Historical Context

Observations have shown that with the onset of the Age of Discovery in Europe, increased interest of Russia and China in Central Asia somewhat led to the breaking away of India’s connections with the region. Even after Independence, India’s foreign policy majorly focused on its immediate neighbours, or solidarity-based relations with the African countries, or even robust economic ties with Russia — but, the partitioning of the Indian subcontinent and the distancing of the region geographically did play a role in the deterioration of the relations with the region from India.

Further, in the post-Cold War era, after the Soviet Union split Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan in the 1990s, India took upon the task of developing its relations with the resource-rich region while also undertaking its own domestic economic reforms of bringing about liberalisation, privatisation, and globalisation. Former Indian Prime Minister P.V. Narasimha Rao visited four out of the five republics – Uzbekistan and Kazakhstan in 1993, followed by Turkmenistan and Kyrgyzstan in 1995. In addition to the collective values that India shared with the countries, collective development and economic growth, as well as formulating approached to combating common threats such as terrorism, religious extremism, and crime that these nations shared with India. A few experts also believe that the stage which was set by these conversations was even reflected in India’s Look North policy of recent times. 

Despite the historical links with the Central Asian Economies and India moving quickly to establish diplomatic ties with Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan after their emergence as independent countries almost three decades ago, trade has not grown beyond $2 billion, with them. In recent years, foreign-affairs analysts have begun observing what they call the “New Great Game” in Central Asia — Russia, the US, European Union (EU), China, Turkey, Iran and India are all trying to assert their power and hegemony in the region. Not only does the region provide for a large market, but it also has prospects for developing hydropower, fossil fuel resources, and other lucrative prospects. According to experts, India, for its part, has so far chosen to take the ‘constructivist’ approach. This entails a strategy of, interests are not solely based on economic or strategic benefits but attempt to involve an intersectional and even culture-oriented involvement.

Current Developments

India’s continued interest in Central Asia can be attributed to the geopolitical relevance of the region due to three factors — Chinese presence and influx in the region through its expansionist infrastructure projects like the Belt and Road Initiative (BRI), a continued historical context of Russia’s dominance in the region, and the overall regional security dynamic. Keeping these in mind, India had unveiled its Connect Central Asia Policy in Bishkek in 2012 in order to draw attention to the expansion of the region’s economic interests in congruence with India’s plans of integrating its external neighbourhood.

The lack of connectivity of India with the region of Central Asia has been a long withstanding issue in this context. For instance, the long-delayed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, backed by the Asian Development Bank (ADB), was first proposed in the mid-1990s and all four actors officially signed an intergovernmental agreement in 2010. But, since then, the project has been stalled due to the status of Afghanistan and mistrust between India and Pakistan.

To combat this connectivity gap, India has undertaken positive action in the past as well quite recently. India, Iran and Russia signed the International North-South Transport Corridor (INSTC) agreement which aimed to offer connectivity between India and Central Asia through Iran. As is noted by this resource, while the INSTC is routed via Iran’s Bandar Abbas port, India has also explored the possibility of connecting with Central Asia via Iran’s Chabahar port and thereafter overland corridors passing through Afghanistan. The importance bestowed by India to the Chabahar port, despite the uncertainties which the US-Iran tensions bring to the conversation, can be accorded by the budgetary allocation to the project, which is amounting to INR 1 Billion in 2020-21 announcement.

Way Forward

Since China has been able to leverage its geography, finances and population to ensure that its projects can contribute toward making its dream of a new and improved Silk Road a reality, India is also committed to expanding the scope of its economic relations with the region. India has immense potential in developing small and medium scale industries in the region which is presently being provided through India’s program of ITEC (Indian Technical and Economic Cooperation). The ITEC programme covers information technology, management, journalism, diplomacy, entrepreneurship, and banking. New Delhi also signed the Strategic Partnership Agreements (SPA) with three of the five nations of the Central Asian Economies — Kazakhstan, Tajikistan and Uzbekistan — in order to stimulate defence cooperation and deepen trade relations.

As a report in a Russian newspaper observed, “Indian presence in the region should balance the growing Chinese influence and prevent it from becoming the region of Beijing’s undivided dominance.” This idea can be brought to effect by India by leveraging its membership at the Shanghai Cooperation Organisation.

India and the Central Asian Economies can prioritize energy, pharmaceuticals, automotive, agro-processing, education, urban infrastructure and transport, civil aviation, IT and tourism sectors to strengthen economic links. The Central Asian economies and India have had a long history of association which can be efficiently revived to mutual benefit by the means of strategic and economic cooperation and connectivity, both notions that can be leveraged by the stakeholders in a post-pandemic world.

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Talking of political culture, people in Eastern Europe are still characterized as having less personal autonomy, less responsibility as citizens and members of a global community. In some cases, people also struggle with seriously disturbing national and social identities.

Source: PEW FORUM

As far as economic efficiency is concerned, east European countries have made remarkable progress in the past years, but this progress isn’t enough. The differences in per capita income, productivity and efficiency, output, capitalization, savings, investment, integration into global networks are still huge.

Trading and Colonisation

One historical factor in the development of west European nations is the influx of wealth associated with its sea trade and exploration. Their favourable locations on the Atlantic and Mediterranean gave them advantages in trade and exploration through the sea route with minimal cost. The colonization of lands in America, Africa, Asia and Oceania by several Western European countries brought a huge influx of wealth and resources, which stimulated the economies of these countries. These resources made them global superpowers as early as the 16th century. The effects of colonisation are still being felt in these countries.

Division of Germany

In the aftermath of World War II, defeated Germany was divided into four zones by the allied powers. The Soviet Union occupied the east, while the rest of Germany was divided amongst the United States, Britain and France. With hundreds of thousands of wealthy American soldiers posted in West Germany and spending their American currency, the area flourished. The Deutsche Mark was introduced in 1948 which added to the region’s growth. In the 1950s and 1960s, West Germany experienced industrial growth and low inflation contributing to their prosperity. The security of private property rights and reliance on the price mechanism also contributed to the success of these economies.

Much of the European side of the Second World War happened in Eastern Europe, in today’s Poland, Ukraine, Belarus, the Baltic countries, the Balkans and Russia. These countries were utterly ravaged. Russia and Germany stole many assets. The Soviets literally dismantled many factories and took many industrial machines East. In addition to this, East Germany inherited highly specialised industrial districts, which were cut off from their major suppliers of inputs as well as their market which was in western Germany. This caused a departure of skilled labour and a number of small and medium-sized firms.

Communism

East Germany, under the authoritarian rule of the Soviets, saw much worse conditions than its Western counterpart. When the rest of the world experienced strong economic growth after World War II, the nations of eastern Europe suffered due to socialism which caused shortage of resources, a highly politicised system and a regressive attitude to progress. Soviets neglected the economy and focused on military power causing an economic crisis. Western Europe, not being the vassal state of the USSR for 40 years probably made a difference.

To start with, Eastern European nations weren’t that developed as they have mostly been the borderlands between various empires. Apart from some exceptions like Hungary, they were Russian hinterlands, not real centres of development, industrial or otherwise.

Communism was ultimately very inefficient. There was no incentive for work as individuals knew that the reward will be the same. Accumulating wealth was not really possible. It led to stagnation in economy, technology and culture. It was the mix of the intense poverty, injustice and the presence of absolute anarchy that crippled these economies.

Marshall Plan

America supported western European countries with aid to stop communism from spreading during the years of the cold war. Dollar aid enabled recipient nations to eliminate raw material shortages in exchange for trade liberalisation. The resource funds allowed governments to finance public projects without the need to cut back on welfare spending.

The U.S. provided $13.3 billion in assistance between 1948 and 1951 to 16 Western European countries through the Economic Cooperation Authority. The Marshall Plan helped in reviving the western economies by controlling inflation, reviving trade, restoring production and rebuilding infrastructure. The Soviet Union rejected the aid on behalf of eastern Germany.

When the Marshall Plan ended in 1951, industrial production, trade and exports had increased far above pre-war level. Employment and standard of living were rising. Politically, communist parties lost influence everywhere.

It encouraged the economic integration that led to the creation of the European Coal and Steel Community among six nations in 1950. It took a leap into a more integrated European Economic Community (EEC) after eight years. It finally became what is called the European Union today. This integration helped the nations to revive their economies through trade.

Demographic Dynamic

The population density in the 19th century was much more in Western Europe more than Eastern. In addition to that, across Western Europe, the casualties of war were offset by natural population growth and post-war mass migration. The impacts of the war and the post-war settlement were different for the eastern and western regions. The population growth was scanty in Eastern Europe which deprived it of flexible labour supply that has been recognised as an imperative factor in western reconstruction and development.

In the Eastern Front, millions fled west, running from the advancing Soviet troops. The effect of war casualties combined with the post-war settlement was devastating. The populations of Hungary, Romania, and Yugoslavia stagnated in the 1940s. Czechoslovakia, Poland, and the Soviet Union faced a population decline over the same period. The shortage of skilled labour proved to be detrimental. The province of Prussia was temporarily depopulated resulting in its industrial districts losing their pre-war labour force level.

The war left a distorted demographic structure with a shortage of able-bodied young men. Conventionally, they were the one who constituted the backbone of the industrial workforce. It all brought the region an excess of industrial and commercial enterprises without their original owners, the necessary skills and managerial know-how required to operate them.

The Fall of the Berlin Wall

The Berlin Wall was a concrete barrier that cut across and divided the city of Berlin from 1961 to 1989 and was constructed in the aftermath of World War 2. The fall of the Berlin Wall symbolised the fall of the ‘Iron Curtain’ that divided the Eastern countries from Western Europe during the Cold War.

East Germany was provided with aid of around €1.6 trillion by the government and private German businesses to bring it at par with the West. The dismantling of the wall had a profound impact on the neighbouring economies as well. Hungry and Czechoslovakia opened up their borders and allowed East Germans to take refuge in Austria. The influx of people meant the economies of neighbouring countries took a hit.

Shortly after the collapse of the Wall, the German Democratic Republic (GDR), the party which was in power in the East also came to an end. Unemployment escalated to extremely high level and the economy was thrown into uncertainty. Those who had government jobs found themselves suddenly out of work. The GDR economy also faced bankruptcy due to the change of currency. Before the reunification of the two regions, 1 Deutsche Mark was the equivalent of 4.5 GDR Marks.

When eastern countries joined the EU, it made it easier for the Western companies to buy up assets in the east. Some also took advantage of the cheap labour market and started companies. Eastern European companies found it challenging to compete with gigantic Western corporations who could afford to undercut prices. In certain industries, prices were set for a certain amount of time so that Eastern European companies could not undercut Western companies which took away their advantage and eventually many Eastern European companies went bankrupt.

Agrarian Economy and Raw Material Exporter

When Western Europe started on the path of capitalist development, the Eastern part of the continent was transformed into an exporter of raw material for the West and an importer of finished goods. The result was a never-ending loop that strengthened Western industries and system that promoted capitalism. Specifically, as the West became more urban, there was a growing demand for agricultural goods, animals and other raw goods. East European people satisfied this need by transforming their domains into farms that exported for the Western market. With the exception of what became the Czech Republic, most of Eastern Europe became more agrarian and therefore poorer than much of Western Europe.

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Past Challenges

The economic and social exploitation of the continent’s resources for decades along with horrendous violence and poor administration by corrupt leaders leading to widespread poverty and untimely deaths, which could have been prevented, has greatly contributed to its present economic scenario of Africa. Africa has witnessed one of the biggest cruelties of humanity, slavery. African slaves were supplied to American plantations which not only led to the loss of welfare due to denial of basic Human Rights but also hindered progress due to scarcity of labour in Africa. The anti-slave legislation solved the problem of scarcity and brought about a major change in the continent that led to the expansion of tropical agriculture in the economy.

However, that did not guarantee good days for Africa because, soon, they came under Colonial Control. The colonizers plundered their resources, worked them to death, impeded growth and development, and projected Africa as an economically weak continent in the global economy. They employed Africa’s necessary resources in the production and export of cheap primary commodities and raw materials only, which forced them to import the expensive manufactured goods which caused unequal trade transactions and greatly increased the trade deficits. The colonial rule has had serious long-term consequences on the economy of Africa and has greatly contributed to the underdevelopment of the continent.

Africa’s commendable growth potential is evident from the way it has bounced back from decades of torture and exploitation and maintained a somewhat average growth rate of 5% since 2000 in the Sub-Saharan region. This shows that Africa has the capability to increase and sustain its growth despite facing adverse conditions.

Present Scenario Due to the Pandemic

Despite not achieving the desired growth in 2019, forecasters were hopeful about the acceleration of growth at a stable rate, with an increase to 3.9% in 2020. However, due to the sudden onset of the pandemic, all prior forecasts have been rendered futile. New predictions state a sharp contraction in the Real GDP by 1.7% in 2020, indicating a 5.6% fall from the previous forecasts. These predictions are valid only for the short-term impact of the virus. If it were to last beyond the first quarter of 2020, then GDP would contract by 3.4%, i.e., a 7.3% fall from the previous predictions. This fall in GDP is accompanied by a 5% sharp rise in headline inflation due to supply-chain disruptions, thus, putting the economy in a state of stagflation. However, there is scope for the internal stability of the inflation rate due to immense fall in aggregate demand.  

Challenges Being Faced

Effect on Fiscal Deficits

The pandemic will lead to a great cyclical increase in fiscal deficits in Africa. It will happen in a two-fold process of decreasing government revenues and increasing fiscal expenditures to boost demand in the economy. In 2020, the deficits have been predicted to rise to 8% – 9% of the GDP, depending on the severity of the situation.

From the pandemics and other crises of the past, it has been noted that government revenues fall more rapidly than economic activity. Situations are more likely to worsen and be volatile to COVID-19 shocks due to the ineptitude of the administration in successfully implementing proper policy reforms to ensure smooth flow of government revenue.

Effect on Poverty

If there is a continuation of the prevailing trends, Africa will not be able to do away with extreme poverty by 2030, as planned before.  Taking into account the current scenario, there have been estimations that poverty will only fall to 24.7% in 2030 from 33.4% in 2018, which is still way above the 3% Sustainable Development Goal Target. Figures in the Economic Outlook of Africa (2020) indicate that the number of poor people will merely fall by 8 million, from 429.1 million in 2018 to 421.2 million in 2030. Only North Africa is expected to somewhat meet the 3% target by 2030.

However, the process of eradication can be sped-up by accelerating growth and development in the continent and taking measures to increase the social well-being of the people. Aggregate personal consumption needs a massive boost, of about 10% per annum, to help achieve the target by 2030. If these measures are not implemented properly then poverty eradication will remain a distant unachievable dream for the continent.

Other Challenges

There are other challenges being faced by Africa at the moment like increases in the debt burdens and fall in remittances and Foreign Direct Investment (FDI). Several countries in Africa have high debt-to-GDP ratios which are projected to drastically increase in the onset of COVID-19 and possess the risk of transforming to a sovereign debt crisis if not dealt with properly. In addition to it, remittances and FDI which constitute a dominant financial flow to Africa have been falling during the pandemic. This poses serious threats to the African economy and makes it vulnerable to economic instability.   

Policies to Ensure Stability

The African Economic Outlook (2020) suggests a few actionable policies to not only improve the quality of growth in Africa but also combat the impact of the pandemic. They are as follows:

• The government should ease the main constraints to productivity like poor infrastructure, uneducated and unskilled labour, poor administration, and others. Relaxing these constraints through adequate policy will guarantee growth revival.
• Governments across the continent should take adequate measures to not only stop the spread of the coronavirus but also economic stability by formulating and implementing a variety of combined fiscal and monetary policies.
• The fiscal and monetary policies should work hand-in-hand to collectively help in the revival of the economy. The fiscal policy should keep the debt buildup in check and provide a massive boost to aggregate demand and the monetary policy should work towards maintaining a stable inflation rate and minimizing exchange rate fluctuations. 
• There must be a shift from low-productivity informal sectors to high-productivity formal sectors which would help utilize the untapped resources of the economy.
• Despite the moderate growth of Africa over the past few decades, the quality of growth has been far from inclusive. Only a combination of rigid structural reforms by policymakers can accelerate Africa’s growth and improve its quality and inclusiveness. 
• Even if there is reduced scope for increased gains, policymakers should implement measures to sustain the gains already achieved in the past few years including macroeconomic stability, minimum fluctuations in exchange rates, and others.
• The government should increase the welfare of the people amidst the pandemic by providing proper healthcare benefits to labourers in the form of paid sick leaves and ensure income safety to those sick or quarantined and ensure job security to all who are suffering to check the increase of unemployment.
• The government should also facilitate Universal access to financed health services for everyone irrespective of their sector or employment status.

Conclusion

The Global Health Security (GHS) Index shows that 33 African countries are inadequately equipped to deal with the threats of the pandemic from a clinical perspective. However, Africa might stand a chance to stay strong in this adversity if proper arrangements can be made for rampant testing across the continent at affordable costs.

The future conditions of the economy depend on the competency of the governments to deal with the issue at hand. If the economies can uphold their resilience at this time, there is hope for a speedy revival and acceleration of the growth of Africa. This resilience can be maintained via effective structural reforms, to keep high debts and deficits in check, and minimal vulnerability, in the form of external reserves, to be able to finance imported advanced medical consumables and to make them available to the public. Thus, there has emerged an urgent need for policymakers to implement drastic reforms to strengthen resilience to be able to withstand shocks at all levels, be it macroeconomic, microeconomic or household levels.

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