways as both India and China have unfolded ambitious projects which could be docked together by way of consultation and coordination at provincial as well as national levels. For example, Prime Minister Modi’s pet project, the Sagarmala National Perspective Plan, which aims to modernize India’s ports and integrate them with Special Economic Zones, port-based Smart Cities, Industrial Parks, Warehouses, Logistics Parks and Transport Corridors could be docked to President Xi Jinping’s pet OBOR project on land as well as sea.

Foreign Minister Wang Yi’s India visit in June, Modi’s participation in the G20 in Hangzhou, China in September, and President Xi Jinping’s participation in the 6th BRICS Summit in Goa, India in October this year, sets the stage for a building a greater partnership between the two

As far as the regional connectivity goes, India’s ‘Bharatmala’ project which seeks to connect the entire Himalayan belt of Indian states through a rail and road network, could be docked to China’s northwest and southwest regional plans. In eastern India, the BCIM economic corridor could revolutionize overland connectivity and facilitate not only domestic but also the regional growth with ASEAN. Similarly, India and China could negotiate a larger economic corridor running through northwest China and northern India, which could easily be connected through a network of roads, railways and oil and gas pipelines.

Fourthly, in order to push the transformation of the global governance structure, both India and China need to become partners in each other’s development. There have been positive changes in the bilateral security and business environment; however, in order to tap this huge potential, both need to innovative developmental plans, policies, and initiate structural reforms in areas such as taxation, investment, finance, labor, etc. Besides, macroeconomic policies should be in sync with social policies, which will ensure stability in society and acceptance of government planning.

Finally, there are arguments that the emerging economies, among whom China is playing a leading role, are challenging the post-World War II order by establishing their own institutions (such as NDB and AIIB). The fact remains that the establishment of these institutions is the outcome of the Bretton Woods System that has been on shaky grounds since the 2008-09 financial crises as well as the Euro crises. It is a reminder that if institutions like the IMF, World Bank and Asian Development Bank continue to attach strings to developmental aids and loans, there is going to be a serious demand for alternative institutions. Especially when the global economic recovery is weak, the establishment of such institutions will promote infrastructural as well as social and economic development in the regions. Even if AIIB does not challenge the existing financial institutions, it would be seen as complementing the existing order.

In conclusion, even though the paradigm shift in global governance has given India and China a bigger say as well as responsibility in the evolving global eco system, there remains huge asymmetries in their power and economic structures vis-à-vis the developed economies. Rather than challenging the existing system, they need to bide their time, innovate, and become partners in each other development by docking their developmental strategies. It is natural for two big neighbours to have differences, nevertheless, these could be mitigated if a holistic view of the relationship is taken.

Therefore, the momentum of high level visits and people to people exchanges need to be stepped up. I believe, Foreign Minister Wang Yi’s India visit in June, Modi’s participation in the G20 in Hangzhou, China in September, and President Xi Jinping’s participation in the 6th BRICS Summit in Goa, India in October this year, sets the stage for a building a greater partnership between the two.

  • The developed world is in economic crisis, underlining the weaknesses of the Bretton Woods institutions
  • India and China have key roles to play here given the inherent strengths of their respective economies
  • The two countries need to resolve differences and focus on building a new security and economic architecture
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