The Economics of National Security - 2023

Sanjaya Baru - Political Commentator and Policy Analyst

A quarter century ago, in December 1998, Prime Minister Atal Bihari Vajpayee authorised the constitution of the first National Security Advisory Board. The then National Security Advisor, Brajesh Mishra, and the first convenor of NSAB, K Subrahmanyam, inducted a group of retired diplomats and officials, who had experience in national security management, retired service chiefs, and nuclear scientists and strategists as members of the NSAB. Two economists, Rakesh Mohan, (later to become deputy governor, Reserve Bank of India) and myself, (at the time professor, Indian Council for Research in International Economic Relations) were also invited to join NSAB. This was perhaps the first time that such an interdisciplinary advisory body was constituted to reflect on the national security challenges facing the country.

"In 2023, restoring the growth momentum remains a national security priority precisely in order for the country and the government to generate the required revenues for investment in development and national security."

In writing the economic policy section of the Strategic Defence Review (SDR), that was presented to the government by the NSAB, we made four key points:

1. First, that the Indian economy, which was on a rising growth trajectory, recording a growth rate of over 5.5% per annum at the time, compared to the long-term growth rate of 3.5% in 1950-80, should continue to grow at an annual average rate of growth of 7.0% to 8.0% over the next quarter century for India to eliminate the scourge of poverty, generate employment and provide gainful employment for all.

2. At such a pace of growth the government would be able to generate adequate revenues to provide education and health for all, improving India's unsatisfactory human development record. Such a rate of growth of national income would also generate the revenues required to meet defence expenditure, fund a credible nuclear deterrent and make India self-reliant in defence manufacturing capability.

3. A growing economy, we suggested, would also enable India to be more open to global trade and investment flows, restoring historic and traditional international trade linkages with the wider Asian, Eurasian and Indian Ocean economies.

4. Finally, we pointed to the Chinese example of keeping the focus on 'comprehensive national power' (CNP) and suggested that India too should develop its CNP, investing in education and science and technology, to build a knowledge-based economy.

These four points of policy remain relevant even today. The economy did grow at an average annual rate of over 8.0% during 2003-2012 and did generate the revenues required for India to invest in human development and national security. The results are on record - a reduction in poverty, rise in employment, increase in India's share of world trade and so on during the period 2000-2015. However, over the past few years this momentum has been lost.

In 2023, restoring the growth momentum remains a national security priority precisely in order for the country and the government to generate the required revenues for investment in development and national security, generate adequate employment and eliminate poverty. Restoring the growth momentum will also enable India to increase its share of world trade and deal with external challenges to economic development in the light of Covid-19 pandemic and the Russia-Ukraine war.

The emphasis we placed in 1999-2000 on developing the country's CNP remains as important even today. Unless public investment is enhanced in education and health, promoting human development, India would not be able to address the opportunities that await it in a rapidly changing world, increasingly knowledge-based world economy.

What would be the most important challenges today in the global strategic environment that necessitate greater attention being paid to the four objectives outlined by the first NSAB? First, the widening of the CNP gap between India and China over the past two decades; Second, the retreat of developed economies from globalisation, the shrinking of trade preferences and of development aid for developing economies.

As the world's second biggest economy and biggest trading nation China is both an opportunity and a challenge for India. There is recognition of the fact that China is both a military and an economic challenge for India. In dealing with this challenge, priority has to be given to economic and technological modernisation. While there is considerable public and political focus on China as a military challenge, given recent clashes along the Line of Actual Control (LoAC), there is inadequate policy attention given to the challenge China's rise as an economic and technology power poses.

The gap between the two in the fields of education, labour skills, science and technology has continued to widen. Unless India catches up in these fields, it will not be able to construct a globally competitive and a knowledge-based economy. Moreover, unlike in the case of the former Soviet Union, China is today far more integrated into the world economy and most developed economies that politically differ with China remain economically integrated.

The Union government's recent focus on public investment in infrastructure, as put forward in the 2022 Union budget speech, is to be welcomed. However, this has to be accompanied by a revival of private corporate and household investment and savings. Policy stability and transparency, along with creating a more predictable policy environment, remain a priority. Both the 'Make in India' programme and the 'production-linked incentives' scheme are useful policy interventions but they are yet to bear any fruit. These initiatives will have to be pursued devoid of cronyism. The share of manufacturing in national income remains at around 16-17 per cent, where it has remained over the past quarter century. Indicators of labour and land productivity show little improvement over this period. It cannot be over-emphasised that these constitute the foundation of comprehensive national power.

"There is still little appreciation within major political parties of the strategic importance of building India's CNP as the foundation of national security."

Successive Prime Ministers have often said that 'creating a global environment conducive to India's economic development' is a primary objective of Indian foreign and national security policy. The fact is that in recent years, with the emergence of anti-globalisation sentiment in developed industrial economies and the growing geopolitical and geo-economic conflict between the East (China and Russia) and the West (the Group of 7 economies), the global environment has become less conducive to India's economic development.

It is, therefore, not surprising that India has decided to utilise the opportunity provided by its assumption of Group of Twenty (G-20) chairmanship to focus on matters of concern to the Global South, including climate finance, debt restructuring, trade policy and trade-related intellectual property rights. Given rising East-West tensions, a concerted effort by successive G-20 chairs - India, Brazil and South Africa - can help create a global environment more conducive to the development of developing economies.

Even as India seeks to make use of this external opportunity, much of the work required to bolster India's CNP lies at home. A domestic political consensus around key elements of fiscal, industrial and trade policy are required along with a concerted effort by the Union and State governments to improve health and educational outcomes. Despite the concept of CNP being more than a quarter century old and despite the economic policy priorities for national security being outlined by the NSAB in 2000, there is still little appreciation within major political parties of the strategic importance of building India's CNP as the foundation of national security.

(Exclusive to NatStrat)