Wednesday, 10 July 2013

The internal paradox of a strong India

The geographic enormity of India and the intricate spectrum of people and culture on the subcontinent make for a complex but burgeoning dynamism. It is a country of First World endeavours, spending billions of dollars putting men into space, with Third World constraints ranging from electricity blackouts to militant attacks and in 2010 around 840 million people living on less than US$2 per day.

When adjusted for purchasing power parity, India has grown in stature to rival the mighty Japanese economy. And even though China seems to attract the bulk of the international media’s attention in this new “Asian Century”, India’s population is projected to lurch past China’s in less than 20 years. That number seems to be important for India, as both it and China have tripled their share of the global economy in the past 20 years as well.  

As India grows, it plays with greater tenacity on the world stage. India is building a world-class navy and participating in various aid projects. Long a recipient of donor funds, India is now an important provider of development assistance, following and significant heartening trend in Asia.

In 1990 more than half the population of Asia lived in extreme poverty. By 2015 that proportion will be down to 10 percent. While many Indians still live in terrible conditions, they are not only living in a region excitedly preparing to deal with 60 percent of the world’s growth by 2015, they are emerging as game-changing donors throughout the region.

It is true there are few accurate measures of aid-like flow from these countries; China is quite likely a larger aid supplier than Australia. While Indian assistance quadrupled over the past decade sitting at a healthy NZ$1.6 billion a year in grants and loans.

This all bodes well for India as it matures into a strong country with profound cultural paradoxes. However, the prospects for India as a rising East Asian power depend on how the country addresses its domestic obstacles and relations with neighbouring countries.

At first glance, those obstacles seem impenetrable or at least extremely difficult: a government admittedly ambivalent about pervasive corruption and stifled by bureaucracy, slipping fiscal and trade deficits despite over 20 regional trade agreements, high inflation, and a weakening investment environment.

A record low of 5 percent GDP growth registered in the fiscal year of 2012-13, which closed March 31 - down from 6.2 percent in the year previously – worries international and domestic observers that a real change in momentum might not be possible in the next fiscal year. Neither the slowing export growth figures nor the slowdown in fixed investment growth from 4.5 percent to 3.4 percent year-over-year help the situation either.

Adding to the worries, the Reserve Bank of India (RBI) has cut its interest rates by 75 basis points since early January in an attempt to encourage growth, but it has not yet had the desired effect. There could be room for more changes, but the RBI has already warned it could have exhausted their current range of options saying there was little space for more monetary easing.

Food prices and manufactured products grew slowly and inflation slipped to below 5 percent in May 2013, its lowest rate in three years and nowhere near the average rate of 8.8 percent over the past three years. However, while an early monsoon season has been particularly deadly this year, it should boost farm production and is expected to help drop food prices and ease inflation later in the year.

New Delhi has already spotted the slowdown and revealed plans last year to help boost the Indian economy by offering foreign investment the chance to be involved in its retail, broadcasting, aviation, and power sectors. Yet the expected obstacles of government bureaucracy and delays in key reforms to simplify investment in India has changed the mood of business from “unduly optimistic” in 2007 to “unduly pessimistic today”, according to Prime Minister Manmohan Singh.

All this aside, India is still a critical addition to the Asian Century, at least in the sense that investors are always waiting to take advantage of new, positive changes in the economic system. Geography explains some of the reasons why India has struggled to build political structures and organise resource development in the past. India is very hot and lacks the temperate zones which benefit the European landmass and the Chinese mainland. And positively, it is India’s position in the Indian Ocean that sets it apart and plugs it into the world.

The Indian Ocean is the world’s energy superhighway taking oil and gas from the rich Middle East to the growing middle class in the tropical lands of East and South Asia. As Robert Kaplan points out, India fuses the Greater Middle East with the geopolitics of East Asia “creating an increasingly unified and organic geography of conflict and competition across the navigable southern rim of Eurasia.”

It is important to ask the question now about where India will fit into Asia because in a very clear sense what the world expects from India might just be over and above India’s own expectations of itself. The country is geographically both blessed and constrained, with great potential to develop so long as deep structural problems can be addressed.

If these fiscal obstacles cannot be overcome - and their social inequality balanced - Indian failure to develop could have far-reaching consequences. A gulf still remains separating India’s potential and its achievements making it that much tougher to catch up to the rest of a quickly growing Asia.

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