T he Indian prime minister’s call for sacrifice last week marks a fundamental shift. He urged the country’s 1.4 billion people to consume less fuel and fertiliser, buy less gold and curb foreign travel as global energy prices surge because of the war in Iran. The message, redolent of the Covid-era restrictions, suggests something larger: a retreat from neoliberal globalisation in Asia and the return of strategic economic management. The Hindu nationalist Narendra Modi waited for key regional elections to finish before pressing for the austerity measures. He was following other Asian states such as the Philippines , Bangladesh and Sri Lanka, which have made similar requests and even demands of their citizens since March.
Mr Modi made an explicit economic argument: reduce energy imports because India must conserve its foreign exchange. About 90% of India’s oil and gas needs come from abroad. When prices spike, the country faces a higher import bill in dollars, inflation and pressure for higher subsidies. Despite India’s recent economic success, it has not built sufficient productive, export or homegrown green-power capacity to reduce its vulnerability. To prevent the rupee crashing in value, India’s central bank reportedly burned through more than $40bn in reserves.
Analysts from the Japanese bank Nomura see “a deeper rethink” on how India manages its external sector. The crisis in the strait of Hormuz also demonstrates that Asia’s post-1990 growth model, which India increasingly embraced, depended on a geopolitical environment that is ending. Once the assumption of secure, US-policed shipping lanes, cheap Gulf hydrocarbons and low freight costs vanished, the balance-of-payments constraint for developing nations returned with a vengeance.
