STRATEGIC ECONOMIC READJUSTMENTS CHALLENGES FOR INDIA IN AN ERA OF GLOBAL CONFLICT : By M.R.Sivaraman IAS (Retd)

The following is an address by Shri. MR Sivaraman, IAS (Retd.) delivered at the Stella Maris College, Chennai dated September 9, 2025, on the topic "Strategic Economic  Readjustments: Challenges for India in an Era of Global Conflict”. 

 The world of today presents a picture of an emerging neo colonialism of the west.  On the one hand they are making strenuous attempts to bring   India the world' s most populous democracy rising economically and militarily and China the world' s most autocratic militarised and economically powerful country to their knees  and on the other they cannot ignore them as they provide  an expanding market for their goods and services  and also a source of essential supplies to them. Nevertheless they consider them as posing a grave threat to their dominance of the  world. 

              For them the two wars raging since the last 3 years has given a golden opportunity to use different instruments to attempt to retain dominance over India and China. They did not care about any humanitarian values when they went to war with Iraq on false information and caused half a million deaths or when they jointly attacked Afghanistan only to be defeated. They invaded Iraq and Libya destabilising those countries. 

              When Russia, their congenital enemy although white by all standards attacked Ukraine, they expected the  whole world to join them irrespective of cost. The USA and the West can buy anything from Russia as it suits their interest but not India . This is hegemonism of the worst kind. There is hardly any  difference between terrorism and hegemonism, when some states want to destroy the economic stability and growth of other countries that do not fall in line with their orders . If this kind of economic terrorism by the use of instruments such as Tariff and non – tariff barriers  of the west do not stop, in my view, we are moving toward a civilisational conflict of the whites against the non- whites.

              Hugo Grotius the father of modern International Law   emphasised that nations should show a commitment to the rule of law and the fulfilment of international obligations. He said that despite differences, states can and should engage in trade and other forms of mutually beneficial exchange. Uninterrupted trade amongst nations is the only direct path to shared prosperity amongst the countries of the world. When resource endowments of countries are different what else can lead to growth other than trade. Every country is dependent on another for something or the other. 

            Atma nirbhar Bharat is fine in production of many goods and services but can we    close the country to all external trade and prosper. Absolutely not. We were closed till 1991 and what was our state of affairs. Any book on the Indian economy would tell you about it.  Our policy of indiscriminate Atma nirbhar being emphasized over and over again is also a provocation to adopt Atma nirbhar policy against us. Please think over it dispassionately.

             The first signature of the UN Charter was that of the Republic of China followed by France, the then USSR, the United Kingdom and the United State of America. All of them got involved in brutal wars immediately after they affixed their signature to this sacred resolve to have a world free of conflicts. The world has not seen a conflict  free day since the beginning of the Christian era.

             The world of today presents a fascinating at the same time a bewildering picture completely contrary to the above noble ideas of peaceful coexistence amongst nations for prosperity .Large countries are forcing others on threat of creating economic instability, to fall in its line of thinking on economic and political issues. The world went into hubris with globalisation as information technology reduced distances amongst countries to the length of radio waves and created new models of economic organisation like supply chains for a product spanning across nations. This benefitted a large number of countries. The west lost its manufacturing centres while the developing economies got them and the former became strong in technology, financial and information services. Some of those affected slowed  the pace of  globalisation but did not hinder it aggressively.

              The US in spite of being the largest and richest country in the world is forcing others through  unheard of trade barriers to access the US markets unless they reciprocate by having low or nil tariffs for US goods. Theoretically I cannot object to this approach. Why should Indian cars be allowed to sell in the USA with  low tariffs while there is 125% duty on American and other cars entering the Indian market. Such high rates are justifiable for a few years not for decades. To that extent there is justification for a trade negotiation. But increasing tariffs on political or personal grounds against a country is almost declaring a trade war. Many countries have negotiated and settled with the USA. A global trade based on high tariff rates would ultimately reduce purchasing power, raise production costs of business. Investment will slow down and so will aggregate demand. Ultimately growth will slow down across the globe and human welfare will get a setback. Tariffs may bring in more revenue to the state governments but the question would be where it would be spent. There is uncertainty here.

               In 2024 the US had a GDP of 29.18 trn $, the EU and the UK together had 32.78 trillion dollars. India and China together had 22.8 trillion dollars. In PPP dollars India and China together had a total GDP of 47 trn $. Militarily both China and India have highly trained armed forces well equipped with all weapons both  conventional and nuclear. The  BRICS group is expanding with Saudi Arabia, Indonesia, Ethiopia, Iran and the UAE .This has undoubtedly created a fear in the minds of the west that their days of domination are nearing its end.

           The west  did not care when they went to war with Iraq on false information and caused half a million deaths or hundreds of thousands killed when they jointly attacked Afghanistan only to be defeated. While one is seeing a realignment of countries there is also an attempt by the EU countries to forge new alliances. They are negotiating an FTA with India , Mexico and Mercosur countries besides Indonesia and Philippines. EU at the same time is threatening hard sanctions against countries that buy Russian oil. The US is exhorting the EU to punish India with high tariffs. 

           Is the US lining up all countries of the west against India designed to stymie its economic and military growth? 

           This brings out their crude brutal colonial mindset. They have been buying oil and gas from Russia while they were developing alternate energy sources and did not say anything about the other Russian clients. When they see that in a year or two, they could avoid Russian oil while they are forcing others too.

              The two recent conflicts, the one between Pakistan and India and the one between Thailand and Cambodia were short lived without loss of many human lives or wealth. They did not affect the rest of the world economy either. The Ukraine and Gaza conflicts initially created disturbances in global trade but surprisingly according to the IMF model of July 25 the world economy is still projected to grow at 3% this year and at 3.1% next year. This is attributed to  huge purchases upfront to avoid trump tariffs, improved financial conditions  and falling inflation rates. 

              The Euro area and the USA would grow at 1.9% if the Tariffs are not pushed any higher. West Asia at 3.4% India at 6.4% (may be higher) and China at 4% overall. Surprise of all surprises is, the World Bank Open Data shows that Ukraine in the grip of war grew at 2.9% and Israel at 0.9%.But these figures may undergo sharp revisions when the wars end and post war stock taking is done. I wonder whether the IMF and the World Bank have counted the huge human losses particularly of children and others in Gaza. A whole country so to say has been wiped out.  The world bank estimates that the Gaza economy contracted by 83% and the rest of Palestine by 16% in 2024. The post war reconstruction will be in trillions of dollars in the four countries .When that happens would the rest of the countries be allowed to participate in the reconstruction even by providing credit.

             After the wars are over, there will be an upsurge of economic growth in this region. The present- day Europe and the UK were built on the ruins of WW2 with economic growth rates of above 8 % per annum. Hopefully these countries will regain their strength and move toward health and prosperity sooner than later.

              India is  facing challenging times stimulating our entire thinking process on diplomatic and economic strategies. We are doing one leg ballet dancing on ice. Except for Pakistan we have not declared any country as an enemy. I always stated  that in this world India stands alone as we are mostly Hindus with no affinity to Abrahamic religions which are inter connected. We worship the cow and the other religious practitioners eat them. We are a civilisation continuing without break for 10000 years. Despite every invader from Alexander to the British conquered some parts of us for some time and left defeated or got absorbed. Trump for whatever personal reason is trying to test India or rather break it as it showed no subservience. Our trade with the USA was 131.84 billion dollars in 24/25. India’s exports were 86.51 billion and imports from the us 45.33 billion with the USA having a deficit of 41 billion dollars. In FY 24 the US had a total trade deficit of 1.205 trillion dollars. As a percentage India contributed only 0.344 percent. The US trade deficit with China was 295.5 billion dollars nearly 20% of the total US trade deficit.  So it is undoubtedly a case of bullying India while Trump relents before China that crippled the US  by stopping exports of rare earths. 

                In spite of all this angst against India we must  continue to engage with the USA and all other western countries. The term of the current President of the USA expires in the next three years and 3 months, a very short period in history and for his personal tantrums against India we cannot ignore the longstanding relationship. With the USA and Europe. We have to continue maintaining our excellent relations with Russia, the Middle East, Latin America and Africa. Encourage our IT companies, if necessary, even by giving subsidies  to spread out in Africa not only for providing their services but training them and using them for software development. India should directly foster development in the  39 independent Small Island Developing States in addition to the Forum for India Pacific Islands Cooperation  and through the UN.

            It is time to put an end to skilled and educated Indians falling over one another migrating to  the US and other countries looking for jobs. This may require a change even in the reservation policy for appointments in regard to posts that are vacant for want of candidates.40% of the reserved faculty positions numbering 1557 are vacant in the IITs. It is reported that in early 2025 there were 11000 vacant positions in central institutions. Over 5000 positions are vacant in medical colleges alone. Would it not be Atma -nirbhar Bharat to provide opportunities to the non -reserved categories against at least the posts that have been vacant for more than 2 years. Are we not causing cumulative damage by keeping these vital teaching posts vacant  for such a long- time causing loss of opportunities to qualified candidates who are then forced to go out of India. The institutions also suffer. When converted on a PPP basis the starting emoluments for these posts would not be less than what anybody would get outside India. 

            So what other lessons we have learnt from this crisis.

1.We have to put all the efforts we can, in developing a technology or software or material that we can monopolise  and use it as a bargaining point if need be .We have Lithium deposits but no technology to process the ore and extract the lithium.

e.g. I am informed, that one Indian Pharma company has made a completely new anti- biotic that replaces every known anti biotic in the world with minimum adverse effects. One more is on the way. We should not beg the FDA for its approval as it will not give or try to copy it. The WHO and FDA are yet to approve our anti Covid vaccines  even though the adverse effects reported are minimal as compared to the American vaccines.  We should market all our new molecule discoveries after certification by Indian authorities in India and in all the countries which accept Indian certification of medicines. Indian certification should be better than the FDA.( many FDA certified drugs caused deaths in hundreds  and the manufacturers paid billions of dollars as fines)

2. Make an alternate EV motor that does not require rare earth magnets. One firm Conifer has made a breakthrough and patented its innovative EV motor design. Finance such innovative companies  and encourage them.

3. Develop a technology to separate rare earths from our thorium deposits and other mines as we have the 6^th largest reserves of rare earths.

4. Expedite oil exploration and development of the Andaman seas including by funding through a cess if needed.

To achieve a breakthrough in all these areas old rules have to be thrown out and accommodative rules to promote innovation made.

           India should diversify exports and not be dependent on a few countries. Exporters must improve quality  by having R&D for every item of export so that the buyer sees visible improvements. WTO is almost dead and India should not hesitate to capture newer markets through bilateral and multi- lateral agreements. 

            Govt. should increase the corporation tax to 30 % restoring status co ante position and give a rebate on income tax on amounts spent on specific measurable research and development efforts of the companies. Ask all major  companies to start some units of their choice in every district of India. They should train agricultural labour in that district and use them in  the industrial units, reducing the proportion of agricultural workers to 30% in a 5 years -time frame. The agricultural labourers could be replaced by machines. Both the companies that make  farm equipment  that would replace and  farm labour getting skilled and moving out of agriculture and the labourers  with skills  getting much higher wages than in agriculture. This is an important area of reform that has not even started.

The restructuring of the GST is a bold attempt to stimulate domestic demand and partially compensate for the loss of the export market in the USA. In the interdependent world of today foreign trade has become a necessity as no one country can depend entirely on its domestic economy for economic growth. While increasing domestic demand for lost foreign markets may be a palliative to tie over immediate loss of jobs, India has to go in for manufacture of high value goods for exports apart from relying solely on low value exports of handicrafts textile and leather goods. With billions of dollars investment in the semi -conductor industry India will become a recognisable global supplier of chips. Value addition in the cell phone industry of India is growing and has reached 23%. India has commissioned 34 API projects to reduce dependence on Chinese imports. Indian pharma companies are also expanding their manufacturing activities in the US.

         We have to become more open. It is absurd to close doors for automobile imports and levy high tariffs on technology sector outputs which are improving by the day into India .This was the policy of the 1970s and 1980s that kept India in the bullock cart age. We should open up these sectors for imports with competitive rates of import duty as that would stimulate innovation in our old generation technology sectors. Similarly we should reduce duty on electronic goods to improve the quality of Indian manufactured electronic goods. Not a single family run mega company of India has produced an innovative product that sells the world over as an Indian discovery made in India product.

e.g. I am informed that one Indian Pharma company has made a completely new anti- biotic that replaces every known antibiotic in the world with minimum adverse effects. One more is on the way. We should not beg the FDA for its approval as it will not give or try to copy it. The WHO and FDA are yet to approve our anti Covid vaccines  even though the adverse effects reported are minimal as compared to the American vaccines.  We should market all our new molecule discoveries after certification by Indian authorities in India and in all the countries which accept Indian certification of medicines. Indian certification should be better than the FDA

      This is also a time to take a hard look at our agriculture . We started growing wheat and rice 9000 years ago before everyone else yet our productivity is below the global average. Probably the government is taking some steps on this. We are compelled to protect our agriculture as 42% of the working population is dependent on it contributing barely 14/15 % of the GDP.Take this challenge as an opportunity and increase  productivity of all major crops, divert agriculture labour to other high wage -earning occupations and free agriculture from all controls. If we do not get high quality agricultural products from outside there will be no incentive to produce anything here of world class quality.

India is facing a challenge on all fronts and to face it we have to mobilise all our skills in every sector and not be dependent only on the government.