India needs its own Draghi report
The
European Union (EU) has turned the spotlight on its readiness to adapt and succeed in a world already in the throes of unprecedented and wide-ranging change. It commissioned a former president of the European Central Bank, Mario Draghi, to prepare a comprehensive report on ‘The Future of European Competitiveness’, which was released in September 2024. Its Part A is a summary, while there is a detailed Part B running into more than 320 pages. I have read Part A and my comments are based on that document. It is for our accomplished economists to read and digest the longer document, which contains rigorous analysis based on detailed data.
In presenting the document to the European Commission, Draghi explained the backdrop to its preparation: “The starting point is that Europe is facing a world undergoing dramatic change. World trade is slowing, geopolitics is fracturing and technological change is accelerating. It is a world where long-established business models are being challenged and where some key economic dependencies are suddenly turning into vulnerabilities.”
These words well define the challenges that India, too, confronts today. The election of Donald Trump as US President has heightened these risks significantly.
Draghi is brutal in his diagnosis of why Europe, despite its advanced economy, intellectual capital and sophisticated finance and banking sectors, is falling relentlessly behind the US and China. It suffers from an innovation gap, it no longer leads in cutting-edge technologies and is dependent on critical minerals and inputs from a relatively small number of source countries, with which the EU is “not strategically aligned”.
In a contested geopolitical landscape, these dependencies have become vulnerabilities, threatening the security and autonomy of Europe. These challenges are compounded by demographic decline, which immigration is not able to offset. In any event, immigration is politically toxic.
The report focusses mainly on how the EU compares with the US and China in respect to various metrics of development, but centred on technology as its key driver. Draghi says that EU has missed the digital revolution and is falling behind in artificial intelligence. It has maintained its lead in clean-tech, but China’s challenge is unrelenting. It is interesting that Draghi proposes a possible trade-off in this sector: “China may offer the cheapest and most efficient route to meeting our decarbonisation targets. But China’s state-sponsored competition also represents a threat to our productive clean-tech and automotive industries.”
It should come as no surprise that Draghi urges much closer integration among the EU countries to enable the scale required to compete with the US and China. Financing of larger projects would be facilitated by a Capital Union and the setting up of a Banking Union. He proposes an industrial policy that is aligned with the EU’s ambitious climate targets and much greater investment in research and development.
What is more relevant for countries that are international partners of the EU is the advocacy of a “genuine EU foreign economic policy”. This would include “coordinating preferential trade agreements and direct investment with resource-rich nations, building up stockpiles in selected critical areas and creating individual partnerships to secure the supply chain of key technologies”.
Why is it important to study this report and follow its implementation?
One, India has all along seen an integrated Europe as a potential and relatively autonomous pole in its preferred multi-polar world order. A powerful Europe, exercising relatively independent agency in world affairs, would be a better prospect for India than a bipolar world dominated by the US and China. There would be a strong incentive for India and the EU to work closely together to sustain multi-polarity.
Two, how can India locate itself as a key component in the “foreign economic policy” proposed by Draghi? India does not figure at all in the report. It is not seen as a possible partner in the EU’s quest to stay relevant in the emerging world order. And yet in terms of each component of this policy, India could be a significant partner. There could be partnerships in building up stockpiles of critical minerals or in scaling up clean-tech. The Global Capability Centre model could work with European entities as well as it has with the US.
Three, in clean-tech, India has ambitious plans for scaling up its renewable energy sector, including a future hydrogen economy. In addition to its strengths in clean-tech, the EU has a significant electrolyser industry that could boost this potential energy source of the future.
The Draghi report could be the basis for working together with the EU to identify areas where synergy is possible, benefiting both sides.
For India, Europe will remain a significant source of both technology and capital as it pursues higher but quality growth. If a trade-off to dependence on China is an option, surely India can offer that trade-off.
Finally, I think India should undertake its own economic strategy exercise on the lines of the Draghi report. We need a critical evaluation of our current economic and market strategies to determine whether they are aligned to the nature and scale of challenges that we will confront, just as the EU will. One should assemble some of our best economists and diplomats to work on our own “foreign economic policy”. Flying blind in the gathering storm may stall India’s growth story and, in the process, increase our geopolitical vulnerabilities.
