ON THE THRESHOLD OF GLOBAL POWER, INDIA’S WORK BEGINS

The ‘noughties’, have been a particularly good decade for India. The country has achieved the second highest rate of economic growth in the world and has invested many of those revenues in reducing poverty. Indian democracy has deepened in the past decade, and society itself seems in transition away from some old structures – with leaders from some of society’s lowest castes now occupying the highest political offices in several states.

At the same time Indian companies have emerged as aspiring multinationals with major acquisitions abroad and ready to take on larger challenges. And the world has recognized these achievements. Despite concerns about public governance, persistent poverty, low levels of human development indicators and rising left-wing extremism, India now sits at global High Tables, like the G20 Leaders Summit. The heads-of-state of all five permanent members of the UN Security Council visited Delhi in the last half of 2010 – most of them endorsing India’s bid to secure a permanent seat there itself. India holds a temporary seat there from 2011 to 2013.

But can India rise to the challenge of its new role in global governance?  Can India even afford to be there, financially? With a nominal per capita income barely above a thousand dollars and with more than three hundred million Indians living in absolute poverty, it is still a poor country. Child malnutrition remains a major problem. India’s human development indicators are comparable to those in sub-Saharan Africa, and in some cases even worse.

Consider: India must undertake at least five major changes – starting now – simply in order to approach its Millenium Development Goal by 2015:

  1. India has to give up the notion that it will automatically profit from the size and youth of its population. It must invest in its population to earn that return.
  2. India has to understand that the economy and the private sector can only grow if government supports that growth; economic growth ‘‘despite the government’ is a myth.
  3. India must overcome its energy shortages to keep pace with industrial and agricultural growth.
  4. India must modernize its agriculture. That means increasing food productivity, which has been stuck for almost 30 years, and raising the income of farmers and other agriculture workers.
  5. India has to plan its urban growth.

Even as India gets its own economy in order, it must change the way it creates policies on global questions in order to be more proactive. Any global power should be influential in other major capitals. At a minimum, an aspiring power must take care to do more than just react to other countries’ policies. Some fear that the West has invited India to the Global ‘High Table’ just to counter-balance China. India needs to accept that invitation fully, and then use the High Table to advance its own interests.

To achieve this India can no longer afford to picture itself as a ‘have-not’ country and must give up the defensiveness that makes many Indians ultra-sensitive about sovereignty and prickly at perceived or actual slights from others. A foreign policy regime informed by long-term strategic objectives and conducted with the assurance of the potential third largest economy in the world, will also make India demanding of reciprocity from our smaller neighbours and other partners.

India is rising; it has not yet arisen. It now faces many possible futures. It cannot make the fatal mistake of being complacent. Its well-wishers and partners will do it the greatest favor to remind it of its tasks, which will ensure its emergence as an economic power. Combined with the ‘soft power’ it already possesses, India would then present an alternate model of development for those developing countries seeking their own economic emergence and influence.

By Rajiv Kumar
Director General
Federation of Indian Chambers of Commerce and Industry

RELATED MATERIAL FOR THE WEEK OF MAY 16

BACKGROUND

The past two decades have witnessed significant changes in the Indian economy. For roughly three decades after it gained independence in 1948, India experienced low levels of aggregate and per capita GDP growth – on average between 1-3%. This persistently low rate of growth became known as “the Hindu rate of growth”.  Today, however, India is counted among the fast-growing BRICS countries, and its GDP is predicted to overtake those of several G7 economies in coming decades.

India’s Hindu rate of growth following independence was attributed in many cases to import substitution industrialization (ISI) strategies and the “License Raj,a complex bureaucratic system of licenses and permits. Both systems were aspects of the economic plan put forward by India’s first Prime Minister, Jawaharlal Nehru, and then by subsequent Indian leaders, which was intended to develop India’s industrial base and to modernize its economy. However, the License Raj tended to facilitate corruption and hinder growth by institutionalizing bureaucratic red tape, while ISI policies were often mismanaged. With the collapse of the Soviet Union – one of India’s most important trading partners at the time – and the oil crisis of the 1970s, India was forced to take a loan from the IMF.

In the late 1980s and 1990s, several Indian leaders stepped in to liberalize India’s economic system. Then finance minister (and current prime minister) Manmohan Singh was instrumental in the abandonment of the License Raj, the lowering of several tariffs and subsidies, and the streamlining of many economic and business-related policies. From 2003 onward, India’s GDP growth rate met or surpassed 8%.

Today, India is a major emerging economy, a member of the BRICS and the G20 Leaders Summit, and a nuclear power. Importantly, however, the Indian economy and state still face several daunting challenges. Income inequality remains a serious problem among Indian communities, particularly between rural and urban areas. Work for the poorest members of the Indian economy is often highly precarious and unprotected. Clearly, India faces incredible potential for economic gain in coming decades; the question remains, however, whether that growth will benefit all Indians.

RELATED MATERIALS

  • The Wall Street Journal online edition features a section called India RealTime, which features daily articles on the Indian economy and financial markets.
  • Reuters reported on May 11th 2011 that that India’s GDP may not grow at the rate of 9% projected by the Central Bank earlier this year, due to the country’s fight against inflation.
  • The Economic Times reported that a debate in the Indian parliament over a proposed expansion of food subsidies to the poorest members of India’s population might lead to a decline in food exports for 2011.
  • In the run-up to the Commonwealth Games in Delhi, India, in late 2010, The Economist ran a feature on India’s economic growth. The report noted the country’s progress in the past two decades but also pointed to severe social and economic shortfalls in India’s current economic environment.
  • The Economist also covered the state elections taking place in India on May 13th 2011, noting that current Prime Minister Manmohan Singh’s party was garnering weaker support than predicted, and that the Communist party, originally predicted to lose most of its seats, showed strong results in exit polls.