The opening up of the Indian economy to unlimited foreign capital like 100 per cent foreign direct investment (FDI) in the defence sector, single and quick clearances and benefits to big capital, including to all kinds of multinational companies, are the fast steps that are being taken by the newly elected Indian government. This opening is not new but started in the 1990s and was followed by successive governments. This period is just likely to witness this brand of economics in a faster and bigger way. Such developments will of course impact the social structure and at the same time are bound to impact on foreign policy as the calculus of power changes.
To gauge this impact, perhaps we can draw comparative experience from some countries that opened their economies. For examples, most of the Southeast Asian countries from Malaysia, Thailand and Philippines to Vietnam and Taiwan all opened their economies to unlimited FDI in many sectors, encouraged export-led growth, quick clearances for MNCs, etc. All these countries were flooded with Chinese goods and capital. Yet they all fear Chinese hegemony. To balance China, they developed even closer relations with the US, which has had traditional partnerships with many of these nations. But in order to retain some level of independence these countries got together to develop a regional block of ASEAN. Because, they felt without regional solidarity they would be vulnerable to external influences. But at the same time they became more vulnerable in both their foreign and domestic policy choices. These countries are no longer the “emerging economies”.
Similarly, in other Third-World regions like Latin America and West Asia, countries opened up their economies. They also tried to develop blocs of support. But the main problem with such opening up has been the sharp contradictions it tends to give rise to both internally and externally in most countries where such policies become doctrinaire. The impact of a country’s internal and foreign policies are linked. One emotional bond of the linkage is nationalism.
As a country opens up its economy, it breaks up the structure of nationalism. Economic nationalism, which was the foundational arch or keystone of Third-World nationalism in all its anti-colonial drive, gets totally diluted, if not lost. This is because as foreign capital comes, it brings in conditionality. For example, India will only be able to attract foreign capital if it is able to offer them the cheapest labour, land and natural resources. If this was not the case, why would FDI not go to some other country where these resources are comparatively cheaper?
Other conditions would include, for example, that labour laws be changed to a more flexible regime and labour rights like unionism, minimum wage are diluted. Some communities will be driven out of land and livelihood. No multinational would like labour problems on their hands. Of course, skills and competition would increase, especially for the middle class, but so would jobless growth as MNCs come for the greatest amount of profit.
When economic nationalism declines, it often has been seen that other forms of more dangerous nationalisms like ethnic or identity nationalism, or cultural nationalism can rise. With this there have been cases in Southeast Asia, Latin America and elsewhere, that class, identity, social, religious polarisation can also increase and lead to social and political instability.
There are other contradictions, too. For example, while the countries’ Gross Domestic Product increases, the wealth of some groups grows to huge levels, their conspicuous consumption increases, large sections of people get marginalised from the mainstream economy and get distressed due to inflation, unemployment, rise in food prices, etc. that cannot be controlled. Middle class aspirations clash with anxiety. This also adds to polarisation in society and between groups of people, as the status of some groups decline, this leads to an increase in identity politics like caste or religious group to improve their status over that of other groups. This also manifests itself in cultural nationalism.
In circumstances where economic nationalism declines and cultural nationalism increases, the idea of the nation under threat from others can also increase. Military expenditure rises. Thus, in some countries that have had huge opening of their economies, groups have got polarised over social and political policies. The military coup in Thailand, the instability in Turkey and other regions are examples. Whereas in other regions, the decline of economic nationalism, antagonisms with neighbours or other countries have increased. Thus for example, China, Japan, Vietnam, the Philippines, have increased their rivalry in the South China Seas and a pre-conflict situation has arisen.
Cultural nationalism encourages attacks on citizens who are seen as outsiders or aliens, identified with an enemy country. This leads to conflicts between groups and an increase in tensions between countries that can spill over into regional instability. This might seem like a circuitous argument, but historical experience of many countries has shown the clear linkages between economic, socio-cultural policies and foreign relations.
Thus when a country like India is going in for opening up, it might on the one hand be trying to bring in capital and kick-start a stagnating economy, but on the other hand, the very structures that kept the country stable can be at risk. Earlier, when the UPA regime initiated the process of opening up, they developed strategic ties with the US. A decade later, it became clear that the attempted strategic shift and the belief that India would get great power status on account of this shift was a mirage.
To be a power in international politics, India will have to have a holistic nationalism that is based on internal social cohesion, pluralism and inclusive democracy. Only then will it be able to absorb foreign investment without any negative impact on its internal as well as foreign policy. Any policy that depends on playing up one community against another will not only scare away foreign capital, it will undermine the carefully created Indian model of development and the foreign policy that has served its collective interest.
The writer is professor at the School of International Studies, Jawaharlal Nehru University.