India's economic strategy should take the big picture into account

A comparison of our economy's emergence with China's explains the value of an industrial policy for local manufacturing

- ARUN MAIRA

US President Donald Trump has declared war against the world to 'Make America Great Again.' Its 'reciprocal tariffs,' currently paused till early July, have been imposed on all countries that treat the US 'unfairly' according to Trump. These include a 49% tariff on imports from Cambodia and 37% on those from Bangladesh, countries whose per capita incomes are 3% of the US's. High tariffs have even been imposed on tiny Pacific island-nations. However, America's real concern is the remarkable growth of China's economy.

The history of wars for ideological hegemony was supposed to have ended in 1991 with the collapse of the Soviet Union and weakening of Russia. The economic ideology of free markets and privatization had defeated the strategy of central planning and industrial policy for building domestic capabilities. To comply with the winning order, Russia pursued 'big bang' reforms, with disastrous consequences for its economy. Russia's GDP shrank by nearly 40% between 1991 and 1998; industrial output dropped; and poverty rose, with 30% of the population living below the poverty line by the mid-1990s.