India – Eyeing the Great Power Status

Cover Story By Mahmood Abdulla

On trade, India has recognized that maximizing the size of trade is important but negotiating favourable trade deals and agreements is equally important. The past few years witnessed India understanding the power it holds as a large economy. Therefore, it is negotiating aggressively in order to choose better deals and not accepting agreements that could have adverse effects on Indian businesses and the Indian economy.

Steps taken by India in the past few decades have shown the ambition India has to achieve the status of global power. Regionally, India has proven itself as a key economic and strategic player, yet a global status is the goal Indian leaders have been eyeing for recent years.

On the economic front, India is consolidating its ties with major economies and key trading blocs such as the Gulf Cooperation Countries (GCC States) of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. On the military side, India is tackling this front with a two-fold solution. First, it is increasing its defense related spending at a significant rate, surpassing France in 2015 to have the sixth largest defense budget, according to the International Institute for Strategic Studies (IISS).

Moreover, India is aiming to create local capabilities for the defence manufacturing and maintenances industry. The next step that India could take to be considered a truly global power is to have a more proactive involvement in international issues, especially ones that are not geographically adjacent to India.

On the economic front, India has achieved the status of an economic power by completing several milestones. First, India maintained significant gross domestic product (GDP) growth and increased trade relations with other countries. Second, India focused on foreign direct investment (FDI) by solidifying its role in the global economy by encouraging foreign investment inflows into India and pushing more Indian corporations to spread their presence outside the country’s borders.

India has achieved firm economic growth at significantly high levels in the past years, surpassing regional and global growth rates. According to the International Monetary Fund’s (IMF) data, India’s real GDP, which accounts for inflation, recorded an average annual growth rate of 7.6 percent in the past decade, significantly higher than world annual average of 3.7 percent and the emerging markets’ rate of 5.6 percent.

Moreover, the Indian economy has not had a year with growth below 6 percent since 2013, when the growth rate was 6.6 percent. These figures show that the Indian economy has been resilient and able to keep production at high levels, even during times of uncertainty and volatility such as the global financial crises of 2008.

Looking forward, the IMF expects the Indian economy to grow at an annual average rate of 7.8 percent in the next five years, to reach an expansion rate of 8.1 percent in 2021. Again, this rate of growth is above the global yearly average of 3.6 percent during the next five years and the emerging markets’ 4.9 percent in the same period.

While these figures are undoubtedly impressive and exemplify the capabilities of the Indian economy in creating rapid growth, the ultimate test for India in becoming a world power is how it can use this economic growth to create for itself significant global presence. For instance, the US, an example of what is considered a global power, recorded average annual growth of 1.5 percent in the past decade and is expected to achieve 1.9 percent growth per year in the next five years. Nonetheless, its economic influence relies much more on its trade ties and investment flows with other economies.

On trade, India has recognized that maximizing the size of trade is important but negotiating favourable trade deals and agreements is equally important. The past few years witnessed India understanding the power it holds as a large economy. Therefore, it is negotiating aggressively in order to choose better deals and not accepting agreements that could have adverse effects on Indian businesses and the Indian economy. This was evident in the hard line stance India took in November last year when discussing the renewing of an investment treaty with the Netherlands. Despite constant lobbying by the European Commission, the Indian side did not budge and the treaty ended up expiring on November 30.

This practice has been evident on other deals as well as India hopes to let current trade deals lapse and then negotiate new ones with terms that are more favourable for India. This strategy shows other countries that India has gained more confidence about its competitive. However, it could also have an adverse effect on India’s initiative to encourage investments flowing into the country and facilitate the ease of doing business.

Despite the negative effects of this, positive outcomes include the decision to demand foreign companies doing business in India to purse cases in India’s courts before going to international arbitration when disputes arise. This means that international companies must understand Indian commercial laws and regulations in order to abide by them.

Data shows that instead of investors shying away from India as it negotiated firmer deals, the opposite took place. Inward investment increased as companies realized the importance of India as a market and that its competitive advantages allow it to impose new regulations and restrictions. Figures from the United Nations Conference on Trade and Development (UNCTAD) show that the value of investments coming into India increased from $27 billion in 2010 to $44 billion 2015. This shows an increase of 63 percent during that period, despite the introduction of stricter investment guidelines.

This substantial increase came at a time when the total value of inward investment coming into developing economies saw a comparatively modest growth rate of 22 percent, from $625 billion in 2010 to $765 billion in 2015. These trends show the importance that India has created for itself in the global investment arena. However, to solidify this stance and to become a truly influential player on the global level, India must have as strong a presence in its investments abroad the same way it does in attracting investments. India’s outward FDI has averaged $8.4 billion each year for the past five years. However, it has been volatile; growing from $1.7 billion in 2013 to $11.8 billion in 2014 and then dipping to $7.5 in 2015. More consistency can exemplify India’s constant commitment to being involved in other economies, and playing the role of a global economic power.

After demonstrating its economic resilience and strength through strong GDP growth and investment trends, India must couple that with a greater role in world affairs if it hopes to eye that status of a great global power. There is no doubt about the level of commitment and involvement India has shown in regional affairs. Even on the international level, official visits and involvement in international affairs do take place.

Yet more can be done, especially at the current time which some are referring to as a new global order. With the United Kingdom’s vote to leave the European Union in June 2016 and Donald Trump’s election as president of the United States in November that same year, a completely new and different global structure is taking place.

This new structure is one where new opportunities are arising, new partnerships can be created and new leaders can arise. Looking at the situation in the United Kingdom following the country’s Brexit vote, it becomes clear that the greatest opportunity here is two-fold. The first opportunity revolves around creating new trade deals with the country as it currently looks to draft new deals. Second, India can revisit its relationship with the rest of the European Union and discuss with the EU as a block or with individual economies how India can be more involved in Europe. In both cases of the UK and the EU, the greatest opportunity lies in the limitless nature of these talks.

The current era of post-Brexit is completely new and India can use this to its advantage to shape up the boundaries of its discussion as it likes. On the topic of the United States under the new administration of President Trump, India can take this opportunity to create a strong tie with a country that is geographically separated from India. This would help India respond to critics that claim India’s role is limited to its regional periphery.

In addition, an important element of becoming a global power is the military side. In that aspect, India has taken a large step forward in the past years by increasing its spending on defence and military related budgets. In the national budget for the upcoming fiscal year 2017-2018, India increased its defence budget to $41 billion, up from $37 billion in the previous budget cycle of 2016-2017, making it 12.8 percent of total government expenditure. This follows a trend for past years of increasing spending on defence in order to solidify the country’s position as a power that supports its allies when needed.

Together, all these elements help make India a significant player that is undeniably on the radar of major global powers. However, achieving the status or a great power requires utilizing the economic, strategic, and defence advantages that India has in order to be more involved in global issues, especially those that are geographically away from India to avoid being labelled as only a regional power.

Moreover, decision makers in the country acknowledge that while India moves towards achieving that status, so are other countries. Even more, countries that have already established themselves as global powers continue to solidify that position.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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