Read Online NonAlignment 2.0: A Foreign and Strategic Policy for India in the 21st Century by Sunil Khilnani - Free Book Online Page B
Authors: Sunil Khilnani
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prepared to extend that opennesss to the domestic economy. Here, the challenge in our international negotiations has not often been lack of domestic consensus. It has rather been the inordinate veto power given to small lobbies or special interests. Their legitimate concerns need to be taken into account. But these should not be used as a pretext for stalling internal reforms that are vital.
India needs international investment for its own domestic growth. Indeed, India’s investment needs in vital sectors like infrastructure and defence are vast.Given the instant mobility of global capital, increasingly in search of beneficial investment locations, it is in our strategic interest to attract as much foreign direct investment (FDI) as possible. Such FDI not only serves our domestic needs, but also gives us strategic leverage with other countries.
It is important that India’s FDI policy should be geared to enhancing the domestic knowledge base as well. In areas like defence, leveraging FDI for technology and knowledge access has been tried, but so far with very modest results. Corporate entities (both public and private sector) that enter into large-scale contracts with foreign entities must be able to use the scale of their investments to ensure that India benefits from technology or skills transfer (especially from countries hit by the recent financial crisis). This is particularly true of defence offsets, which have historically focused on low value-added activities. Access to technology and intellectual property issues will also arise in this process.
In the near future, managing India’s current account deficit is going to be a challenge, at two levels. First, no power can grow only by exporting, in the main, services or natural resources. India’s exports need to be more balanced. Second, our own domestic infrastructure requirements are likely to require significant imports.Indeed, in many of the vital areas of manufacturing, from capital equipment to semi-conductors, India does not have adequate manufacturing capacity. The fact that we need to import can be a source of bargaining. But it is also a source of vulnerability and constrains our options.
We need continuous analysis and engagement with the future of the global monetary system. In particular, the possible decline of the US dollar and the somewhat inevitable relative rise of the Chinese yuan have major implications for how India orients its investment and reserve strategies. What should we be doing with our capital controls and limited convertibility in the long run? India is well positioned in this debate, given that the rupee has become a floating exchange rate from early 2009 onward, and that exchange restrictions have been greatly relaxed over the past two decades. This is a contrast to China and shows India as a responsible participant in the global economy. In addition, this has given India an edge in developing institutional capabilities in both monetary policy and finance. These propitious initial conditions imply that India may have an even better starting point (when compared to China) for policies that would be conducive to the emergence of the rupee as an international currency. Should India be ambitious and go down this route? Or should it let the terms of financialengagement be exogenously set? To what extent are certain necessary domestic reforms dependent on taking a strategic view of the global monetary order?
India’s own financial sector is of paramount strategic importance. India has been prudent in charting its own path in this sector. Unlike most countries who are net importers of financial services, India is already a significant exporter of financial services and has a potential international financial centre in Mumbai. But we face a basic question: In view of the likely scenarios in the global financial world, what reforms will best position us to take advantage of emerging opportunities? Globally, the financial sector’s
India needs international investment for its own domestic growth. Indeed, India’s investment needs in vital sectors like infrastructure and defence are vast.Given the instant mobility of global capital, increasingly in search of beneficial investment locations, it is in our strategic interest to attract as much foreign direct investment (FDI) as possible. Such FDI not only serves our domestic needs, but also gives us strategic leverage with other countries.
It is important that India’s FDI policy should be geared to enhancing the domestic knowledge base as well. In areas like defence, leveraging FDI for technology and knowledge access has been tried, but so far with very modest results. Corporate entities (both public and private sector) that enter into large-scale contracts with foreign entities must be able to use the scale of their investments to ensure that India benefits from technology or skills transfer (especially from countries hit by the recent financial crisis). This is particularly true of defence offsets, which have historically focused on low value-added activities. Access to technology and intellectual property issues will also arise in this process.
In the near future, managing India’s current account deficit is going to be a challenge, at two levels. First, no power can grow only by exporting, in the main, services or natural resources. India’s exports need to be more balanced. Second, our own domestic infrastructure requirements are likely to require significant imports.Indeed, in many of the vital areas of manufacturing, from capital equipment to semi-conductors, India does not have adequate manufacturing capacity. The fact that we need to import can be a source of bargaining. But it is also a source of vulnerability and constrains our options.
We need continuous analysis and engagement with the future of the global monetary system. In particular, the possible decline of the US dollar and the somewhat inevitable relative rise of the Chinese yuan have major implications for how India orients its investment and reserve strategies. What should we be doing with our capital controls and limited convertibility in the long run? India is well positioned in this debate, given that the rupee has become a floating exchange rate from early 2009 onward, and that exchange restrictions have been greatly relaxed over the past two decades. This is a contrast to China and shows India as a responsible participant in the global economy. In addition, this has given India an edge in developing institutional capabilities in both monetary policy and finance. These propitious initial conditions imply that India may have an even better starting point (when compared to China) for policies that would be conducive to the emergence of the rupee as an international currency. Should India be ambitious and go down this route? Or should it let the terms of financialengagement be exogenously set? To what extent are certain necessary domestic reforms dependent on taking a strategic view of the global monetary order?
India’s own financial sector is of paramount strategic importance. India has been prudent in charting its own path in this sector. Unlike most countries who are net importers of financial services, India is already a significant exporter of financial services and has a potential international financial centre in Mumbai. But we face a basic question: In view of the likely scenarios in the global financial world, what reforms will best position us to take advantage of emerging opportunities? Globally, the financial sector’s
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