Interim Report by UNEP & FICCI
March 23, 2011
Link to original website
India is often described as an emerging economy, yet rarely are adequate linkages made between the domestic and foreign drivers of its growth. In the fifth installment of its “China-South Asia Dialogues” series, the Carnegie-Tsinghua Center for Global Policy invited Samir Saran, vice president and senior fellow at the Observer Research Foundation (ORF) in New Delhi, to discuss the domestic forces that shape India’s foreign policy. He was joined by ORF distinguished fellow, Ambassador H.H.S. Viswanathan, who offered a targeted analysis of these policies in practice, discussing India’s engagement of African countries. Carnegie’s Lora Saalman moderated.
India’s Economic Transformation
After twenty years of economic reform, nearly half of India’s Gross Domestic Product is linked to the global economy. Yet, while India is an important and sizeable market, it is still not a large economy in terms of per-capita income and the depth and range of its economic activity, Saran said. With the bottom 80 percent of the population contributing over 60 percent of Indian consumption, India remains sensitive to the rise and fall of prices for both goods and infrastructure. Saran suggested that India’s designation as an “emerged economy” needs to be re-assessed.
- Wealth Disparity: Saran spoke of the vast wealth disparity in India between the extremely wealthy—including approximately 600 millionaires and billionaires—and the 800 million people who subsist on less than $2 per day. India possesses nearly half of the world’s poor, which strains its ability to deal with issues such as healthcare, education, energy, and water supplies.
- Population Bulge: With the growing number of teenagers set to enter the domestic job market, India also faces some daunting challenges in creating adequate employment. One of the Chinese participants asked whether India’s youthful population was a source of instability for the country. Saran agreed that the country’s large young population exacerbates some of the threats that India already faces, such as left wing religious and political extremism, Islamic radicalism and an unstable neighborhood that at times leaks its impulses and intentions across its border.
- IT Not a Panacea: Saran argued that while India is known for its booming information technology industry, this sector has only been able to provide 15 million jobs in the past decade-and-a-half, in a country with a population exceeding 1.1 billion. He estimated that India will need to add 10-15 million new jobs each year to fully employ to its youth. Saalman asked whether in the wake of China’s shift from a labor-intensive to a capital-intensive economic base, India might be able to absorb some of China’s manufacturing jobs. Saran doubted that this would occur on a large scale given the inability of India to devote the tracts of land necessary for major industry to thrive.
India and the Global Community
- Diaspora and Outsourced Governance: One Chinese participant asked about the role of the Indian Diaspora in meeting India’s development goals. Saran noted that, with the exception of the United States and parts of the European Union, much of India’s Diaspora in other parts of the world remains at the lower rungs of the local society, such as those working in the Middle East. This group often exerts an indirect rather than direct political influence.
- The China Dream: Saran explained that Chinese corporations are now entering Indian economic sectors like power, telecom, and infrastructure, sometimes replacing Western countries in key projects. They have even started offering commercial loans and finance. While India does not want to be overly dependent on China, the price sensitivity of the Indian market and the reality of the global economy may compel greater Sino-Indian cooperation. Yet, China offers India a more realistic goal than the “American Dream,” Saran contended. While India will have to stand up to a more demanding China in a geo-political context, he argued a segment of Indian industry already views China as an economic opportunity.
India’s Transformation in Practice in Africa
The international perception of Africa is changing, with the traditional view of its colonial past and lack of strong institutions giving way to economic revitalization, impressive growth rates, increased consumption levels, and expanded resource extraction and exports. The political resurgence in Africa has made African leaders more responsive to good governance, argued Viswanathan. As part of this process, India and China are engaging the newly resurgent Africa and creating new paradigms.
- Beijing and Delhi Consensus: India, much like China, has taken a much more business-oriented and less politically driven approach to Africa, Viswanathan said. Both countries anticipate a shift in global institutions, where the traditional Western dominated power structure will be faced with alternatives from the developing world.
- China and India Into Africa: Viswanathan spoke of the need for India to make greater investments in agriculture, infrastructure, health, and human resource development, alongside cooperative measures in combating terrorism, drug smuggling, and human trafficking within Africa. Noting the Western media’s strong focus on China’s role in Africa and India’s lengthy history on the continent, Saalman asked for a comparison of the role the two countries can play in the continent’s economic renaissance. Viswanathan answered that while China has had a varied level of engagement with Africa since the 1950s, India has maintained a consistent presence and strong level of integration in Africa. Many Indians immigrated to Africa and often hold citizenship in African nations, placing India in an advantageous position to boost Africa’s growth from within the continent.
- Dispelling the Colonial Mindset: China and India are not out to dominate or control Africa, asserted Viswanathan. While both countries are engaged in the extraction of resources from Africa, they have also made strides toward helping Africa develop its infrastructure and human resources. For example, India has also brought some of its telecommunication savvy to bear in Africa, through business ventures to provide lower cost connectivity to Africa.
- Between Hard and Soft Power: Viswanathan emphasized that much of India’s military aid has been non-lethal, such as providing uniforms and supplies. There had been some small arms trade with some countries but the greater concentration has been on defense training and the sharing of military personnel. Ultimately, Viswanathan argued that for both India and China, the soft power element of having their citizens on the ground and establishing cultural institutions like the Confucius Institutes has been more effective at penetrating Africa than hard power mechanisms.
The financial crisis across the globe and the ensuing responses by nations and non-state actors has dominated both public consciousness and political debate in the recent past. The discussion on suitable stimulus packages, the causes for the financial disorder and future restructuring of the financial systems has often been dominated by the rhetoric of specific constituencies serving individual interests even as it loses sight of the substantive argument. In India too, the eagerness to commend our regulatory practices has tended to brush the larger debate on the actual economic fallout of the crisis under the carpet.
The financial crisis across the globe and the ensuing responses by nations and non-state actors has dominated both public consciousness and political debate in the recent past. The discussion on suitable stimulus packages, the causes for the financial disorder and future restructuring of the financial systems has often been dominated by the rhetoric of specific constituencies serving individual interests even as it loses sight of the substantive argument.
In India too, the eagerness to commend our regulatory practices has tended to brush the larger debate on the actual economic impact of the crisis under the carpet. As the world economy lurches ahead, the fallout on the country and the innovative measures necessary to guide the Indian economy through this downturn need to take centre stage. The recently concluded G-20 summit at London too did not result in any concrete measures and the outcome was a litany of intentions rather than actions.
This paper examines the “conservative and prudent practices” within the Indian financial sector that cushioned the direct impact of the institutional meltdown witnessed in the West and discusses the measures that the country must pursue to regain the growth momentum and help restructure the global financial order. It seeks to highlight some of the priorities that must guide India’s responses on the path to economic recovery.
The main policy recommendations are as follows:
(i) Give highest priority to public investment in infrastructure and social sector;
(ii) Ensure credit for private sector to enable participation in infrastructure and manufacturing sectors. This would generate employment and spur GDP growth;
(iii) Encourage public and private investments through tax and other incentives in Rural Development and Agriculture sectors. Make supply chain infrastructure a national mission;
(iv) Develop alternate business models to ‘SEZs’. Policy must encourage ‘rural business hubs’ along with development of rural markets.
(v) Develop domestic BPOs and IT services markets. Special emphasis on development of IT infrastructure in rural and peri-urban areas;
(vi) India must seek out a new geo-economic space for itself through regional and international trade arrangements.