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EDITORIAL ANALYSIS : New Delhi and the New Washington Consensus


Source: Indian Express


  • Prelims: Current events of international importance, Washington Consensus, G7, QUAD, UNSC etc.
  • Mains GS Paper II: Bilateral, regional and global grouping and agreements involving India or affecting India’s interests.



  • The Prime Minister steps up engagement with the US and its allies — at the G7 summit in Hiroshima, the Quad summit in Canberra and bilateral visits to Washington and




Washington Consensus:

  • It refers to a set of broadly free market economic ideas, supported by prominent economists and international organizations, such as the IMF, the World Bank, the EU and the US.
  • It was drawn from the advice of John Williamson.
  • It minimized the state’s role in the economy and pushed an aggressive free-market agenda of deregulation, privatization, and trade liberalization
  • It paved the way for the domination of the Western-style capitalism.
  • It was aggressively promoted by the IMF and the World Bank.
  • Aim: To advocate free trade, floating exchange rates, free markets and macroeconomic stability.
  • Importance: To determine policy towards economic development in Latin America, South East Asia and other countries.


Ten principles of Washington Consensus

  • Low government borrowing
  • Redirection of public spending from subsidies toward broad-based provision of key pro-growth
  • Tax reform
  • Positive Interest rates
  • Competitive exchange rates;
  • Trade liberalization
  • Liberalization of inward foreign direct investment;
  • Privatization of state enterprises;
  • Deregulation
  • Legal security for property rights.


Geopolitical and Geoeconomic developments:

  • There is a growing convergence of interests between Delhi and Washington.
  • The geoeconomic competition between the US and China had begun to develop in the Trump years.
  • US National Security Adviser(Jake Sullivan)outlined a set of policy initiatives to pursue the geoeconomic contestation with China.
  • The US is seeking wider international consensus on the new economic approach from its allies and partners, including India.
  • The US’s initiatives as efforts to build a “New Washington Consensus”.


Challenges that have arisen from the old Washington Consensus(by Sullivan):

  • Markets know best” approach led to the hollowing out of the US industrial base.
    • In the name of oversimplified market efficiency, entire supply chains of strategic goods — along with the industries and jobs that made them — moved overseas.”
  • Deep trade liberalization would help America export goods, not jobs and capacity”.
  • All growth was good growth”: This led to the privileging of some sectors like finance “while other essential sectors, like semiconductors and infrastructure, atrophied”.
    • Under the old Washington Consensus, US industrial capacity took a real hit.
  • Economic integration would make nations more responsible and open, and that the global order would be more peaceful and cooperative”.
    • The premise underlying China’s admission into the WTO in 2001 — “bringing countries into the rules-based order would incentivise them to adhere to its rules”.
    • Problems triggered by the integration of a “large non-market economy” like China into the WTO.
    • Economic integration didn’t stop China from expanding its military ambitions in the region”.


Sullivan Solutions:

  • America’s economic policy must confront – the urgent need for a “just and efficient transition” to green economic growth
  • Political imperative of reducing economic inequality at home that has undermined American democracy.
  • Return to industrial policy that was the hallmark of US economic development historically, but dismissed by economic neoliberalism in the last few decades.
    • The US has been pumping investments into semiconductor production and promoting the development and deployment of green technologies.
  • Develop a joint effort with US allies and partners, including India: Pursue industrial strategy at home and not leave  friends behind.”
  • Friends and partners to look beyond traditional trade policies: The US-proposed Indo-Pacific Economic Framework is not a free trade agreement.
    • Trade policy needs to be about more than tariff reduction”.
  • The focus should be on:
    • developing diversified and resilient supply chains
    • Promoting clean energy transition
    • Ensuring trust in the massive infrastructure that supports the rapidly expanding global digital economy.
  • The US should mobilize “trillions in investment into emerging economies — with solutions that those countries are fashioning on their own, but with capital enabled by a different brand” of US economic diplomacy.
    • Offering an alternative to China’s Belt and Road Initiative
    • Addressing the global debt crisis
    • Reforming multilateral development banks.
  • Develop a new set of export controls on sensitive technology that will limit national security threats from China and other rivals.


The common themes in the economic strategies:

  • China’s geoeconomic challenge
  • Dangers of dogmatic commitment to globalization
  • Need for industrial policy to develop national manufacturing
  • Technological cooperation among like-minded partners
  • Building resilient supply chains
  • Addressing the economic concerns of the Global South
  • Reforming the global financial institutions.


Way Forward

  • The ultimate goal of the US is a “strong, resilient, and leading-edge techno-industrial base that the United States and its like-minded partners, established and emerging economies alike, can invest in and rely upon together.”
  • The obstacles that need to be overcome at home and in the world to devise a global economic order that works for both the US and its partners.
    • The US must be ready for substantive engagement with its partners and India must be ready to respond.
  • There will also be many disagreements on the identification of priorities as well as on the details of the specific outcomes in rearranging the global economic order.
    • Building on new opportunities and resolving new problems must be viewed as a historic opportunity for India’s economic statecraft.
  • At the dawn of the reform era in the early 1990s, India struggled to cope with the old Washington Consensus.
    • Today as one of the world’s leading economies, it can and should actively reshape the global economic order.



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