The economic fallout of Russia’s intervention in Ukraine will last far longer than the war and its strategic consequences. Globalisation of the economy had led to development in many countries and improvement in the quality of life. It allowed nations, particularly small ones, to specialise in particular sectors thereby obtaining cost advantages, while importing other products at low prices. This enhanced efficiencies and also benefited labour surplus nations without facing disruptions like large-scale migration. Lopsided balance of trade was getting evened out and national economies were getting dovetailed into each other’s strengths.
Recent events, however, have reversed this trend. India and China, which had developed considerable economic compatibility, are now suffering the consequences of political adventurism by the latter. Realising the dangers of becoming critically dependent on China, India embarked quite a while ago on a process of critical self-reliance. It also began diversifying defence purchases despite the efforts by vested interests to scuttle the process. Other nations, too, including the developed ones, have responded similarly to this Chinese belligerence. The result has been withdrawal into camps and a nationalistic approach. Former US President Donald Trump’s policy was based almost entirely on the philosophy of ‘America first’ regardless of impact on prices.
Now, the Russian invasion and the consequent sanctions will speed up the process. The immediate result will be rise in prices, job losses and industrial shutdowns. It does not seem that any changes to this trend will take place in the foreseeable future. Apart from strengthening national capabilities, there will be an increased emphasis on developing ‘neighbourhood first’ arrangements around major economic powers.
This is a challenge that has to be met through innovative measures that will encourage entrepreneurship, lead to relaxing of constraints on industry, formulating pragmatic regulations, encouraging competition and strictly curbing cronyism as well as systemic corruption. The present trend among sections of the political spectrum to revive the socialist model needs to be rejected by the people. These global challenges cannot be met through wishful thinking and the ‘freebie’ model of economics and governance. There has to be an across the board political consensus on this. After all, economic liberalisation, however imperfect, was initiated during Congress rule. Now that the Ukraine event has largely demolished the vision of ‘global’ interdependence, the window for corrective action has become even smaller. There is no scope for playing politics on the direction India will take in the coming decade and more.
