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Where does India stand?

By IMD Professor Jean-Pierre Lehmann - November 2013

At the moment in lieu of a global order, we have a global disorder. The consequences to date have not been too dire, but with weak foundations it is clear the global economic edifice could collapse, especially as prospects for economic growth diminish. The disorder is visible everywhere and on every front – finance, trade, climate change, environment, immigration, disease and inequality – but is perhaps especially noticeable in Geneva, home of the World Trade Organisation (WTO).

After the 1999 Seattle WTO ministerial meeting debacle, then Director General Mike Moore expressed the fear that the WTO might become the “League of Nations” of the 21st century world economy, i.e. irrelevant and impotent. Whether it has already reached this stage or not is a matter of debate, but that is the trend. As things stand in November 2013, the prospects of even a minimally constructive and substantive WTO ministerial meeting in Bali next month look daily more remote. There is alarm at the rising threat of protectionism, at its most acute since the 2008 financial crisis.

This institutional fragility occurs at a time of profound global transformations: a seismic shift bringing about the end of five centuries of Western dominance. Europe’s global rise began with the emergence of the Portuguese seaborne empire in the 15th century, with the landings of Vasco da Gama in Calicut (Kozhikode) on 20 May 1498, and fifteen years later, in 1513, of Jorge Álvares in Canton (Guangdong). As succeeding European empires rose, Asia declined. In 1800 Asia accounted for 64% of the world’s population and over 60% of global GDP; a century-and-a-half later, in 1950, Asia’s share of population had slightly declined to 56%, while its share of global GDP plummeted to less than 20%. In the 21st century a clear reversal of trends is taking place with a “re-risen” Asia and a declining Europe.

The term “Asia” encompasses a great deal of territory and tremendous diversity in virtually everything – religion, culture, politics and economic development. But there is no doubt that the Asian continent generally and certain of its regions more specifically (notably, India and China) are having and will have an increasingly big impact and hence major roles to play. That transition, however, has not taken place.

In the second half of the 20th century, the international economic order functioned reasonably because of the shared vision of its major actors. They were all from the first world, while the second and third worlds were excluded or excluded themselves from the global economic policy scene. As the current resurgent economic powers – India, China, Indonesia, Brazil, Mexico, and Turkey – all had inward-looking economic policies, what happened in Geneva was of only remote interest. There was an attempt in the 1970s by some Third World countries to articulate an alternative vision of the international economic system, known as the New International Economic Order (NIEO). An essential tenet was that developing countries did not benefit from trade, hence the need for protectionism. NIEO was in essence a rejection of globalisation.

NIEO concepts were swept away with the tsunami of globalisation that occurred from the early/mid 1990s and the establishment of the WTO in 1995. As the shifts in the balance of economic power intensified, it was gradually even if grudgingly recognised in the West that the global trade agenda could no longer be dominated by a trio – EU, Japan, US – but should be extended to a sextet with the addition of Brazil, China and India, just as the G7 was extended to G20.

To paraphrase the title of a famous play by the Italian author Luigi Pirandello, we have now six actors in search of a script. The actors appear on stage – for example on the occasion of a WTO ministerial meeting – they speak some words, but there is no connection let alone communication between the actors; there is no coherence, there is no script, there is no play, there is disorder! So what is happening is that the original trio are writing their own separate scripts. The EU and US are working on a bilateral script known as the Trans-Atlantic Trade and Investment Partnership (TTIP): the EU and Japan are aiming to forge a bilateral FTA; and the US is engaging Japan (and other Asian and Pacific nations) in the Trans Pacific Partnership (TPP).

So where does India stand? What is the Indian vision of the 21st century global order (as opposed to disorder)? To date Indian global trade policy has been mainly reactive. India has a lot at stake. With a huge demographic dividend, growth and especially the creation of jobs are absolute imperatives for development and social stability. India will require an international order conducive to its needs and aspirations. For that there is a need for Indian global leadership. The articulation of India’s global role and vision must be a priority for India, for Asia and for the world.

Jean-Pierre Lehmann is Emeritus Professor at IMD and Founder of The Evian Group.

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