ECONOMICS FOR STRATEGISTS

(Published in Purple Beret-Nov 2011) 

Introduction

Just in case the reader has not noticed, the American and some European economies are not doing well – in fact, some of the economies are in dire straits. America is screaming blue-murder over the ‘stealing’ of its jobs by India. America, they say, has been ‘Bangalored’! Globalisation has, since its inception from the last decade of the 20^th century, has adjusted jobs between nations as never before.

Changes are altering the scenario in the world around us. It has been repeated ad nauseam that globalisation has shrunk the world. It simply means that no country can survive in this shrunk world because of the entangled and inter-dependent economies. A consequence of the intertwining of the economies is the distribution of income – there has been a rise of the middle class in India with an increase in spending power, but the incomes of the richest, as against the poorest, have also been increasing, thus widening the gap. For any nation, prosperity has always been dependent upon the buying power of the middle class, with a not-too-large a gap between the ‘haves and the have-nots’; any disturbance in this trend portends trouble.

After the Industrial Revolution, the world has now experienced a Technological Revolution. The Technological Revolution has not just brought in new ways of making old things –new technologies differ from the previous ones in eliminating some of the daily mundane tasks of our lives. We take it for granted that an ATM is an essential convenience – have you ever wondered what happened to the Teller in the bank? Phone banking is a comparatively new innovation where the computer has replaced the operator (you are reminded of it when a heavily accented voice asks you to punch 1for English, punch 2 for Hindi and so on!); in an office, there are fewer people behind desks; the once familiar clickety-clack of typewriters is seldom heard anywhere; are the computers alone responsible for all this?

These disquieting issues, and others, are of concern not just for the economists, the planners, the Governments, but also the common man. I would restrict myself to a sect, not specifically mentioned above, namely, the strategists and military planners. I would not be going into the macro or micro-economics of tackling these and other unsettling issues. It would be my endeavour, however, to get the reader that I am targeting, to think differently about the challenges the world economies and, hence, our economy is facing.

Socialism versus Capitalism

India adopted a predominantly socialist pattern ever since gaining independence, as compared to totally capitalist patterns then existing elsewhere in the world. It was only in 1991 that winds of change began to blow and we have reached where we are today, thanks to successive Governments following the recommended economic reforms and transforming India to a Socio-Capitalist nation.

The economic reforms in the country brought in common place things for the common man– the availability of which was only for the well-to-do earlier. Things became more common; there was a rise in the standard of living, not just in the urban areas, but also amongst the rural population.

After India had missed the Industrial Revolution it did not want to miss the Technological Revolution which altered the techniques of production and the texture of daily life. Technology, it can be said, was the genie in the bottle, which transformed socialism to capitalism, and today it refuses to go back in. The technological progression in big industrial houses increased the scale of production; it also influenced the small business and commercial establishments, by outstripping their administrative capabilities. As the demand for raw materials increased because of the increased production, the need for speed in delivery also got bigger in an enlarged market.

The reforms, the enlarged need for raw materials, the increase in productivity and the size of the market, thus, affected energy requirements, and thus the political dimension, not just nationally, but internationally too. International politics has led to many developed nations become competitors with each other and with developing nations; singular intervention in internal issues of a country, on the pretext of safeguarding the interests of the locals have tended to increase in the era of globalisation, violating the principles of sovereignty. Fortunately for India, we have not had the need for either economic or non-economic intervention, nor have some other nation intervene in our affairs. The world, however, has witnessed economic and military intervention under many garbs.

Globalisation and India

Globalisation, though not a new phenomenon, has caught the eye in a big way because of its undreamt scale. If there is trade between two countries then production of goods and services can be agreed to without many complications. With globalisation, however, we have seen the birth and the growth of multinationals – sometimes, also called trans-nationals - thus affecting trade between nations. Today there are not just Western-nations dominated multinationals, but Indian businesses too, have acquired companies across the world, thus entangling our economy into the global economy. I am not in the least suggesting that we should not do so, but there are implications.

With the euro zone engaged in a major fire-fighting exercise to rescue itself from a financial crisis and America, once again, going through the throes of a second recession, can India be free from risk? The rupee has declined to lowest values in three years, giving sleepless nights to policy-makers. Though there are silver-linings associated with the depreciation of the rupee, there problems are many fold; imports of crucial items would become expensive, leading to inflation in the country. With the global growth slowing down and the rupee declining, the ripple effect would be felt on the Indian economy.

A weaker currency not only makes imports more expensive, it eats into the profits and becomes an additional liability affecting growth. In addition to these issues, if the Government does not control its spending, the fiscal deficit would further increase beyond the projected figure of the National Budget, thus leading to a further slowdown of growth.

Conclusion

So where and how does the strategist and military planner fit into this scenario? If the growth rate falls, the real-time value of the defence allocation in the Budget would reduce; this would affect the capital acquisitions planned for the next fiscal as there would not be enough available after the payment of the committed liabilities of existing and ongoing contracts. The modernisation programme of the Armed Forces, which got an impetus in the last few years due to the boost in the economy, would need a re-look. Not only will the new acquisitions take a hit, the provision of infrastructure, for the acquisitions already in the pipe-line, would also be adversely affected with a reduction in the revenue allocation.

The falling value of the rupee could postpone the finalisation of pending contracts which have been inordinately delayed due to the acquisition procedure that has to be so meticulously followed. As it is, all big-ticket defence purchases have a long gestation period; a slow-down of the economy would have far reaching adverse effects to the modernisation programme with cost escalation a major impediment. Whatever little indigenisation that the national corporates have initiated, will also take a hit with the fall in the rupee value and the growth rate; after all the figures on the bottom line are their prime concern!

The military planners would do well to monitor the happenings in the world, not just those related with Defence, but also on the economic front. What happens in Europe, South America, East or West Asia, or Africa, should be of interest to them, be it political, economic or a social change. There is a need to demystify the economy for the strategists as it affects our long-term future.

All this has a moral for our tale and needs a proper ending. The Government in our country, as it is in USA and in other countries, is much maligned, criticised and denounced for its policies, for what it does and for what it does not do. The Government is blamed for being bureaucratic, slow-moving, perceived as inefficient, without virtue and foresight; it is, however, the only means by which the Defence can be provided with a public capital – so crucial for our modernisation. The planners are essential as a check-and-balance to steer the Armed Forces away from the ill-effects of globalisation and other insistent problems that threaten to impede our progress. Strategists must understand the subject and prepare themselves to face the challenges once they fully comprehend economics.