India’s greatest economic and diplomatic challenge in the short and medium term is the change in the global geopolitical system that is under way mow.  It began with the emergence of a government in USA that is transactional, amoral and disdainful about the rule of law and multilateralism in international relations. It continues as an even greater challenge with the invasion of Iran by USA and Israel which has no justification under the rule of law agreed under the UN charter.  This is not the first time USA has done this.  But unlike most of his predecessors President, Trump made no attempt to secure UN approval and ignored altogether any sort of prior discussion even with US allies.  

The principal medium term geopolitics related challenge that India will face is the drift of the USA to becoming an isolated and arrogant global power, or more accurately, a global bully.  This is a sad deterioration from the steady improvement in India-US relations started by President Bush and Prime Minister Manmohan Singh with the nuclear deal in 2008.  India can no longer count on continued strengthening of relations with the USA.  In fact, it must be ready to accept the risks of sudden deterioration by a mercurial Trump constrained a little only by his friendship with PM Modi.

This challenge from the largest economic and military power country in the world reminds me of what happened sometimes in a village in India dominated by one household with vast land ownership.  Whie the accepted Jajmani system generally ensured social stability, an occasional head of the dominating household over-asserted his power. This led to some organised resistance mainly from the middle-level households in the village. That is what we need in the global geopolitical system and that is what India must quietly pursue.

There are some signs of growing connectivity between the middle-power countries.  One sign of this is the recent free trade agreements that India has signed with the European Union, UK, EFTA, Australia and the ongoing dialogue with the Mercosur group in South America.  These agreements reduce India’s dependence on the USA and perhaps even on China. 

One request that is pending is for Inda to join an agreement titled the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. This is between about 12 countries who account for 15 percent of the world economy. It does not include any of the great powers. But it includes middle level powers like United Kingdom, Japan, Mexico Australia, Canada. Some other middle-powers are considering joining. It is under consideration by India though there are some parts of this, particularly on agriculture, that will be a major challenge for India to accept. From the broader perspective of countering the over assertive power of USA and potentially by China, India must accept the compromises of CPTPP. A strengthening of India’s economic relationships with middle-power countries will be a basis for a related strengthening of diplomatic cooperation.

These new trade agreements are important also for what India must aim at to cope with the uncertainty of trade policy fomented by the USA. Post 2000, infotech services were the major driver of export growth, with their share rising to $225 billion at present, and employment of about 8 million white-collar skilled workers.  The slowing down of this export growth and the decline in related employment growth from 8 percent per year in the five years from 2010 to less than half now is not just attributable to the trade policies of Trump but to a change in the nature of the infotech area with the rapid development and expansion of Artificial Intelligence services.

In the long-term India’s strong promotion of AI domestically may correct the current slowdown.  But for the short- and medium-term India must rely more on manufactured product exports for maintaining its export earnings at a reasonable level. The trade agreements that it has signed with the middle-income powers will help in this boost of goods exports.  More than that, it will provide a basis for boosting growth in the States which are below the national average, but which can have the capacity to provide blue-collar workers for manufacturing plants.

A more difficult question is what India can do to cope with the disruption that is arising from the attack on Iran by USA and Israel and the spread of the war to the entire gulf area. The immediate impact of the West Asia war is through the sharp rise in oil and gas prices, constraints in the movement of these through the Gulf, and potential drop in remittances to India from West Asia which amount to about $50 billion. The more serious impact of war will be felt if it continues well beyond the 5-6 weeks that USA says is enough to achieve its goals of destroying Iran’s missile, nuclear and naval capacity.

The most serious impact of this will be on India, China and most other Asian countries because of their heavy dependence on oil and gas supplies from the Gulf area. The impact of such a extension and broadening of the war will reduce drastically India’s prospects of becoming a developed state by 2047. The answers to what India can and should do depends heavily on how long the war will last. If the USA withdraws from the war in a few weeks the economic impact of the war may get diluted, provided Israel also steps down from its goal of breaking the religion based ruling power of Iran.  But at present there is no way of predicting this future of the war. 

The one thing that is essential is to prevent the war from escalating over a long period and beyond the Gulf Area.  This is where a group of middle-power states, whose political and military power cannot be ignored, can play a role in preventing the conflict from escalating. If they can use their significant political power to assert the importance of international rule -of-law with the USA and the other great military powers, they may help in reducing the risks of an extended war.

It will not be easy to persuade all the middle level powers to condemn the illegal attack launched by USA and Israel, though even the European allies of the USA are noticeably discreet in supporting the action. However, it may be possible to persuade them to use their middle-level power to restrict the scale of expansion, to become a neutralizing and war reduction force

This is why the world needs effective action by middle level powers. My hope is that India, which is pushing the agenda for peace, and which is a significant economic and military power in the world, can take a lead in moving beyond the many trade agreements it has negotiated with the middle power countries to promote an informal peace-making coalition and reassertion of the global rule of law among these  influential states.