India’s Economy

In my relatively short time here in Parliament I have been vociferous in my belief that China and India will become economic superpowers.

In the lead-up to an anticpated visit to the Indian subcontinent I had commissioned some research on India’s current economic status and future expectations and the results are almost all universally positive. It should give Britain and other countries in the West food for thought in our economic vision for the next two or three decades. It should certainly continue our reluctance to submerge ourselves any deeper in the European economic system.

I may not agree with the recent assertion by the famous US economist, Prof. Jeffrey Sachs, that “if the country continues to grow at the present rate, the Indian economy will overtake the US economy in the next 50 years” but there is little doubt that we are watching a massive economic resurgence from a country with 1.1 billion people.

Visiting India two years ago it was clear to see a self confidence amongst its people with an enthusiasm for entrepreneurship in its cities that behoves well for the nation’s future. Its core institutions, an independent judiciary and free press alongside a commitment to education and free market economies over the past decade are anchored by roots more than half a century old. Most importantly, India has a firm adherence to democracy, based on a secular society.

The likely promotion of India from an Asian superpower to a major global economic player can be compared to that of Germany and Britain in the Industrial Revolution of the 19th century, and to America and the technological boom of the 20th century. The advantage India has in developing later, however, is phenomenal. While growth is good the country is taking great care that it does not follow the sometimes boom and bust economic models of the United States and many European nations. India is aiming to invest in clean technology to fuel its developments to avoid the environmental pitfalls the western world has fallen into whilst pursuing relentless growth. The country has already embarked on a path of sustainable development without waiting for assistance from the west – quite an important consideration with the current increase in oil prices.

Statistics put forward by Goldman Sachs seem to point to a robust, high growth Indian IT industry in the future. India’s knowledge-worker population grew to 650,000 software and service professionals in 2003-04 from 6800 in 1986. It is predicted that India’s IT workforce could grow to 2million in 10 years.

India’s culture of education is changing too. The scattering of Indian college students to the United States and Switzerland for business degrees has slowed as India’s own universities take the lead in Asian business MBAs. The top business school in Asia is now claimed to be Ahmedabad, instead of one of the Chinese Universities. New Delhi alone boasts 400 institutions of excellence in Higher Education. To succeed in India today you no longer need a background of wealth or connections. Half of all school leavers now opt for higher education instead of direct employment.

Underpinning the economic forward movement is India’s commitment to democracy. It is a great source of economic stability as the Government are answerable to the people, thus more care is taken in decision making. This can slow down the development process, but when compared to China, this may not be such a bad thing.

Recent comments from Commerce and Industry Minister, Murasoli Maran, stress that India doesn’t “believe in big-bang reforms” because they have seen the effect they have had in countries that are now suffering, reflecting on the meltdown that occurred in some parts of South-east Asia. To many here in the West, China’s economic progress has been nothing short of fantastical but on closer inspection it can be viewed that inflationary pressures, bad bank loans, a fast increasing mal-distribution of income and crime all threaten its economic stability.

India has the advantage over China in many respects. Its working-age population will continue to increase well into the 2020s whereas China’s will diminish and age quite rapidly due to the one child per family policy. India has well entrenched and transparent democratic institutions, making it less vulnerable to political instability. China, on the other hand, faces the challenges of continuing to control in an authoritarian manner a growing middle class.

In reality, India is better placed for future growth because it operates with greater efficiency than China does but it faces major obstacles in reform, the main one being the social situation in India. Abject poverty is rife particularly in rural areas. According to the U.N Development Fund some 55% of India’s population live on less than a dollar a day, conforming to the World Bank’s definition of “Absolute Poverty”, where people live, essentially, from hand to mouth. Rural poverty is worrying, but the main concern is urban poverty with the Indian Government predicting that half of its population will be living in cities by 2011.

India has a Muslim population of almost 150 million people – about 15% of the total. It would be naïve to suggest there are not economic and political tensions between Muslims in India and the predominant Hindu majority. Equally the secularisation of the past 55 years in the nation has resulted in an explosion of wealth in a fast growing Muslim middle-class, which now has a huge stake in the continued wealth and advance of that economic superpower of the future.

However, because of the sheer size of India’s population (projected by the US Census Bureau to be 1.3 billion by 2020) the country’s standard of living need not approach Western levels for it to become an economic superpower.

The new global economic powerhouses could usher in a new set of international alignments, potentially marking a definitive break with the post World War II institutions and practices. As India’s economy grows, governments in South-east Asia such as Malaysia, Singapore, Thailand and other countries may move closer to India to help build a potential geopolitical counterweight to China. At the same time India may seek to strengthen its ties with countries in the region without excluding China.

India, the global tortoise, may slowly but eventually outstrip the hares of this world who could find that their fast rise to success may also lead to their fast decline and eventual burn out.

I am sure that the City of London and Britain as a whole are up to competing against and taking advantage of India’s economic resurgence. Certainly it is my belief that Britain and the West should not take their eyes off India over the next two decades as I surely will not.