India’s quest for an inclusive international order

“It is only through leveraging strengths that an equitable economic system can be brought into effect”. Over two centuries ago, economist David Ricardo came up with an intervention—comparative advantage in international trade—an economic thinking to foster inclusion and fair trade among nations. Ricardo observed that trade was driven by ‘comparative’ rather than ‘absolute’ costs in making goods. He argued that countries can benefit from each other by focusing on goods they are best at making—a comparative advantage—while buying goods from other countries they are not best at. But what Ricardo perhaps didn’t imagine was a world where subsidised manufacturing by bigger and larger economies would leave smaller countries unable to absorb domestic production. For Ricardo, comparative advantage meant trading jute for electrical supplies—not overlooking industrial commons.
The rules-based international order (RBO), formed in the aftermath of the World Wars and anti-colonial movements in Asia and Africa, is a belief that self-determined States respect each other and work towards common goals of peace and equitable growth. Some have argued that it predates 1945 and the great order-building efforts after World War II. The Bretton Woods system predicates growth and development to positively affect billions—indeed, the first principle of global governance. A set of environmental conditions—contracts and multilateral institutions—are necessary. And at its deepest level, a system of sovereignty. But despite its origins, the international order over the last two decades has been under pressure. Several challenges from unhappy electorates around the world; rapid technological change and need for regulatory controls; emerging economies and demands for better representation at high tables; and indeed, from the economic and fiscal turmoil generated by liberal internationalism itself.
A clear example is seen with the case of cocoa production in West Africa. Even as JP Morgan predicts that cocoa prices will remain elevated in 2024 (expected to come down over the medium term), it is important to note that chocolate remained, for a good part of the 20th century, a commodity consumed and manufactured by developed nations. Only importing the raw ingredient, cocoa, from Africa, often at low costs, implied low wages for cocoa farmers. Per reports, low prices in the cocoa industry leave small farmers with poor incomes and with no choice but to pull their children from school and have them help on the plantation. While the problem, and its solution, is multifaceted, yet one strong causal link of the low-income levels of the cocoa farmers is the tariff escalation imposed by countries in Europe. These countries levy practically zero duty on the imports of raw cocoa, with the duty increasing with every level of processing that the cocoa farmer may attempt: thereby blocking his endeavour to export a semi-value-added product, rather than only raw cocoa.
The World Bank, in 2007, stated inclusive and sustainable globalisation. It said that in an era of greater interconnectivity, people want to build better lives for themselves and their future generations. And “that impulse, if given a chance, contributes to a healthy and prosperous global society.” While globalisation necessitates shared frameworks in economic dimensions and institutional processes, there is an increasing view that the pre-existing frameworks lack sufficient action and control. In fact, several countries in the global south don’t have the economic, technological, and institutional capacities required to reap the benefits of globalisation and, therefore, a bargaining power in international decision-making. The World Trade Organization (WTO) is a classic example of this. A very large number of developing countries took on the obligations of the Uruguay Round in 1995, without realising the implications of what they were signing onto. They were dangled the carrot of the so-called benefits of globalisation (largely through the opening of their markets), little realising that without adequate supply side capacity, ability to adhere to western standards, and without adequate trade related infrastructure, there was very little to gain from this new era of multilaterism.
A McKinsey report, in the aftermath of Covid-19, focused on three elements: Growth, sustainability, and inclusion. It added that for G7 economies, Gross Domestic Product (GDP) growth halved to 1% per year on average since the 2008 global financial crisis. And for emerging economies (excluding India and China), growth overall was lower than in the early 2000s. The report further highlighted that while ‘material footprint’—raw materials used for manufacturing—rises with GDP, increase in demand from the globally expanding consuming class must be accompanied by resource efficiency; otherwise, there will be a heavier burden on global systems, governance, and indeed, the planet. There is an urgent need to give social concerns and policies equal weight with economic factors. Trade liberalisation requires proper institutions for adjustment and social security, and a need for a better-integrated multilateral system.
India is crucial to reforming the global financial architecture—moving the needle on financial safety nets and vulnerabilities in low- and middle-income economies. The country has used its G20 presidency to actively engage with nations outside the grouping. It has pushed for the African Union to have a permanent seat at the G20 and hosted the Voice of the Global South summit, a dialogue with 125 countries to understand their respective developmental concerns. As the world’s fastest-growing major economy—poised to be the third largest by 2028—India’s push for renewed multilateralism is welcomed by the international community. India is estimated to have the largest share of the global population at 17.8%, equivalent to more than one-sixth of humanity. And while most advanced economies face slowdown, India pushes for equitable size and scale: development of critical infrastructure, energy supplies, productive employment, and skilling for its large working-age population, as well as advanced technologies.
India’s embrace to lead the RBO was, in fact, signalled as early as January 2015, when President Barack Obama became the first US President to be guest of honour at India’s annual Republic Day parade. Thereafter, Prime Minister (PM) Modi made a series of pledges through joint statements issued by India and several other partners. For instance, in Vision 2025, a document published after the late Japanese PM Shinzo Abe met PM Modi, the two leaders declared their “unwavering commitment to realise a peaceful, open, equitable, stable, and rule-based order in the Indo-Pacific region and beyond”. India’s vision of the RBO is distinct, in the sense that it insists on not only being ‘free and open’ but also being ‘equitable and inclusive’. But its economic landscape itself has several lessons, both for advanced economies and the global south. From cost-effective solutions to broad-based economic development, including efforts to improve rural infrastructure and financial inclusion, resilience and adaptability, and regulatory reforms—ease of doing business—India offers tremendous strategies and success stories. It is in leveraging these strengths and addressing the disparities—through meaningful collaboration—that the world can move to a better, more inclusive economic system.
This article is authored by Shishir Priyadarshi, president, Chintan Research Foundation, New Delhi.