How Global Should India Be?
India has grown rapidly by engaging with the global economy, but policymakers must manage that engagement carefully to preserve the country’s stability and internal priorities. Arvind Subramanian, chief economic adviser to the Indian government, talked with Yale Insights about finding the right balance.
By Conrad de Aenlle
India is growing, and changing, rapidly; it is expected to become the world’s most populous nation in 2022, and its GDP, adjusted for purchasing power, is the third-largest in the world. Increasing connections to the global economy have been key to its rapid development since the turn of the 21st century, but its leaders are mindful that such connections come with tradeoffs.
“On one hand, being engaged internationally has a lot of benefits,”Arvind Subramanian, chief economic adviser to the Indian government, explained in an interview with Yale Insights. “On the other hand, it also exposes you to the vagaries of what happens outside your country. That’s something that all policymakers have to balance.”
In particular, careful handling is required for large flows of inward investment. Subramanian noted that India does not want to follow the path that led to the East Asian financial crisis in the 1990s, attracting investment from portfolio managers who seek short-term profits and therefore may be prone to yank their money out quickly, causing economic or financial dislocation.
For the time being, India has successfully navigated these issues, experiencing stronger economic growth than almost any other country. The International Monetary Fund estimates that inflation-adjusted economic output rose by 7.5% in India in 2015, more than for any other large economy. The organization foresees growth continuing between 7% and 8% annually through 2020.
Ramped-up industrialization is contributing to another problem with ramifications beyond India’s borders: India ranks third, behind China and the United States, in emissions of carbon dioxide, the most prevalent greenhouse gas, according to Statista, an online portal that compiles various sorts of data from numerous sources.
Subramanian pushed back against foreign critics who are putting pressure on India to rein in its use of fossil fuels, especially coal. “For some time, I believe, our development priorities are going to have to be paramount,” he said, expressing disdain for what he sees as “carbon imperialism” by the West.
“The notion that we can decrease our carbon footprint anytime soon is both unfair and, I would say, unconscionable,” Subramanian added. With up to 40% of the population not yet connected to an electricity grid, India must rely on coal for much of its expanding energy needs.
“We are going to use more and more coal” because it’s the cheapest power source, Subramanian said. “We want to have clean growth going forward, but within limits and constraints set by the fact that hundreds of millions don’t have access to any energy. [That is] something that we cannot compromise on.”
Keeping pollution low and economic growth high in India depends on implementing several measures inside the country and out, Subramanian said. He recommended domestic carbon taxes to encourage more efficient consumption of coal and oil. And, he said, “We need an international kind of Manhattan Project to try to make coal more clean.”
The Indian delegation forcefully articulated similar views at the global climate change talks that recently concluded with an agreement, yet to be ratified, to reduce greenhouse gas emissions over several decades. According to an Associated Press report, the Indian negotiators suggested that it was unfair to call time on the use of fossil fuels after they helped the West to become rich but before emerging economies like India’s have been able to use them to reach similar levels of development.
In its approach to both foreign investment and climate change, India must strike a balance between integration into the world and preservation of its internal priorities. More broadly, as the country continues to transform itself, the most formidable challenge to those who are managing the change could be to safeguard what Indians see as fundamental aspects of the national character, such as democracy, diversity of opinion, and freedom of expression.
As economic progress continues to be made, it’s essential for it to be accomplished “in a context where we’ve preserved, cherished, and nurtured this basic idea of India as an inclusive place,” Subramanian said, “where people with different conceptions of India can live, flourish and express themselves.”