Monday, April 20, 2015

India still no rival to China's super powers


Julie Bishop last week surprised a high-calibre audience of Indians by telling them that their country  was "taking its rightful position as a world leader, as a superpower".

When she sat down to lunch after giving her speech, an Indian woman asked the Australian Foreign Affairs Minister how she justified the superpower title.

Bishop turned the question back on her interlocutor: "You don't think a country with 1.3 billion people is a superpower?"

One sixth of the human race lives in India, the second most populous nation. In a decade its population is projected to reach 1.6 billion, overtaking China.

Yet the shocking truth is that a country with 56 times Australia's population generates national income only 1.3 times Australia's.

This is the key reason that Indians are incredulous to hear their country described as a superpower. National income per person of just $US1600 a year is about the same as that of the most impoverished country in the Middle East, Yemen. It puts a grim limit on the quality of life for most Indians.

Bishop's comment reflects the expectations that now surround India, expectations that rest squarely on a single man, Narendra Modi, elected prime minister 11 months ago.

The expectations are so giddy that, improbably, no less a figure than the United States president, Barack Obama, has written a gushing tribute to the man in Time magazine, under the headline "India's Reformer-in-Chief".

He says Modi's vision will allow India to realise its enormous potential. The immense frustration of modern India is that its vast potential always remains just that. It wasn't always so.

The people of India had world-class water and sewerage systems 5000 years ago as part of the Harappan civilisation in the Bronze Age. Today more than 100 million Indians have no clean water and more than  800 million have no access to a sewerage system.

The lack of proper toilets is central to India's modern failure. One telling effect. Girls drop out of education at the end of primary school at three times the rate of boys. Not because they don't want to learn but because most schools have no proper toilets. Boys can cope but many girls are unwilling to squat in an open field.

There was a time when India was the most prosperous place on earth. "In the beginning, there were two nations," writes Alex von Tunzelmann in her account of Britain's retreat from its Indian empire, Indian Summer.

"One was a vast, mighty and magnificent empire, brilliantly organised and culturally unified." The other was "an underdeveloped, semi-feudal realm, driven by religious factionalism and barely able to feed its illiterate, diseased and stinking masses. The first nation was India. The second was England."

She was describing the India unified under the Mogul emperor, Akbar the Great, in 1577. India's tragedy is that its people have never recovered the relative prosperity they enjoyed in that era. The Mogul Empire collapsed and India fractured.

And it was a surging Britain, powered by the Industrial Revolution, that occupied India and plundered it systematically for 200  years.

The first prime minister of independent India, Jawaharlal Nehru, thought India was destined to become one of the two or three greatest powers on earth. But he guaranteed that he could not by imposing system of socialist autarky.   

Fleetingly, India in 1991 embraced pro-market reforms which immediately yielded a surge of economic growth. Yet a quasi-socialist system persisted.

Quasi-socialist economics was strangulation enough. But modern India has also suffered a failure of its state apparatus. The public service has been overburdened to the point of paralysis. Politicians and officials have paid little heed to the people or the nation and feasted on every available morsel to feed a chronic corruption.

The author Gurcharan Das cites a saying among Indians: " 'India grows at night while the government sleeps,' meaning that India may well be rising despite the state."

India's great success in information technology is exhibit A. It flourished because, as a new sector, there was no existing government restraint on its development.   

But Das says that India's private sector has hit a limit of what it can do without the state.

For instance, a senior executive at the giant Mahindra corporation, Hemant Luthra, says that "we have pockets full of money to invest, but we can't invest without power". What sort of power? Electricity. In most of India, the power is on for only a few hours a day.

Modi became the first leader in 30 years to win an absolute majority in the lower house because he has promised development above all. "We need toilets more than temples," is one of his themes. An ambitious "make in India" campaign to boost manufacturing is another.

He has made a solid start to the daunting task of reforming India. The big political story today is his land bill to make it easier for companies to acquire land.

"If Modi can get the land bill through the upper house, he will have passed all the things that international investors think of as being important," says James Crabtree, the Financial Times correspondent in Mumbai.

He has liberalised pensions, insurance, cleaned up the corrupt grants of mining leases, opened mining to competition. Next he promises a big bang tax reform – streamlining a messy tax system and introducing a GST.

"Eighteen months ago it looked like India might have to call in the IMF, but it's recovered well and it's the only major developing nation that has a prospect of doing even better" in the short term. But Crabtree, who once worked in the British prime minister's office, is not naive: "The complexity of governing India is jaw-droppingly difficult."

"Good days are coming" is Modi's refrain. Can he pull it off? "The jury is still out," Kiran Mazumdar-Shaw, founder and chair of the Biocon pharmaceuticals firm, tells me.

India today teeters on the brink. It has the prospect of greatness on one side. On the other is relapse to the status of a country that cannot provide toilets to its schools. And even Modi's toughest critics concede that if he fails, there is no other hope in sight.

Peter Hartcher is the international editor. He travelled to India courtesy of the Walkley Media Exchange, funded by the Australia India Council.

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