Differences of opinion within the government on policy matters are commonplace within democracies. Yet, for a variety of reasons, such internal differences within the Narendra Modi government have not always become public. New Delhi’s cocktail circuit has often gossiped about such internal differences but a tame media has rarely explored and exposed them to public view. Hence, it is interesting to see that the question of permitting Chinese investment into India has brought some of the differences within government into public view.
The pot was stirred by what has long been considered a dull and verbose document, the Government of India’s annual Economic Survey. While the Union finance ministry produces and publishes the Eco Survey, the document belongs to the government as a whole. For decades, the Survey has been read only by economists and economic journalists as a source of data and sometimes as an early indicator of policy. Over the past decade, the Survey took a turn towards academic exploration with three successive chief economic advisers (principal author of the document) showing off their academic prowess.
The current CEA, Dr V. Ananta-Nageswaran, a highly qualified and talented economist with long years of international experience, has mixed academic analysis with policy suggestions and stirred a hornet’s nest. One policy issue that the Survey sought to address is how can India take steps to reduce the huge and rising trade deficit it faces with China. The question the CEA asked was simple. Given the current international trend of countries adopting a “China-plus-one” trade and investment strategy, rebalancing supply chain links, is it possible to plug India into the global supply chain without plugging itself into the China supply chain?
The Survey offered a suggestion: “Choosing foreign direct investment as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade. This is because China is India’s top import partner, and the trade deficit with China has been growing. As the United States and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them.”
The CEA has set the cat among the pigeons, complained a former Indian ambassador to China, in a newspaper column, questioning the wisdom of exposing to public view the differences within government. The ministry of finance should have checked with national security experts in the government whether it was advisable to have this thought stated so explicitly in an official document, he argued. Subsequent comments in the media have further clarified that on the issue of amending what is called Press Note 3, relating to foreign investment emanating from neighbouring countries, the approach of the keepers of national security seem to differ from that of the minders of economic policy. It appears that the CEA has set a pigeon among the cats.
First of all, no harm is done if the world and China find out that this issue is being seriously debated within the government. In all democracies such internal policy differences, even those pertaining to national security, are quite openly discussed. The ministry of external affairs and the office of the national security adviser have no monopoly over national security. The Prime Minister is entitled to balance their views against those of the finance ministry and the ministry of industry and commerce.
Economic policy has always been a subject of public debate and discussion in India. Successive governments have engaged experts from outside the government on such wide-ranging issues as tax, trade and investment policy. A wide-ranging debate on what ought to be India’s trade and investment policy with respect to China should be a subject for discussion both within government and outside.
More importantly, this issue raises the question as to what really constitutes national security. Is securing territory along the border the sum and substance of national security? Should one not regard as equally important the pursuit of policies that sustain economic growth, enhance investment and exports, generate employment and promote development. Should the settlement of the border issue alone override all economic considerations that aim to strengthen the foundations of economic growth?
To quote the great Telugu writer Gurajada Appa Rao, “desam antey matti kadoi, desam antey manushuloi” (A nation is not its territory but its people). The foundation of national security is laid in the economic realm. As Kautilya famously observed in the Artha Shastra, “from the strength of the treasury, the army is born”. I would interpret the word “treasury” to mean the “economy”, since the health of a government’s treasury depends on the health of its economy. China herself proved the validity of this Kautilyan proposition by focusing on its economic strength between 1980 and 2010, and only then building up its military muscle.
Even today China is more of an economic power than a military power. The United States, on the other hand, remains a dominant military power but with a weakening economy. The implosion of the Soviet Union showed that it is economic capability and competitiveness that ensure national security rather than the number of nuclear missiles and warheads.
China learnt many lessons from the Soviet experience and the most important one was, as Deng Xiaoping put it, “hide your strength, bide your time”. Prime Minister Narendra Modi has, on the other hand, exaggerated India’s strength and has been in a hurry to declare “Amrit Kaal” and “Viksit Bharat”. Sure, India can defend its borders and match China man to man. The real contest, however, is on the economic front and there we need to “build our strength, and bide our time”.
China used its economic links with the West to strengthen its own economic power. India too must think out of the box and seek strength from whatever relationships it can establish. The old frameworks for economic policy are breaking down with developed economies becoming protectionist and using every tool in their arsenal to secure their global dominance. We need fresh thinking on economic policy and, to quote an old Chinese saying, there is no harm in letting “a hundred flowers bloom, and a hundred schools of thought contend”.
