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Growth is the biggest national security issue

Trade is at the core of creating diverse, interlocking sets of vested interests.

Aug 22, 2019, 09.32 AM IST
Security Forces
The causal relationship between economic performance and national security not only has intuitive appeal but also conceptual and empirical basis.
By Somnath Mukherjee

2019 has been a year of major policy shifts for India’s national security paradigms. The air strikes at Balakot, abrogation of Article 370, announcement of Chief of Defence Staff by the Prime Minister, the defence minister’s comments on India’s nuclear no first use posture – a lot is changing (and has changed) in the management of national security this year. While changes in security policy are afoot, economic growth, the single biggest determinant of national security, has flagged. And that constitutes the biggest threat today.

The causal relationship between economic performance and national security not only has intuitive appeal (stronger the economy, stronger the military, and vice versa), but also conceptual and empirical basis. World War II presents the biggest validation of the hypothesis – entry of the United States, the largest economy in the world even then, tilted the outcome decisively in favour of the Allied Forces (even though Germany’s war economy chief, Hermann Goering, described the US economy as one capable to producing nothing more than razors and refrigerators). Traces of the same derision expressed by Napoleon about England (“a nation of shopkeepers”), with funnily similar outcomes.

At a conceptual level, the necessity of strong economic growth as a determinant of strong national security has been well recognised — the US National Security Strategy papers have been highlighting the salience of a strong economy for a long time, with the latest version (released in 2017) making economic competition a prime pillar of national security.

India is no exception, if anything, as a (relatively) low-income country, economic performance largely defines its strategic profile. To start with, national income and efficiency of tax collections define the fiscal resources available to spend on national security. The biggest complaint amongst the strategic affairs commentariat in India is around a “low defence/GDP ratio”. While the widely-held opinion isn’t entirely based on facts (India’s defence/GDP, at 2 per cent, is around the same level as China), the uncertain security environment and China’s spectacular military expansion do present a case for greater resources.

However, the answer is based on trivial arithmetic—– the only way India can allocate more towards defence (and other elements on national security) is by taking the base GDP up. While improvements in tax/GDP ratio is also a theoretical option, the key-word is theoretical — it is fairly on par-levels for a country of India’s per-capita income, and in any case, drastic improvements there take decades to fructify. In a democracy with competing demands on fiscal resources, allocation to defence therefore can be a linear function of essentially one variable – aggregate economic performance. A 2 per cent allocation to defence for China (GDP of $11 trillion) is simply at a different level to India (GDP of $2.8 trillion).

For a country of India’s size and aspirations, national security isn’t merely about homeland security. It is also about influencing events in the immediate and extended neighbourhood, and with major powers, to our advantage. Various official and semi-official commentaries define India’s strategic playground as the area between the Straits of Malacca to the Straits of Hormuz — a vast expanse along the Indian Ocean. Besides naval strength, engagement across such a wide swathe also demands the ability to use levers of aid, trade and investments.

China’s Belt and Road Initiative (BRI) is symptomatic of the same. On one hand, it puts demands on aggregate fiscal resources — to be able to write out significant aid cheques to countries in lieu of strategic influence. On the other, it also demands a highly competitive industrial structure, one that is not wary of entering Free Trade Agreements (like RCEP, something that India has been shy of signing up to, because of fears of/from an uncompetitive domestic economy.

Trade is at the core of creating diverse, interlocking sets of vested interests in other countries, thereby increasing leverage for national security. Additionally, it also demands an ability to create institutional structures and industrial capacities to finance and implement large projects in the relevant playgrounds (think in the lines of China-run AIIB).

Both quality and quantity of economic aggregates depend heavily on the state of public finances. A country that is financially indebted to the external world has far lesser flexibility in shaping national security outcomes than one that is not. Given the large share of imports in India’s military inventory (unlikely to reduce in a hurry), a comfortable balance of payments (BoP) position too is a sine qua non for ensuring military preparedness at optimum levels. India generally has a good track record of prudent fiscal (no sovereign borrowings offshore) and external account (BoP mostly at net surplus levels) management. Economic decisionmaking that deteriorates the quality of economic management has a direct bearing on national security, something that isn’t always realised in a silo-driven decision-making process of the government.

James Harrington, a 17th century English philosopher, was perhaps the first to expound on the causal link between economics and security – he said that the source of state power as balance of economic forces, and not divine right or military force. While India takes bolder, more imaginative steps to reform its national security architecture, it would be criminal to neglect the most important lever of all — our economic performance, one that underpins our success in the endeavour.

(The author is managing partner, ASK Wealth Advisors. The views and opinions expressed are personal)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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