Continuing from yesterday (View from the Mars – 3)
In my view, the following issues may, inter alia, play an important role in shaping the contours of the new world order that may evolve in the next decade or so.
· China presently is finding it hard to gain acceptance as a major global leader. One of the reasons is lack of democracy, which is still a major consideration for the western developed world. Besides, it is also regarded as an irresponsible power by the extant major global powers. Recently, the spread of Covid-19 virus from Wuhan laboratory, causing a global pandemic, has materially tarnished the image of China. In particular, the mistrust between the US and China have increased manifolds after the outbreak of pandemic, resulting in a Sino-US cold war. This cold war that may last for many years, or may be decades, may be a key determinant of the new world order. Important to note that Russia, which was a key WWII opponent of China, and key OPEC members – Iran & Saudi Arabia, and erstwhile strategic partner of the US – Pakistan, are overtly standing on the Chinese side in this cold war.
· The vulnerabilities of the US and Europe have been exposed by the coronavirus. Post 9/11 incident, we saw dramatic changes in the concept of internal security in the US and many other countries. The suspects were shot dead without much provocation, disregarding all concerns for human rights and liberties. The culprits were chased and killed in foreign jurisdictions often disregarding sovereignty of these foreign lands. The diplomats, politicians and prominent personalities arriving in the US and the UK were strip searched and denied entry with impunity.
We may see further rise in xenophobic tendencies of the developed western countries. Another major impact could be a concerted effort to reverse the course of demography, especially in European countries that are turning old at an alarming rate. This could be achieved by substantial incentives for procreating aggressively or changes in the immigration policies to encourage young professionals from developing countries to settle there.
· The global supply chain presently relies heavily on China for components as well as manufacturing services. Many developed countries get their fiscal gaps filled by China in lieu of using Chinese manufacturing services and allowing China access to their markets. The new world order may see a massive shift in this trend. Countries may seek to limit their fiscal deficits and seek diversification of their supply chains. This could present many opportunities & threats to the emerging economies like India.
· The dominance of USD as the world's only reserve currency could face serious challenges from more neutral digital currencies, especially as a medium of exchange.
· The ideas like free trade, personal liberties, etc. may face serious challenges from the rising tendencies of governments world over, which are eager to exercise enhanced surveillance and control over personal conduct and data.
· The business models, valuation models, risk assessment techniques, commercial contracts etc. may need to be redefined to build in probability of frequent disruptions and conflicts.
· The business and official ‘foreign travel’ may become ‘avoidable unless necessary’, due to rising scrutiny and excessive VISA restrictions.
· The business continuity planning may become a mainstream subject for all businesses, not just for the mission critical processes and financial services.
· A strong wave of debt defaults/waiver may hit the global financial system. Handling of this tsunami and subsequent recapitalization of the lenders will be a key challenge for the governments and central banks. Inappropriate handling of this challenge may eventually lead to shortage of growth capital and thus rise in cost of capital.
Where does India stand in this transition and what are the opportunities and threats?
I shall share my thoughts on this next week.
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