- 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
INSIGHTS ON THE ISSUE
- 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;
- 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”.
- 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.
- 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.
QUESTION FOR PRACTICE
How will I2U2 (India, Israel, UAE and USA) grouping transform India’s Position in global politics? (200 WORDS, 10 MARKS)