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00:00It seems that every day we're reminded that we live in an era of great power rivalry,
00:08that the rules-based order is fading, that the strong can do what they can
00:13and the weak must suffer what they must.
00:17And this aphorism of Thucydides is presented as inevitable,
00:22as the natural logic of international relations reasserting itself.
00:27Canadian Prime Minister Mark Carney acknowledging the limits of the liberal international order.
00:34His call for unity among what he called middle powers is resonating with many countries,
00:39including India, that are caught in the middle of the tussle between the big powers.
00:44And India is having to manage a tough balancing act as it tries to get a trade deal with the US,
00:48while Indian exporters grapple with tariffs as high as 50%.
00:52Some respite could come with the expected FTA with the EU,
00:56which is being touted as the mother of all deals.
00:59Let's get to Bloomberg senior editor Menika Doshi now in Mumbai.
01:03So, Menika, India is in a tough spot right now geopolitically, right?
01:08Paul, find me a country which isn't in a tough spot right now.
01:11We walked back from the brink this week in Davos, you know,
01:15with a gap opening up between the US and its allies in Europe.
01:19And that fracture will have implications for India, both opportunities and challenges.
01:26But the one thing that India will be looking closely at is whether China seeks to sort of take advantage of that gap
01:33in terms of leadership in the world.
01:36I think the second thing important for India right now is, like you pointed out,
01:40that US trade deal is still hanging fire.
01:43And this is a year of domestic politics, both for Prime Minister Modi as well as for President Trump.
01:49He's got the midterm elections coming up in November.
01:52And Prime Minister Modi has three very important states going to election this year.
01:56So it could be a year of even more entrenched positions when it comes to trade.
02:02And then the many other things that you referred to, Paul,
02:05which is we just came out of a very important state visit from the UAE top leaders.
02:10We're going into a very important meeting with the EU top leaders
02:14and hopefully with a deal to be signed after almost two decades of negotiation.
02:20And then there was that very interesting picture that came out of Davos
02:23where President Trump is signing the agreement for the Board of Peace.
02:27And you can see the head of Pakistan in that photograph.
02:31And I'm sure India's foreign policy bureaucracy will be watching very, very closely.
02:37It promises to be a very interesting year.
02:39For more analysis, I'm joined by Pushan Dhat,
02:42Professor of Economics and Political Science at INSEAD.
02:45Pushan, thank you very much for your time this morning.
02:48How do you think India is placed in 2026?
02:52So I think India still has to do the fundamentals right.
02:56OK, so it has to focus on growth.
02:58It has to focus on employment.
02:59And yes, it is geopolitically on the back foot and it was hit by 50 percent tariffs.
03:05But there are certain nuances to it.
03:07So the effective tariff rate imposed on India is actually around 35 percent
03:13because there are lots of exemptions for goods in the agricultural sector.
03:17They're, you know, whatever is important for the U.S. supply chains, et cetera.
03:22India is also a relatively closed economy.
03:24So that's why if you look at the IMF growth forecast, they shaved off half a percentage points.
03:29But now they seem to be revising it upwards.
03:32In the longer term, India still seems very attractive as a destination for countries outside
03:37because unlike China, it is a consumption driven economy.
03:40So China is, you know, does not do consumption.
03:45India does a lot of consumption.
03:46And also in the long term, it's the only country which provides the scale that Western multinationals might be looking for.
03:52So geopolitically on the back foot, but still, you know, focus on the fundamentals.
03:56And I think they should be OK.
03:57If I can press you on the geopolitical back foot for a moment, that definitely seemed to be the case last year
04:05when we had this falling apart with the U.S.
04:07Do you think, though, that India stands to gain a wee bit if this gap between the U.S. and its Western allies persists?
04:15It makes countries, especially in the European Union, keener to set up, you know,
04:20more intense trade and security arrangements with India.
04:24Yeah, so whenever, you know, we get lemons, you think of lemonade.
04:28So I guess, you know, something similar is happening here.
04:32But I think it's important to understand that, you know, there are certain upsides to it.
04:36India is traditionally very, very protectionist.
04:39OK, it has never believed in international trade.
04:42And as you just said, it took two decades to, you know, get an agreement on the free trade deal with the European Union.
04:49So, you know, because of the Trump tariffs, it's actually been pushed into a sequence of trading arrangements with Oman,
04:57with New Zealand, with the European Union, which is the big one, you know, and, you know, with the U.K.
05:03So there might be, you know, India might be opening up its market.
05:07It's actually liberalizing its insurance sector.
05:10So there are sort of pluses to it.
05:11But in geopolitical terms, you know, yes, we are all sort of worried about the world.
05:18But, you know, there's another aphorism, you know, which says that, you know,
05:22when the strong try to dominate the weak, the weak will try to get stronger.
05:26And we see this for every country, including India.
05:31I know that there is no replacement for a trade deal with the U.S., given that it is India's largest market.
05:37But do you feel that the trade deal with the European Union, which hopefully will get signed next week,
05:43could help fill in some of those gaps?
05:46So this is not first best, right?
05:48The U.S., of course, also is a very consumption-driven economy.
05:52Imports as a percentage of GDP might be low, but imports as a whole is very important for many exporting countries,
05:58especially in Asia, including India.
06:00So it's not so much of a replacement, you know, just for India.
06:06This is a challenge that everyone is facing.
06:09So if you look at China's trade surplus of a trillion dollars,
06:12it has mainly come from diversion of its exports away from the U.S. market into Europe, into Southeast Asia.
06:19And India will have to play essentially similar cards and think about, you know, markets in the future.
06:26But, you know, the European Union, what is it that it's looking for?
06:32The European Union essentially, right now, it is facing a massive second China shock.
06:38So it's trying to pivot away from China.
06:40And India is sort of the national trading partner.
06:42What is India looking for?
06:43Well, it's essentially looking for investments and technology transfer.
06:47Much of this could actually come from China, but China has imposed quite heavy restrictions,
06:52like in solar panels recently.
06:54So, therefore, the Indians will be looking to the Europeans for technology.
06:57So, in a sense, it's a good match for both parties.
07:04At this point, Kushan, what, you know, do you think are the odds of the India and the U.S. finalizing or signing that trade deal?
07:14With Trump, it's always impossible to tell, right?
07:18He does have certain core convictions, things like tariffs and Greenland, etc.
07:25But he seems to have sort of lost interest in the India-U.S., you know, spat which has happened.
07:32So I would not be surprised if there is another trade deal.
07:35India has been asked to join the Board of Peace.
07:38Pakistan has already joined it.
07:39So it hasn't made a statement.
07:42But I think that, you know, standing up strong to Trump, there are very few cases of it.
07:47But the ones who have stood up to Trump, whether it is Jamie Dimon from J.P. Morgan or China using its rare earths or even Mark Carney,
07:56it has not been a complete disaster for them.
07:59It's actually been much harder for allies who actually kowtow to Trump.
08:03You know, they have faced the brunt of his wrath.
08:09So in many ways, you're saying, Pashaan, that, you know, what Prime Minister Modi and his administration did last year,
08:15which is not bent to Trump's will, was maybe the right way to go about it instead of quick, easy first concessions.
08:23Is that your take?
08:25No. So there are two things going on, right?
08:27So first, we have very few data points, but we have seen that, you know, not all CEOs or political leaders actually have paid the price if they've, you know, stood up strongly to Trump, right?
08:39So I think it's important to understand what his core convictions are and what makes him tick, right?
08:44So the Trump model seems more about praise, submission, paying tribute to him, which India, you know, historically is not willing to do.
08:53And that sort of gives Pakistan an edge.
08:56At the same time, you know, there are still ways in which, you know, India can charm and flatter Trump.
09:03And as long as the trade deal is being actually worked out in the lower levels of the government, there is a possibility that, you know, that too might come through.
09:10Okay. Before I get to China and Pakistan, I have a quick economic question, Pashaan, which is to say that, yes, I know India has come to these trade deals very late and under pressure.
09:21But yet, if you look at the full package of what India is trying to do, both externally in terms of trade relations, internally, an attempt to sort of accelerate reforms, what's going on with the currency, which makes our exports more competitive.
09:35Do you think that puts India on a stronger footing this year than last or not?
09:40Well, no one is on a stronger footing when the entire international trade order seems to be collapsing, right?
09:47So we are, you know, every country, including the U.S., which has, you know, single-handedly triggered the trade war, everyone is on a weaker footing, right?
09:54But this essentially, again, you know, so what should political leaders do, whether it's in India or whether it's in Singapore?
10:03Well, the first thing is that they have to wake up and recognize the reality.
10:07This is what Mark Carney was saying, that, you know, you have to actually recognize the truth as to what the world actually is than what you wish it to be.
10:13And the second thing is that, therefore, the currency going forward seems to be essentially economic power, you know, reducing reliance on particular countries, you know, thinking about supply chain chokeholds, thinking about, you know, export controls, sanctions, et cetera.
10:32So essentially building up resilience, you know, we all thought that, you know, Trump was an anomaly and Biden was sort of the norm.
10:40But now I think people are realizing that, you know, maybe it's the other way around.
10:45So no country can just wait on 40,000 Wisconsin voters to decide its future.
10:52So I guess my question is, is India doing more or enough to build that resilience?
10:59I think so. So, you know, there are certain things which they have done, OK, in the financial sector, they've moved forward.
11:05They're pushing forward in the defense sector as well.
11:08You know, there is a lot of excitement about startups and unicorns in India.
11:15The one place where I think India really needs to work on is still attracting a massive, building up a massive manufacturing base.
11:24Much of this investment is actually flowing to Vietnam like it did during the first Trump 4.
11:28But again, you know, there are certain good examples out there like Apple.
11:32So they have to build up the manufacturing base.
11:35And one of the critical areas of reform is actually labor market regulations.
11:39They've done GST reforms, but, you know, they really have to make it easier to sort of hire workers, fire workers.
11:46Well, in fact, I think India just did announce the implementation of four new labor codes.
11:52So that box in your list has been ticked.
11:54I want to come to two quick questions.
11:56We have just a few minutes to go.
11:57One is that, you know, we've seen China watch all of this play out between U.S. and Europe through the course of this week in Davos very, very quietly.
12:08Over the last few months, India seems to have mended some fences with China.
12:12How do you take stock of that relationship?
12:15And how fearful India should be of China wanting to fill some of this power gap opening up in the Western world?
12:21So, you know, if you look at India and China, given its shared colonial history, given the fact that they're neighbors, you know, geography still matters in this state, they should be natural trading partners.
12:34OK, they also have different kinds of strengths.
12:37So, you know, China does production, does not do consumption.
12:39India does consumption, doesn't do production.
12:42Right.
12:42So, you know, China has technology to give, India has cheap manpower because, you know, the low cost of wage workers in China, that story is over.
12:51So they should be natural trading partners.
12:54But at the same time, you know, given the sphere of influence world that we've moved into, where, you know, the U.S. says that, you know, they're going to dominate the Americas and China wants to be supreme in Asia, this is going to lead to tensions.
13:09They've also gone to a war and, you know, there were other skirmishes and conflicts which have had a scarring influence on India.
13:16So building our trust is going to take a long, long period of time.
13:20It's not going to be easy.
13:23OK, a final question then on what India should make of Pakistan in that photograph with President Trump, you know, signing this Board of Peace.
13:32No surprise there. But yet it does, in a sense, reemphasize the fault lines in this part of the world and the backing that Pakistan has from President Trump.
13:46So, you know, I would not take the Board of Peace that seriously, right, because it started off as a way to sort of, you know, resolve the Gaza conflict and build up Gaza.
13:56And now it seems to have morphed into like a United Nations Security Council substitute, right?
14:01The rules are not clear. There is an entry fee of one billion dollars, which eventually countries have to pay.
14:07You know, the way I would sum it is that if you're a Board of Peace, then join the Board of Peace.
14:12So, you know, if you look at the countries which have actually joined versus the countries which have refused, like France, Norway, Slovenia, Sweden,
14:19there's a huge difference in the degree of institutions and the degree of democracy between this.
14:25So this essentially seems to be a club of countries trying to buy influence by getting into this club.
14:34Now, on the other hand, I could also argue this is basically, I think, again, what Mark Carney said yesterday,
14:40which is that if you are not at the table, then you're on the menu, right?
14:44So it's going to be difficult, but I'm, you know, but I'm not that optimistic.
14:48You know, in three years' time, if Trump is gone, which is a big if, I think this Board of Peace will sort of fade into obscurity.
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