India has skin in the global game

The country's foreign policy must rise above free riding on global stability

- AJAY SHAH

After World War II, we went through two phases. First, there was the Cold War with an emphasis on nuclear deterrence coupled with controlled wars. After the collapse of the Union of Soviet Socialist Republics, there were wars in anarchic conditions such as Afghanistan, Iraq, and Syria. Through all these years, the basic machinery of the world economy worked well. Most G20 countries faced a relatively stable environment. The "second globalisation", which began in about 1982, featured a great wave of removal of government restrictions on trade, capital, and labour movements.

The connection between global conditions and Indian economics is often underrated. We tend to tell purely Indian stories about Indian growth episodes such as 1979-1989 and 1991-2011. But the influences of the world, and of global peace, have been strong. India has been a huge beneficiary of globalisation. In 2023-24, India got $441 billion by exporting goods and $341 billion by exporting services. These are vast gains compared with the picayune conditions of 1991. India needs a sensible external environment to continue to obtain the gains from globalisation, as a defensive strategy (to protect the 2023-24 exports) and an offensive strategy (to support the next doubling of exports).

The Indian economy suffered from the oil shock of 1973, which followed the Yom Kippur war. The "great moderation" is the period of 1985-2008, where advanced economies did rather well through the adoption of sound macroeconomic policy (ie floating exchange rates and inflation targeting). This period worked well for India, with the exception of Iraq's invasion of Kuwait, which triggered the Indian balance of payments crisis.