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BW Businessworld

If China- Taiwan Conflict Leads To War, It Will Impact Indian Economy Massively: Economist Meghnad Desai

A fundamental economic principle is the division of labour, which entails producing and exporting only those goods that are within one's capabilities while importing those goods that can only be produced at a very high price, he said

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The relationship between China and Taiwan hit a new roadblock after the visit of Nancy Pelosi, Speaker of the United States (US) House of Representatives to the island nation. 

During her visit to Taiwan, Pelosi on 02 August 2022 said that the US delegation’s visit honours America’s unwavering commitment to supporting Taiwan’s vibrant democracy. 

Expectedly, the Chinese foreign ministry condemned Pelosi's visit and said it seriously damages peace and stability in the Taiwan Strait.

Keeping the security and political turmoil aside, the possible war can affect the entire world considering Chinese integration in the global economy. 

In an interview with BW Businessworld, Meghnad Desai, Chairman, Meghnad Desai Academy of Economics (MDAE) and Professor Emeritus, London School of Economics talked about the economic consequences for the globe along with India, if a war breaks out between China and Taiwan.

Do you think the conflict can impact the Indian economy? 

Yes, of course. If the ongoing conflict leads to a full-scale war with China on one side and the US on the other, it will definitely have a massive impact on the Indian economy. While India is a part of QUAD that aligns with the US, the country also stood by China in the Russia-Ukraine dispute. 

This makes it difficult to predict which way India will go if the conflict deepens. I am sure that the External Affairs Minister, who has been India’s ambassador to China, is aware of the pitfalls.  

Talking about India, what is the current status of the Indian economy amid all the economic recovery claims by the central government? 

According to the most recent data, the gross domestic product (GDP) forecast for the June quarter is favourable. However, India, like the rest of the world, faces a high risk of stagflation. Considering the current status of the economy, inflation is already quite high, and if the war occurs, it will only worsen. 

China is heavily integrated into the global economy. How is this conflict different from Ukraine and Russia? 

Since China has a substantial presence in the global economy, this conflict will have a significantly greater effect. While the US has strong ties with neighbouring countries under QUAD and AUKUS and has a robust military power, it worries about China. 

On the other hand, Russia’s failure to make a dent in Ukraine after six months clearly indicates its second-rate military power.  

Is there any chance that China can face western sanctions? If yes, do you think it will be an economic nightmare for the entire world? 

Yes, if the conflict continues, China will face western sanctions. Like every war, there will be consequences. Since 1945, the world has not witnessed anything as massive and disruptive as this.  

Is this the high time for India to become more self-reliant as the global supply chain can disturb at any time amid the Ukraine-Russia and China-Taiwan conflict? 

Self-reliance is a delusion. In the first forty years after independence, India stagnated due to the illusion of self-sufficiency. It is now known as Atmanirbharta. No other country in the world is self-sufficient. If each nation pursued self-reliance, there would be no trade, global supply chain, or foreign investment. 

A fundamental economic principle is the division of labour, which entails producing and exporting only those goods that are within one's capabilities while importing those goods that can only be produced at a very high price. So, becoming self-reliant in terms of the supply and demand of goods amid the ongoing conflict is an unrealistic approach.