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India: Domestic Lenses for a Global Vision for the 21st Century

June 28, 2014 • GLOBAL ECONOMY, Editor’s Choice, In-depth, India, Unprotected Post, World Development

By Jean-Pierre Lehmann

India has emerged as one of the world’s six leading nations. Its global ambitions, however, are mired by difficult domestic circumstances and myopic national lenses. Jean Pierre Lehmann charts India’s economic standing throughout history to understand how this nation can move beyond its current difficulties.

 

India and the Global Theatre

In contemplating the global policy arena of the early 21st century I am often reminded of the 1921 play by the Italian dramatist (1934 Nobel Prize in Literature) Luigi Pirandello, Sei personaggi in cerca d’autore (Six Actors in search of an author). In the second half of the 20th century the global geopolitical arena was dominated by two, possibly three, actors – the US and Soviet Union, with Western Europe in a more minor role. In the global economic arena there were four – the US, the EU, and a bit off centre-stage Canada and Japan, in GATT (General Agreement on Tariffs and Trade) speak referred to as the “quad.” Everybody else was marginal, either very minor actors or not on stage at all. There was the Non-Aligned Movement (NAM), of which India was a founding member and prominent leader, but though it provided some background music, it did not call the global shots.

In the 1990s, the world changed beyond recognition. In 1989 the Berlin Wall came down and the world-wide-web came up. The erstwhile global pyramidal structure of first world (market oriented), second world (state control command), and third world (hodgepodge of poor mainly inward-looking) economies collapsed. Pioneered by China’s reforms in the late 1970s, shortly after the end of the Cultural Revolution and the death of Mao Zedong (1976), much of the planet undertook market-oriented, quite radical economic reforms. Of course the world still has very rich countries (Switzerland or Singapore) and very poor ones (Mali or Myanmar), but in contrast to the rather dismissive epithet “third world,” an increasing number of nations became labelled as “emerging.”

India, one of the more conspicuous third-world dinosaurs that saw its anaemic economic growth categorised as the “Hindu rate of growth,” emerged following reforms introduced in 1991. In his quite euphoric book India Unbound (2000), author and former business leader Gurcharan Das wrote: “It was not until July 1991 that our mood of despair finally lifted with the announcement of sweeping liberalisation by the government of P.V. Narasimha Rao. It was as though our second independence had arrived: we were going to be free from a rapacious and domineering state.”

As the emerging emerged they wanted their place at the table, they wanted to be actors, indeed major actors, not just observers, of the global policy theatre. Hence the change of décor and dramatis personae: there are today six major actors, which include the two “old” powers (US and EU) and the four so-called BRICs (Brazil, Russia, India and China). In an extension of this new set-up the G7 has been complemented by the establishment of the G20, which in addition to the BRICs also includes other “emergent” nations, such as Mexico, Argentina, Indonesia, South Korea, Turkey and South Africa; British author and journalist Alan Beattie has described the G20, in Who’s In Charge Here? (2012), as “a pantomime horse manned by a troupe of slapstick clowns.”

Coming back to Pirandello, in his dramatic masterpiece there are six actors, they are on stage, they know they are supposed to be there, but they have no script – no author. So the play consists of the actors going to one another, seeking out some meaning and purpose in their interaction, but finding none, and so finally the play ends as it began. Climate change and trade negotiations come to mind.  

In this theatre of the absurd, India is not only one of the six actors; it is, along with the US, most often in the limelight and certainly the most talkative of the six.

 

The Argumentative Indian

TheArgumentative Indian is the title of a remarkable book by the Nobel Laureate economist Amartya Sen. It delves deeply into Indian history and philosophy, in the process underlying how the argumentative nature of Indian culture accounts in part for the tremendous strides made in metaphysics, astronomy and mathematics. Sen also shows how democracy in India did not come as a legacy of British rule, but had roots in Indian history. The “argumentative Indian” also serves as an evocative description of Indian social behaviour. In Asia, Indians are the antithesis of the Japanese: whereas the latter seek by all means to achieve consensus, the former like nothing more than a good argument.

This has, as with everything, both negative and positive ramifications.

On the positive side, something stressed by Amartya Sen and many others is that Indians are viscerally strongly attached to their democracy. In June 1975 then Prime Minister Indira Gandhi imposed a “state of emergency” which gave her the power to rule by decree; elections were suspended and civil liberties curtailed. It lasted until March 1977. Facing massive virulent opposition, the emergency was lifted. In the subsequent elections both Indira Gandhi and her son Sanjay lost their seats in the Lok Sabha (lower house of parliament) and the Congress Party was thoroughly trounced. The argumentative Indian will not be silenced!

There are other ramifications. In his book cited above, Gurcharan Das, in what is otherwise a glowing and extremely optimistic picture of India, admits that during the years he was CEO of Proctor & Gamble India, 1985 to 1992, while he had excellent people working for him, he was never able to constitute them into an effective and cohesive team. The individualistic argumentative nature of Indians stands as an impediment to team-building and team-play.

And indeed this can apply to India’s democracy as well. It is a democracy, but it is an extremely rambunctious one. It is difficult to get things done in India.

Another consequence could be what one might term the “No-syndrome”. It is easier to solve arguments by focusing on what one is against than what one is for. India’s role in the GATT/WTO is a good illustration.

 

India and the World Economy 1500-1950

In 1500 India was the world’s biggest economy, accounting, according to the outstanding work of the late Angus Maddison, The World Economy: a Millennial Perspective (2001), to a bit less than 30% of world GDP. It maintained a comparable position in the ensuing three centuries. In 1757, following the Battle of Plassey, the East India Company established its rule in India and with it trade monopoly: all India’s trade was handled by the Company – including the lucrative opium trade between Bengal and southern China. In 1858 the Company’s rule was transferred to the Crown which established the British Raj; it lasted until 1947. In the course of these two rules India’s share of global GDP declined precipitately. In 1820 it stood at 15%. By 1913 it had more than halved to 7% and by the time the Raj ended it more than halved again to 3%. Throughout the last five decades of the Raj the Indian economy registered zero growth.

While the economy did not grow, the population did. In 1900 the total population of the Indian Empire was 270 million. In 1950, India’s population was 380 million, to which should be added the 76 million Pakistanis (West and East), making a total of 456 million. Thus in 1950, after two-hundred years of British rule, India alone corresponded to 15% of world population, but only 3% of world GDP.

 

In 1950, after two-hundred years of British rule, India alone corresponded to 15% of world population, but only 3% of world GDP.

India, Trade and the GATT/WTO

India gained independence in August 1947. In July 1948 it joined the GATT. The GATT lasted until 1994; it was replaced in 1995 by the WTO. Among the main differences between the GATT and the WTO is that the GATT had a negotiating function but no dispute settlement function. During its forty-seven years of existence it convened seven successful rounds, the first in Annecy in 1949, the last in Punta des Este (Uruguay) in 1986. Because of not having any juridical function, when violations were committed the GATT could admonish, but not punish. Member states, not least the US, the Western European countries and Japan, all engaged in flagrant violations of GATT rules. To give only one of multiple possible examples: whereas according to GATT rules tariffs – so long as they were transparent and non-discriminatory – were allowed, quotas were not; but for years France maintained a maximum 3% market share on the import of Japanese cars.

Throughout the GATT years India was a rather dormant member. In that period, until the reforms launched in 1991, India was in any case little interested in international trade. It was highly protectionist and followed an import substitution industrialisation policy. This was in part the legacy of the pre-independence swadeshi (self-sufficiency) movement and also in good part a reflection of development economics thinking at the time, notably in the works of the Argentine economist Raúl Prebisch, that trade between developing and developed countries would inevitably handicap and impoverish the developing. International trade and imperialism were held to be synonymous. After all, as I was frequently reminded in conversations with Indian policy makers in the 1970s and 1980s, India had been colonised by a multinational company!

As mentioned earlier, the market revolution reforms that swept much of the planet in the course of the early 1990s and the example given by what the World Bank termed the East Asian Miracle (1993) economies challenged erstwhile development policy orthodoxies and heralded instead a new consensus centred on market reforms, privatisation and trade liberalisation. This coincided with the establishment of the WTO. The percentage of trade engaged in by developing countries increased dramatically. As increasingly important traders, the developing countries wanted a greater presence in the corridors of trade policy power.

Following the ultimately successful conclusion of the last GATT (Uruguay) Round, the WTO sought to launch a new round. This, however, was in a context of growing North-South animosities. As the emerging and developing economies became interested in global trade, they found a playing field that was strongly tilted against them, with significant barriers in those areas (e.g. agriculture and labour-intensive goods) where they had comparative advantage. The attempt to launch a round at the Seattle 1999 WTO ministerial meeting ended in an acrimonious fiasco. In November 2001 at the Doha ministerial meeting, held while the embers of 9/11 were still smoking, a round – the Doha Development Agenda (DDA) – was launched. Until the recent (December 2013) meeting in Bali the DDA languished from failure to failure, bringing into question not only the Doha Round itself, but also the legitimacy and future of the WTO and the whole rules-based multilateral trade regime.

The two main spoilers have generally been perceived as the mightiest of the “old” established global trade powers, US, and the most vociferous of the leading emerging global trade powers, India. The showdown came at the WTO ministerial meeting in Cancún in 2003. The US and EU delegations arrived having reached a bilateral deal including various “demands” they sought to impose. In the meantime the disparate nations of the South organised in what was initially called the G22 under the combined leadership of Brazil, China, India and South Africa. As an observer at the meeting, the image that most came to mind was the Tower of Babel, as ministers between North and South talked at complete cross-purposes and on different wave lengths.

Cancún collapsed. In the ensuing decade the wrangling continued as intransigence on all sides became increasingly ensconced. The Bali meeting almost failed, with India again being the main party opposed to a proposed package on the grounds that it might threaten the country’s food security. At well past the twelfth hour a compromise was found – the Bali package – consisting of trade facilitation, development and agriculture issues. Whether Bali ultimately will be Doha’s last gasp or a rebooting of the Round remains to be seen. Whatever happens, India will be at centre stage.

 

India and the 21st Century

With today the world’s third biggest economy in PPP (10th in nominal) terms and some 18% of the world’s population, India has obvious global clout. It is also the world’s biggest democracy. It has an extensive and influential global diaspora – in business, academe, science and international organisations. The widespread use of English among the educated also gives India considerable global voice. Indians are prolific authors in English, including novels, religion, and both the social and natural sciences. Indian professors populate American and British universities. Sunil Khilnani, in The Idea of India (1999), suggests that increasingly in this century India will become the largest source of English language publications. India has a considerable reservoir of soft and indeed spiritual power. It also has hard power, being the world’s fourth biggest military power and possessing a nuclear arsenal.

India needs to align its internal conditions with its global ambitions, and it desperately needs deep and extensive domestic reform at all levels.

As prospects stand in early 2014, however, earlier glorifying images of “shining India” or “incredible India” have become tarnished. Politics are an unholy mess, economic prognoses are rather discouraging, social justice seems to be lacking, and corruption is widespread. India comes out badly on virtually all indices: it is ranked 94th in the Transparency International Corruption Perception Index (China is 80th); 66th on the World Intellectual Property Organisation (WIPO) Innovation Index (China is 35th); 134th in the World Bank Doing Business Index (China is 96th); and 136th in the UNDP Human Development Index (China 101st).

India comes across therefore as a significant global power in military, economic, political and cultural terms, but anachronistically at the national level in many respects as a poor and unjust society. As the Financial Times Asia editor, David Pilling, commented recently (“India is out of the woods but a long way from safe”, 4 December 2013): “India’s economic model looks shakier than before. Not only has it failed to turn GDP into social justice, the basis of growth itself looks less certain.”

The early 21st century does not represent a new global order, but a new global disorder: as in Pirandello’s play. India is a major global force, a source of great inspiration, but also undoubtedly a major cause of the “disorder.” To be a credible global leader, which would be good for the planet, India needs to align its internal conditions with its global ambitions. India desperately needs deep and extensive domestic reform at all levels. To have a global vision for the 21st century, new domestic and dramatically improved national lenses are urgently required.

 

About the Author

Jean-Pierre Lehmann is Visiting Professor, NIIT University, Neemrana, Rajasthan, India; Emeritus Professor, IMD, Lausanne, Switzerland and Founder of The Evian Group@IMD; Visiting Professor, Faculty of Economics and Business, Hong Kong University; member of the World Economic Forum Global Agenda Council on the Future of Trade and FDI.

 

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