Date: 18/02/2023

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Macroeconomy, Geopolitical Conditions, Unpredictability, World Bank, GDP, Climate Change, Global Value Chains, Digitization.

Context:

• In the globalized world, where success and failure are not always limited by national borders, global events can act as either headwinds that make things harder or tailwinds that open up new opportunities.
• India will soon confront many of the same choppy economic and geopolitical conditions that are affecting the rest of the world. These things must be taken into account for policies to lead the country to higher levels of growth.

The Human Urge:

• The human urge to be able to predict everything is probably one of the most intriguing qualities of our species.
  • However, this inclination is challenged by the inherent certainty of change, which has the potential to modify our plans and the outcomes we anticipate.
• The recent covid pandemic exemplified this phenomenon. As the world came to a halt, we witnessed the unpredictability of some events and the magnitude of their impact, which could never be predicted.
• However the pandemic also taught us the importance of being vigilant and aware of underlying currents that shape the world we live in.
  • As a nation, it is crucial for Indian citizens to grasp the significant trends that are driving the modern world, even though change and unpredictability remain inevitable.

What Has Changed?

• According to World Bank projections, the share of trade as a percentage of global GDP climbed from roughly 25% in 1970 to 52% in 2020.
  • The development of Asia and developing economies is a prominent trend, in addition to the growing interdependence and interlinkages among regions.
• Global value chains (GVCs) have grown and spread across the globe, and Asia is expected to generate $22 trillion in new wealth between 2020 and 2025.
  • Supply chains have seen a significant transformation since the opening of the Suez Canal, invention of the shipping container and the rise of Asia as an industrial hub. Approximately 50% of current global trade involves GVCs.
• Climate change is yet another phenomenon that has had an impact on not just the world economy, but also our entire society, and will do so in the future.
  • 2011–2020 was the warmest decade. As the world faces potential catastrophic weather events, food scarcity, and poverty and displacement.
• The impact of digitalization has been felt across all facets of society, in addition to the changing dynamics of the global macro economy and the effects of climate change.
  • This picked up steam after the pandemic struck.

How Should India Proceed?

• Given the circumstances, it is imperative for India to identify its most promising opportunities.
  1. A strategic alignment with Global Value Chains (GVCs) presents itself as one such avenue. By enabling local businesses to participate in GVCs in a profitable manner,
     • India can enhance production by sharing information, investing in them, and leveraging international best practices and increase its exports by tapping into underutilized resources at the subnational level.
  2. India stands to gain from investing in sustainable and climate-resilient infrastructure. According to a World Bank study, investing in more resilient infrastructure in low- and middle-income nations could produce an average net benefit of $4.2 trillion, or $4 for every $1 invested.
     • By embracing renewable energy sources and incorporating climate change considerations into building design, India has an opportunity to reduce our carbon footprint, achieve net-zero objectives, and decouple emissions from economic growth.
  3. Although there is still much to be done to improve the quality of our technical infrastructure, the country has rapidly advanced to extraordinary levels of digitalization.
     • The country has an opportunity to continuously expand its digital endeavours and act as a model for emerging countries wishing to advance their own digital infrastructure.

Conclusion:

• In a world characterized by erratic trends, planning for growth is a challenging task for any nation. The covid pandemic has taught us the value of resilience, which has become a popular buzzword.
• India will face several challenges similar to those affecting other countries, including rising debt levels, inflation, food and energy crises, and geopolitical conflicts.
• To overcome these challenges, deliberate action across all socioeconomic domains is necessary. Most importantly, a mindset shift is needed that acknowledges the inevitability of change.

Source: Live-Mint

Mains Question:

Q. India is poised to encounter economic and geopolitical challenges that are similar to those being faced by other nations. To transform these challenges into opportunities, what steps can India take? Discuss (250 words).