India’s lost economic opportunity and its implications

America’s Response

Washington’s influence over Delhi’s economic policies is minimal. A thriving India would benefit America economically. But as that possibility starts to slip away, the U.S. must also prepare for a global economy without it.

In this light, other economic relationships become more important. Indonesia in particular has a large labour force and is growing strongly at present. Jakarta will not be easy to deal with in light of protectionist tendencies. However, Indonesia’s young labour force, combined with others such as Vietnam, could be a reasonable substitute for India’s contribution. Finally, the current situation in India as a whole obscures large pockets of strength. If national policy remains harmful, individual states have some leeway to deviate and are large enough to be valuable partners.

The U.S. should:

1. Increase engagement with Indonesia and others with similar demographics. Bilateral investment treaties are one means and the Trans-Pacific Partnership or some of its provisions could form the basis of enhanced ties.
2. Reorient its economic approach to India from the national level to the state level. This process has begun but should be intensified, as the situation is genuinely unprecedented.

Conclusion: Ticking Clock

Put simply, New Delhi is blowing it. The Indian government right to point to marvellous potential but the flip side is that potential is not forever: irreplaceable years are being lost to bad policy. While hoping for India as a whole to again choose reform, the U.S. should engage labour-rich economies which are willing to liberalize, both other countries and Indian states.