the new world we are in

The world is undergoing a dramatic transformation at this point. The Chinese Wuhan Virus has given the impetus and increased the velocity of change globally.

I had written earlier about the changes underway that have the potential to change the extant power equations and even bring about a new changed world order that has multipolar characteristics. This is going to take place over time as different events, actions and journeys of countries & regions shape the new power structures.

In the previous pieces ( see Part1 & Part 2 ), we have seen some of the forces at play. I had just covered two important countries – USA & China. This time, I will cover Europe, Middle east & India.

Europe –  Europe has been a close ally of USA, which has served its interests well for long, to a large extent. Hegemony of the US has been largely helpful and has been positive for Europe. NATO grouping ensured security for Europe, which allowed them to pursue their economic interests.  But, that is changing.

There are some tensions apparent now with the US, which is now in descent. US is having some friction with Europe in trade and also wants them to contribute more to defence. What US did to France in the submarine deal with Australia sent shockwaves among the close US allies.

Europe itself is going through a demographic problem and is dependent on immigrants for keeping the factories humming and for service staffing. Unlike US, bulk of the immigrants (and refugees) that Europe has been accepting ( like from Syria, Afghanistan, Iraq, Pakistan, Turkey etc. ) are mostly not educated and lack skills. Such immigrants are difficult to deploy productively. Such immigration sows the seeds for potential future problems. To top it all, these immigrants have also been intransigent.

There is a huge cultural assimilation problem which Europe has come to realise. Many immigrants are not willing to assimilate in the country of asylum, want to impose their will & ideologies and do not even want to learn the language of the country, much less the ethos…

Also immigrants from Syria and other such countries are having very large families and are proving to be a huge burden on the welfare systems of European countries.

This has brought with it a lot of crime & other problems as well on the continent ( Read 1, 2, 3 ), which was a peaceful haven for decades. If immigration into Europe is not handled well, the countries concerned will go into a tailspin, a danger which Europe has started to recognize.

But, there is the other side too… one where those immigrants who have come in, are contributing but are still feel alienated. Many of these are hard-working, law abiding people who are just looking to rebuild their lives and are looking for security & respect. Such immigrants are Europe’s only hope. Europe will need to see how best they can integrate such immigrants, without them feeling alienated. See this…

European Union is a monetary union and to a lesser extent a political union of 27 countries. Different countries have differing needs and being in such a union does pose a problem for many countries. For instance, when inflation problem rises in a country, they may want to taper the money supply; to stimulate exports, a country may want to devalue its currency. All these are not possible if it is centrally controlled.

Britain has already exited the EU. There may be others who may exit due to immigration inflexibility, monetary inflexibility, policy divergences etc.

Euro zone may continue to do well overall, assuming it is able to streamline the immigration of people and make them responsible & productive members of their countries.

With a rising Asia, a splintering Euro zone, slow growing economies, the prestige and influence of the Euro zone countries in the world will reduce. It is however expected that many, if not all countries, may continue to do reasonably well as long as they handle the immigrant population integration into their economies and societies.

Middle East  – Middle East region is a restive region with many religious, sectarian and historic rivalries. Big powers are also involved here – offering security cover, facilitating trade as well as fomenting trouble. There are many players in the region like Saudi, Iran, Iraq, UAE and even those at the edges of the Gulf region like Turkey, Egypt, Libya etc. who all have their agenda & alliances.

US particularly is a major player in the region with Saudi Arabia as a major partner, to whom they offer protection & sell military hardware. US has a particularly difficult relationship with Iran/ Iraq. There are many non-state actors like Houthi rebels, Hamas, Hezbollah etc. who all operate in that region, supported by one country or the other to wage war. The region hence has been a simmering pot.

There are tensions between Saudi and USA and Saudi is trying to move away from being a US protectorate to chart its own course with other powers like China, Russia etc. To that end, it wants to join BRICS grouping. It is also contemplating moving away from petro dollars to doing oil trading in other currencies. This is a huge destabilizing move for the USD and US is bound feel the heat and retaliate.

There is a major move worldwide away from Crude oil to green energy, which is a live and present danger for this region as they earn most of the revenues from oil & other petro products. Already, the power generation rates from non-conventional sources have fallen below the rates for conventional sources like coal/ gas which is a huge blow for these countries.

Also, many countries in the world are committing to Net Zero Green House Gas (GHG) emissions by 2050, which means the usage of coal, oil and natural gas will keep going down over time. This will have a major impact on most countries in this region.

These countries need to pivot to some other drivers for their economies to replace oil & gas. There are efforts underway to stimulate economic activity in other areas like real estate, logistics, trading, tourism, manufacturing etc.

Some countries are making determined attempts to pivot – for instance, Saudi with its Neom city and The Line. UAE had attempted this earlier with Palms Jumeira, with limited success. There are other less breath taking but more practical ideas like generating Blue/Green Hydrogen & solar parks. It is going to be tough to replace oil revenues in a short time. How successful they will be remains to be seen.

Most of these countries are monarchies or autocracies. When there is prosperity, the citizens do not mind autocratic rule. When standard of living tapers, citizens unrest can get triggered.

What may happen here in the future is not clear. But, it is certainly not going to be as smooth as it has been for the past few decades.

India – India is a rising power. It has been slowly creeping up from behind and has now become the fifth largest economy in the world at USD 3.5 Trillion.

India has a young population which has the potential to power the economy in the decades ahead – this when large parts of the world are ageing fast. Hence, India has the potential to power the economy forward and also supply people to the rest of the world. In fact, Morgan Stanley has come out with a report on how India will grow wonderfully in this decade. But there is just one problem. Skilling!

We need to get our act together in terms of imparting needed knowledge/skills to our working age population so that they can become a productive force. Else, we will have a demographic disaster, not demographic dividend!

We need to accommodate the 13 million or so youngsters who enter the workforce every year. Our education institutions have been teaching stuff that is not in sync with the needs of the industry. It is mostly outdated. Hence we have an employability problem which goes by the name of employment problem.

So, when the industry needs to induct graduates & PGs who have the qualification, but not the requisite knowledge or skills, they need to train them all over again. This is a time consuming and a costly process. IT companies like Infosys & Wipro have their own full-fledged educational institutes, where they train thousands of people, just to get the recruits up to speed!

Our infrastructure is not our strong point. There is renewed focus on infra now; the roads, rail connectivity, ports, power etc. are improving now, but will take some time to catch up with the rest of the world. In spite of this, we have exported over USD 400 billion in goods and another USD 200 billion in services. This is creditable. The target for 2030 is USD 2 Trillion! Looks lofty, but who knows, we may achieve it!

We have leapfrogged into a service economy without first becoming a solid manufacturing hub. But manufacturing is what can create jobs for low-skilled and semi-skilled workforce. We are now reviving manufacturing with various enabling initiatives like Make in India, Infrastruture push, Defence ecosystem creation, PLI scheme for a range of industries etc. The environment is also favourable now – the world is looking at China + 1 strategy and chinaless strategy.

The economic situation in many countries like China, US, Euro region etc. are unfavourable. In spite of the recessionary trends across the globe, our economy seems to be doing fine. GST Collections are robust, PMI figures indicate optimism and GDP Growth is expected to be about 6.3% ( World Bank thinks that GDP growth will be 6.9% ) for FY 22-23. In fact, Morgan Stanley study (quoted earlier) says that India is expected to do very well this decade and more than double the GDP to USD 7.5 trillion by 2031.

Inflation rate in India is moderate in spite of elevated Crude prices while internal demand seems to be holding up. If there is recession in the world, crude oil prices may further drop providing relief for us. However, a worldwide recession can impact India in many ways, which is something we have to look out for.

Our education system, warts and all, is still producing output that is powering high tech industries worldwide. There is good depth in talent and quality of leadership in India & globally. There are dozens of Global CEOs from India in frontline companies ( Starbucks became the latest to recruit an Indian CEO ).

There is a clamour to go abroad for education for reasons like better quality of education and facilities, ability to get into good colleges abroad much easier than in India ( an outcome of reservations and general availability of high quality colleges, research facilities and faculty here ), ability to earn in Dollars/ pounds, better living standards etc. There is also a craze to go abroad for education, primarily for the purpose of settling down there. There is tremendous peer pressure among students and even among parents. However, this is not really a brain drain as normally perceived – all and sundry are now going to study abroad as it is the in-thing.

Our pool is quite large and those going out should not significantly disturb the local talent pool, as long as we focus on skilling the available talent. Also, many come back later adding to the cross pollination effect, which will increase as India becomes a force to reckon in the coming years.  An estimated USD 80 billion will be spent on it by 2024, as per estimates, which is a huge drain for India.

Most times, the cost benefit of spending so much money on education abroad is adverse. Surveys may say that starting salaries are USD 80,000 – 1,00,000 pa, after the course abroad; but that is for graduating from ivy league institutions, while most end up with much less. Also, the fees in Ivy league institutions are quite high, leading to higher spends ( and higher educational loans ), which to some extent nullifies the higher salaries, atleast in the first several years.  Also, the cost of living in most of these countries is quite high. Our experience as financial advisors suggest that the savings potential in India is today quite high compared to those abroad.

There are a lot of things going for India. But India’s ascendancy is however not a foregone conclusion for multiple reasons. Our policy framework needs to be stable and supportive to business; only that can deliver jobs, growth and prosperity ( idiotic socialistic slogans like “suit boot ki sarkar” which tends to vilify businessmen & fosters anti-business thinking in society would do great harm to India ). Also, populist measures like doling out freebies for various constituencies by the political dispensation will send the country into a debt spiral with inflation going high, massive rupee devaluation, stagflation catching up and economy going down. This will also ensure that more and more people migrate out of the country.   

Moderation in corporate taxes was a radical step in the right direction. India needs to grow at over 8% GDP growth rate to absorb the teeming workforce coming in every year and to pull people out of poverty. A skilled workforce is needed for the economy to scale up for which our educational and skill building institutions need to work towards. We need to manage our resources ( like water ) well, diversify into green energy ( which we are doing already ), enable employment creation, foster an enabling environment for business to thrive…

We also need to handle inimical forces acting against India (NGOs just being one such) and are actively working for it’s downfall. See this too. Many countries, institutions ( dozens of them like Amnesty International … see 1 & 2 ), media and individuals ( like George Soros ) are working against India – the threat is enormous & real. All these together create a farcical narrative that is amplified by one another to cow down India, show its place so that western hegemony can flourish.

Most countries in the world face some level of meddling. India faces this much more than any other country in the world. Ironically, legions of Indians both in India and abroad, have been roped into this through left ideology brainwashing, wokeism, lure of money, position & coverage in foreign media to spread canards and false narratives. These people drag their own country through dirt which is then shown by western handlers as legitimate proof of rot in India’s core.

We have progressed tremendously as a country in the 75 years of existence as an independent nation. We have made strides in virtually every sector. In some sectors like Space, IT, pharma etc. we are globally competitive.  There are several areas in which India is in the top 5 – Cement & steel production ( No.2 ), Crude refining capacity ( No.4), Electricity production capacity (No.3), renewable energy capacity (No.4), Car production ( No.5), Two wheelers (No.1) etc.

While we bemoan India’s lack of focus on manufacturing, India is No.5 in the list of Top manufacturing countries worldwide.

We have come a long way. We have a long way to go. That summarises India’s case.

This brings us to the conclusion of the three part series ( previous two parts are here – Part1 & Part 2 ) on the fundamental changes happening in the world today and how the world order itself is being reconstituted. Hope this made for interesting reading and useful perspectives.