India in the geopolitics of Asia: Four scenarios and policy options

Here the group considers a scenario where the Taiwan strait Conflict has escalated to a full-scale clash. India feels the heat as the conflict happens close to home. The Indian Ocean becomes more militarized with frequent military exercises. Trade with East Asia is completely blockaded. This leads to changes in global supply chains towards diversification, near-shoring, friend-shoring and re-shoring. Domestically, India will suffer a huge drop in GDP, high inflation, and consumer price increase due to said supply chain disruptions. On another hand, India can become the “third pole” in geopolitics as conflicts between the US and China continue. It can bid for a bigger role within the so-called BRICS alliance (Brazil, Russia, India, China, and South Africa), the Shanghai Cooperation Organisation, and other regional and trading blocs. This might help prevent China from using them to its advantage, and provide an opportunity for India to integrate itself faster into supply chains.

For this scenario, participants identified three strategic policy options to achieve positive outcomes and avoid undesirable features of the scenario:

• Increase military capability to counter negative impacts from this scenario. This can be done by forming strategic partnerships with other countries or by building up India’s own military-industrial complex.
• Shore up diplomatic influence in non-western multilateral organizations. Open dialogues and engage with partners to pre-emptively devise sanctions in response to a potential conflict.
• Build up economic resilience by building infrastructure capabilities, strengthening and securing supply chains, together with upskilling and reskilling the labour force. At the same time, reduce the trade deficit with China and try to maintain economic relations with Russia.

In this scenario the group envisages a situation where the current economic slowdown in China and the reorientation of the United States towards prioritizing its domestic economy push both sides to reach some kind of agreement regarding the trade and technology war, to reduce damage to their local economies. US and China also reach a new agreement on Taiwan where there will be no unilateral change to the current status quo for the near future. The world order undergoes a gradual repair, with international institutions and global norms strengthened. With the geoeconomic trends also improving, supply chains have fewer disruptions as the trends of friend-shoring and de-risking slow down. This also provides an opportunity for India to focus on domestic reforms including economic or labour laws to prepare for future threats. However, the easing of US-China relations might prompt Beijing to look into the Line of Actual Control that demarcates the territories controlled by China and India, respectively, which could lead to tensions between the two.

Based on the above scenario, participants came up with three policy recommendations that could help boost positive features of the scenario:

• Double down on enacting economic policies and reforms that increase the ease of doing business in India, to increase investor confidence and attract foreign capital. The focus could be towards boosting domestic industrial and manufacturing capabilities.
• Improve relations with China. This could be done through collaboration on climate action and informal dialogues such as India-China dialogue tracks 1.5 and 2. These discussions should include looking at ways to reduce the trade deficit with China.
• Address climate change by creating adaptation and mitigation strategies such as the building of new clean energy systems. This will improve the country’s energy security and address the negative effects of climate change.

In this scenario, the group imagines that geopolitical tensions are managed, but there is fragmentation of trade infrastructure and soaring of energy prices on a global level. India is, however, firewalled from major economic shocks, maintaining macro-economic stability driven by its large consumer domestic market. Tension with China intensifies over rare-earth minerals, leading to high computer-chip prices. This in turn prompts India to sign free-trade agreements with the European Union, the US, and the United Kingdom.  On the military front, India is expected to tilt towards the US as it has become one of the latter’s reliable Indo-Pacific partners. But India continues to largely seek a balance in terms of great power politics as it wants to ensure that geopolitical competition is managed.

Participants identified three strategic options to maximize positive features of the scenario and avoid undesirable outcomes:

• Maintain a distance from multilateral trade blocs and focus more on bilateral free-trade agreements to shield the country from further major geoeconomic shocks. This should be complemented by leveraging the large local market and large population to increase national economic capacity.
• Continue engagement with mini-lateral arrangements and multilateral organizations such as the QUAD (the Quadrilateral Security Dialogue between Australia, India, Japan, and the US) as a way of diversifying responsibility and diffusing power to maintain global security and norms.
• Focus on building partnerships for infrastructure, economic engagement and investments, and critical and emerging technology. This can be done by improving the ease of doing business, and working with partners to build resilient infrastructure.

In this scenario India’s ability to exercise strategic autonomy and manoeuvrability comes under great pressure as all countries look to their own interests and peace disintegrates. The team identified different variables that affect India, such as defence technology, commerce, financial institutions, and foreign policy. In terms of international politics, the multilateral system is dysfunctional, giving way to authoritarianism. In terms of security, vulnerability and energy insecurity lead to large-scale economic deprivations with adverse implications for institutions and social stability. In terms of development and economics, the rupee depreciates, which impacts on the remittances. Divisions and instability in the neighbourhood also have a spill-over effect on the country.

Based on the above scenario, participants came up with three policy recommendations that India could take to avoid undesirable outcomes:

• Increase engagement with middle powers and the Global South through various formats, including those inspired by the non-aligned movement during the Cold War. India should also explore the possibility of rupee trade with friendly countries.
• Strengthen and further the vision of Aatmanirbhar Bharat (“self-reliant India”) for the country to play a greater role in the world economy through efficiency, resilience, and increased competitiveness.
• Advocate for South-South cooperation to diversify broader consensus on global institutions with the aim to enhance the South’s influence on global events. This is where India can emerge as a new convergence point for the world.