Unequal Destiny

Unequal Destiny

Jawaharlal Nehru spoke of a ‘tryst with destiny’ in his midnight speech of August 15^th, 1947. He was mostly referring to the emergence as an independent nation after 200 hundreds years of British subjugation, rather than India’s future.  

But today we might well ask, what is that manifest destiny, after 67 years of disappointing results? Are we to be desperately poor always, at least from the perspective of over a third of our number, and forever missing the woods for the trees for the rest?

China must have thought similar thoughts after years of tumult and perpetual revolution under Chairman Mao which ended up killing 30 million of their own as ‘dissidents’. This, without however bringing the survivors and successors any closer to the Communist goal of equality and shared progress.

Not until, that is, they threw the unworkable ideology out in practice, and turned instead on to a determined capitalist path in all except name. Deng Xiaoping defanged the notion of profit and prosperity within the Chinese lexicon, and gradually, over 30 years of double-digit growth, China has emerged as the second biggest economy in the world.

But there are some inherent advantages in the Chinese system. The one party supremacy of the ‘Communist Party’ still runs China. This all-powerful body does not have to bother with ‘political freedom’, public opinion or electorates. And its bosses, chosen by an opaque internal process, can both take decisions, and ensure their implementation in quick time.

Can an India run by an avowedly market-friendly Narendra Modi, with the first parliamentary majority in 30 years, do what hasn’t been done so far? If Modi’s Government endures for at least the next ten years, can India catch up to China economically?  

Presently, India may be out of the list of habitual recipients of international aid, but it still needs foreign money to fund its ambitions. What is possible, is considerable progress and growth going forward. Our growth percentages from a low base will soon look marvellous. But they won’t add up to a total greater than China’s is today for decades yet.

Meanwhile, the latter will continue to grow on its much larger base, their $6 trillion to our $2 trillion. China will henceforth grow at a slower pace, because its exports are down, its domestic infrastructure is largely built, its banking system somewhat over-extended, and the domestic consumption story still a work in progress.

However, it is investing massively, over $100 billion worth in other countries. It may still account for around 7% per annum going forward. It is also today the world’s 5^th largest high-value arms exporter  and a formidable nuclear enabled military power, and these things too provide excellent economic leverage.

If India ramps up to its former 9% annual GDP rate or more, and sustains it, our year-on-year growth rate will certainly surpass that of China’s, and make India the fastest growing economy in the world. This much could well happen before the end of the first five-year term of the Modi Government.

But even talk of returning to 9% or breaking through to double-digits is possible only if India discards its incremental approach and implements bold reforms. We simply do not have the domestic capital to fuel our growth needs.

And our short-comings at present are many. We rank 60^th in economic competitiveness, much lower than China’s 29^th. Public Health and Education puts us at No. 102 in the global reckoning. Transport, communication, electricity has us ranked 85^th. The Labour is qualitatively at rank 99^th , grossly under-skilled and protected by rigid laws.

We therefore have to drastically improve many things to facilitate foreign investment. Exponential growth can indeed happen if India makes policy decisions and implements its vision like Dhirubhai Ambani did once he got started, with the same pragmatism and fire in the belly. But we have to bear in mind that this is an unwieldy democracy and that times have changed.

We will not be able to fuel this growth in 2014 onwards via low unit value but high volume exports to the US and Europe as China did, using the Nixon-Mao détente and most-favoured-nation treatment. Instead we may have to populate the country with many more manufacturing enterprises in a variety of fields, most of them designed to cater to domestic demand.

The boom years in the US and Europe, and their insatiable erstwhile market demand is over.  Things are much more subdued now. India, starting now, will have to export high-value goods and services instead. These might be armaments, vehicles and auto components manufactured here, but pre-sold because of their international branding and technology.  Then there is the IT, but it will face its own headwinds from US technological superiority beyond a point unless Indians buy into Silicon Valley to operate on both sides. And of course our diamond cutting and polishing trade, fuelled by Indian owners in Antwerp. The  garments likewise with Indians out of Hong Kong leveraging their reach, craft items etc.

But if today exports account for 12% of our GDP and IT and services 56%, these percentages will not alter radically, even as they will represent higher absolute figures. Our near total dependence on foreign oil will keep our economy under pressure until alternatives are found from perhaps our own shale deposits, new gas and oil finds, thorium based nuclear power, hydro, wind, solar and so on.

Our diplomacy will need to deliver better commercial terms to facilitate trade. And India will have to ramp up its ability and cater to a huge domestic market with an appetite for sophisticated and technologically driven products and services. Our own internal consumption potential is a great strength and we need to exploit its power.

At the end of the day, India can certainly join the ranks of the top ten economies in real terms because of its physical and demographic size, and the distance already travelled with regard to its potential. But if it wants to be in the top five, or even three, it will have to change its ways beyond all recognition. Many however think of Modi as India’s Deng, and just the man to bring about this transformation.

(1,028 words)

July 26^th, 2014

Gautam Mukherjee