Digitisation, Geopolitics, Climate Change — How Global Trends Can Impact India's Prosperity

India@100 report notes that India’s prosperity will be affected by direct impact of global trends on its competitiveness fundamentals but there is a lot of opportunities in the changing world order.

India has emerged as the fifth largest economy in the world, surpassing the UK.

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India is aiming to become a high-income economy by the year 2047, when it will be celebrating 100 years of its independence from Britain. To realise this ambition, however, the current growth rate may not be adequate. While the Government of India has chalked out plans and strategies to reach its goals, there are multiple challenges ahead. And there will be external factors too, something that India’s Competitiveness Roadmap For India@100, prepared by the Economic Advisory Council to the Prime Minister (EAC-PM), acknowledges.   

There are at least three big local challenges standing in the way, according to what the competitiveness diagnostics found. 

The first is the “shared prosperity challenge”. The roadmap notes that India’s accelerating GDP growth has failed to translate into better quality of life for many in the country, which is still classified as a lower middle-income economy, due to “weak social progress, rising inequality, and a lack of convergence across regions”. 

Unemployment is the second big challenge. India has struggled to create job opportunities for its young and growing working-age population, which includes a large number of women and those with less skills. 

Policy implementation is the third challenge, according to the competitiveness diagnostics. While the government’s ambitious economic reforms agenda, based on conceptual principles, focuses on relevant issues, the actual amount of job creation and growth of companies fall short of the expectations. 

In addition to this, “India is facing a shifting external environment with rising geopolitical tensions and changing patterns of globalization, climate change and policies to achieve the transition to net zero, digital transformation and other technological changes all embedded in a complex macroeconomic context”, the roadmap document reads.

The financial health of countries across the globe, even the first world economies, has taken a beating in the last few years. The US is fearing a recession this year, while the British Chamber of Commerce has said the United Kingdom is already in the middle of a recession. 

The global financial crisis between mid 2007 and early 2009, which saw extreme stress in the markets and banking systems, and its repercussions in the next decade during the “taper tantrum” were deep shocks. As the world recovered and started to see prosperity came the big healthcare crisis in the form of the Covid-19 pandemic that wrecked the global economy. The Russian invasion of Ukraine and the political response to it only made things worse as far as the global economy is concerned.   

While India has managed to stay afloat, even emerging as the fifth largest economy toppling the UK, these global factors will have a direct impact on India’s prosperity, the India@100 report notes. Listing the focus areas, which range from “macroeconomic circumstances to technology, geopolitics, and climate change”, the report however says there is a lot of opportunities for India in the changing world order.   

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Global Macroeconomics And The Opportunities For India 

This is a period of change in the global economy. Asia is leading the market growth chart with China playing a central role. The India@100 report says the trends can drive a restructuring of global markets, trade, and global economic geography in a big way.

Also changing is the macroeconomic environment of balancing demand and supply, with concerns that consumption is falling short of the production capacity, the report adds, noting that the investment in real interest has been dropping at the same time. 

According to the roadmap, these changes provide a range of opportunities for India as the rise of Asia puts it “at the centre of the global economy’s key growth story”. The report lists the following possibilities:

• There is scope for further policy reforms on the back of a global post-pandemic growth bump.
• India’s labour force is rising rapidly, and this will prove to be a key asset when global labour markets will be tightening. 
• China’s changing growth model, which is shifting from “resource-, investment-, and export-intensity to a stronger focus on efficiency, domestic consumption and services”, could reduce pressure on global resource and energy markets, and that should make India a major importer of both. 
• Also, India is emerging as a “clear option” for the huge capital on global markets looking for investment opportunities.

Digitisation And The Rising Demand For Skills   

Data is the new oil and digitisation is the new buzzword. Digital technologies, including artificial intelligence, together with new production technologies are reshaping many industries and markets. The India@100 report notes that while digitisation brings “significant advantages” for India, it also needs to take into account the country’s specific circumstances. 

“India already has deep digital capabilities and a strong position on the global market for IT services. Simply growing with the global demand offers high returns. But domestically, the rising demand for skills in the wake of digitalization is a challenge for India.” 

The roadmap cautions that a growing IT services export sector would deepen the already wide gap existing between the skilled Indians, who are less in numbers, and the many unskilled. As a market, it advises, India needs digital solutions that can provide capital and skills, and not labour. “And as a source of data, it needs to balance its interests in retaining control of a key asset with the needs of companies that are operating globally integrated systems.”

Geopolitics And Global Value Chains

A new world order started to emerge from 1989 after the end of the cold war. Globalisation, deregulation and liberalisation become dominant themes, with the World Trade Organization coming up in 1994 and subsequent treaties being signed on trade liberalisation, markets became more accessible and entirely new markets opened up to international competition. There was less policy intervention, and that allowed global value chains to emerge.

Things are, however, changing now. The political consensus around market liberalisation is eroding, and many countries are doubting the benefits of the model. 

The India@100 report says China is playing a central role here too as the Asian giant is seen to have leveraged the opportunities to its own advantage at the cost of others. Policy interventions are now back and influencing trade and investment relations that have become more complex. 

For India, the report notes, there lies a range of opportunities in the new context as many countries find the traditionally non-aligned country, and a democracy, an attractive trading partner. 

The report lists the points that go in favour of India in the current situation:

• India’s location in South Asia puts the country in an advantageous position to serve growing markets. 
• India is set to have the “best opportunities” in areas where international companies are looking for alternatives as China dominates the global export markets. India has, due to its recent growth, shown competitive advantages amid a growing global demand that necessitates new capacity.
• The sectors to tap include telecommunication, pharmaceuticals, semiconductors and renewable energy generation equipment. 

Climate Change And Impact Of Global Policies 

Climate change is real, and driven by greenhouse gas (GHG) emissions from human activity it has already led to a temperature increase by around 1 degree since the pre-industrial age, according to the latest report of the UN’s Intergovernmental Panel on Climate Change. A computer simulation has suggested that global temperatures could rise by up to 3 degrees Celsius and above levels by 2050 if the GHG emissions plateau at current levels.

Climate change leads to changed weather patterns and extreme weather conditions, and has adverse effects on the natural environment, including biodiversity.

India is particularly vulnerable to the impacts of rising temperatures. 

Due to its high population density, large temporal variability in rainfall, and high poverty rates, India’s prosperity losses due to climate change are among the highest globally.

For India, however, not only climate change, but also the global policies decided in response to it pose a significant challenge, the roadmap report says. 

On one hand, India ranks high on its ‘climate change performance’ as its current per capita emissions are low while renewables show strong growth, but on the other hand the “low climate efficiency of current energy production and rising energy needs make India one of the largest contributors to future carbon emissions”. 

According to the report, a global CO2 tax of USD 50 has been estimated to reduce Indian CO2 emissions by 830mio tons, which is the third largest globally and a sign of the changes required by the companies and consumers in India.

The report lists specific challenges in three key areas: 

Agriculture: The roadmap notes that the sector will suffer from changing environmental conditions, and the government will need to adjust market regulation to stop “wasteful use of natural resources, especially water, and over-use of fertilizers”. 

Energy: India’s energy needs are growing, but while making strategies to meet them it needs to be ensured that there is minimal impact on climate. Focus should be on solar energy, and a lesser degree wind energy, the report says. 

Trade and investment relations: Climate change will impact India’s international trade and investment relations, the India@100 report cautions. “Where India fails to build carbon-neutral energy and production systems, it will in the industrial sectors it aspires to develop face rising trade barriers, especially in advanced markets.” However, the report adds, India should be able to garner economic and environmental benefits if it “aggressively pursues the opportunities to leverage international investment and technology collaboration for efforts that reduce CO2 emissions”.