India’s Slowdown May Be More Important than Europe’s Crisis

Never Mind Europe. Worry About India

NEW YORK TIMES  Tyler Cowen  May 6, 2012 

The economic slowdown in India is one of the world’s biggest economic stories, but it is commanding only a modicum of attention in the United States.

It may not even look like a slowdown because by developed standards, India’s growth — estimated by the International Monetary Fund at 6.9 percent for 2012 — is still strong. But a slowdown it is: the economy has decelerated from projected rates of more than 8 percent, and negative momentum may bring a further decline. The government reported year-over-year growth in the October-through-December quarter of only 6.1 percent.

What is disturbing is that much of the decline in the growth rate is distributed unevenly, with the greatest burden falling on the poor. If the slower rate continues or worsens, many millions of Indians, for another generation, will fail to rise above extreme penury and want. The problems of the euro zone are a pittance by comparison.

China commands more attention, but Scott B. Sumner, the Bentley College economist, has pointed out it is India that is likely to end up as the world’s largest economy by the next century. China’s population is likely to peak relatively soon while India’s will continue to grow, so under even modestly optimistic projections the Indian economy will be No. 1 in terms of total size.

India also is a potential force for energizing the economies of Bangladesh, Nepal and, perhaps someday, Pakistan and Myanmar. The losses from a poorer India go far beyond the country’s borders; furthermore, the wealthier India becomes, the stronger the allure of democracy in the region.

Why is India’s economic growth slowing? The causes are varied. They include a less than optimal attitude toward foreign business and investment: recall the Indian government’s reversal of its previous willingness to let Wal-Mart enter the retailing sector. The government also has been assessing retroactive taxation on foreign businesses years after incomes are earned and reported. Another problem is the country’s energy infrastructure, which has not geared up to meet industrial demand. Coal mining is dominated by an inefficient state-owned company and there are various price controls on both coal and natural gas. Over all, the country does not seem headed toward further liberalization and market-oriented reforms.

These problems can be solved. More troubling are the causes that have no easy fix.

Agriculture employs about half of India’s work force, for example, yet the agricultural revolution that flourished in the 1970s has slowed. Crop yields remain stubbornly low, transport and water infrastructure is poor, and the legal system is hostile to foreign investment in basic agriculture and to modern agribusiness. Note that the earlier general growth bursts of Japan, South Korea and Taiwan were all preceded by significant gains in agricultural productivity.

For all of India’s economic progress, it is hard to find comparable stirrings in Indian agriculture today. It is estimated that half of all Indian children under the age of 5 suffer from malnutrition.

Another worry is that India’s services-based growth spurt may have run much of its course. Call centers, for example, have succeeded by building their own infrastructure and they often function as self-contained, walled minicities. It’s impressive that those achievements have been possible, but these economically segregated islands of higher productivity suggest that success is achieved by separating oneself from the broader Indian economy, not by integrating with it.

India also has one of the world’s most unwieldy legal systems, and one that seems particularly hard to reform. On the World Bank’s Doing Business Index, the country ranks 132 out of 183 listed countries and regions, behind Honduras and the West Bank and Gaza, and just ahead of Nigeria and Syria. One undercurrent of talk is that the days of “the license Raj” have returned, referring to the country’s earlier subpar economic performance under a regime of heavy government regulation.

On the positive side of the ledger, the country retains a population with remarkable talent, energy and entrepreneurship. It has worldwide networks of trade and migration, and world-class achievements in entertainment and design, among numerous other strengths. Nonetheless, the previous pace of progress no longer seems guaranteed.

India may not be alone in this slowdown. There is a more general worry that the grouping of disparate giants known as the BRIC nations — Brazil, Russia, India and China — has, for some reason, lost much of its previous momentum. Last year Brazil grew at only a 2.7 percent rate, down from 7.5 percent, and Chinese and Russian G.D.P. growth are slowing too, to an unknown extent and duration. In the past, many countries engaged in catch-up growth have suddenly slowed and hit plateaus, although economists do not have firmly established theories as to when and why this happened. In any case it remains a real danger.

In the short run, we often focus on headlines, elections and fights between personalities and political parties. But the world is shaped by deeper structural forces, such as resources, technologies, demographics and economic growth rates.

We ignore India’s troubling trends at our peril.

 

 

Are Indians Becoming Intolerant?

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That’s the question that veteran Indian journalist Gautam Adhikari will discuss at the Asia Society in New York on Thursday, June 2. He will appear to discuss his new book The Intolerant Indian: Why We Must Rediscover A Liberal Space with former U.S. Ambassador to India Frank G. Wisner. Adhikari, the former executive editor of The Times of India, spoke to us yesterday via email.

You have maintained that the book is not about intolerant India, it is about intolerant Indians. In a country that takes immense pride in its celebrated pluralism and secular outlook, what factors are making Indians increasingly intolerant?

At its core, the dispute is a long-standing one over the idea of India. Is a singular identity appropriate, or even possible, for such a diverse entity? Some argued, from the early stages of the nationalist movement, that India should reclaim its lost identity as a Hindu nation after centuries of subjugation and pillage by outsiders. Others retorted that India indeed housed an ancient civilization but if it was going to be a new nation, a democratic one, no single identity would suit the bold experiment and it must be a pluralist, secular republic. By the time the Constitution was formally adopted in 1950, the latter school had won the argument. That’s why many of us are proud to be Indians, citizens of a bold experiment in democratic living.

The issue, however, was not resolved. With an increasing fragmentation of politics in later decades, the idea of a singular national identity once again began to take hold of the imagination of a large section of the people. Perhaps a majority of Indians still appreciate India’s pluralist character but a significant, and often militant, minority disagrees and has translated its disagreement into violent action from time to time. Intolerance, however, is not a monopoly of religious ideologues in India. It is very much a part of the thought process of a large number of illiberal minds and extends from intolerance of culture and behavior of the “other” to preventing creative freedom in art, literature and speech. That illiberal mindset is what I worry about. The tolerance that the idea of India rests on is more than tolerance per se. It must be a conscious celebration of diversity.

India’s image as a secular country has once again been seriously questioned by the US Commission on International Religious Freedom’s (USCIRF) Watch List for 2011. Does India’s inclusion in the watch list, alongside Afghanistan, Cuba, and Venezuela, in some way validate your thesis?

In the countries you have cited, it is either official policy to suppress freedom in the name of some greater good, or the government doesn’t care much about countering attacks on religious freedom. In India’s case, neither criterion applies. India remains a secular state constitutionally, though I have questioned the nature and quality of that secularism in my book. And its governments at the center and in the states, by and large, are conscious of the their duty to counter attacks on religious freedom, with some very distressing exceptions. India does not suppress freedom constitutionally but weak governance and political manipulation often generates severe threats to freedom. India is not intolerant, but some Indians, far too many, are.

Your book was released in India in April. How was it received, given that the forces you blame for breeding intolerance in India have been quick to call for bans on books?

Mercifully, no one has yet called for a ban on the book. Perhaps, that’s because I have written about intolerance across the board and not about specific intolerant groups alone.

Liberal countries like France and Germany have openly declared that multiculturalism has failed in their countries. Some predominantly Christian countries that have embraced multiculturalism to an extent that even the term “Christmas holidays” is not considered acceptable, are now becoming more protective about “their way of life” and expect minorities to adapt to the majority way of life. Why should India be any different?

Because for India there is no alternative, in my view, to a multicultural identity. It has to be a salad bowl, not a melting pot.

The nations you are talking about in Europe are struggling with a growing presence in their midst of people from different cultural backgrounds, religions and ethnicity. The European nations were not multicultural to start with, at least they never saw themselves as diverse in composition even as they resolutely asserted tolerance. India, on the other hand, was born multicultural and multi-ethnic.

In some ways, the American approach towards national identity is more relevant for India. The US may not have seen itself as multicultural to begin with but today, as a nation of immigrants who are welcomed by those profoundly compassionate words on the Statue of Liberty, it is dealing with its diversity better than most European nations.

How do you define Indian national identity? Does such a thing exist with such socio-economic, cultural and religious divides?

Indians are fiercely nationalistic. When it comes to supporting the national cricket team or adulating a Bollywood star like Shah Rukh Khan, Indians lose their sub-nationalist identities. The trouble arises with a certain strain of politics. There are sharp political divisions along both nationalist lines — over the issue of which identity we should have as Indians — and along regional or caste lines. In the economy, however, a common market has developed and is strengthening rapidly. Almost all Indians entering the middle class in growing numbers don’t want that trend to be reversed. As long as its structure supports tolerant diversity, India can survive as a nation, though growing inequalities can pose a danger.

How has intolerance affected women? Would a liberal society uphold women’s rights over cultural norms which oppress women?

Continuing maltreatment of women, and their still secondary real status in society despite legal provisions of gender equality, is a major drawback of the Indian experiment in democratic nation building thus far. Some parts of the country, Kerala for instance, have dealt with the problem better than others. But across swathes of northern India women continue to be seen as a liability. A section of my book outlines this problem. Girl babies are unwanted in much of the country. As a result, the sex ratio has declined, most disastrously so in relatively prosperous states like Punjab, Haryana and Gujarat. Interestingly, the sex ratio has worsened badly among inhabitants of rich metropolitan areas like South Mumbai and South Delhi.

Hopefully, the situation will change with the emerging generation of young Indians, who are now a clear majority of the population. There are significantly more numbers of educated young women now, many of them thriving in professional careers, and traditional attitudes are on the decline. Women have begun to ascend the ladder of authority, though not in every field.

Regarding liberal tolerance of different cultural attitudes towards women, I think the status of women in a society determines its ranking on any genuine scale of liberal civilization. When you say that a society should tolerate, say, female genital mutilation, I would call such an attitude relativist, not liberal. Liberalism takes clear stands on behalf of its values. It must not be mistaken for an attitude of ‘anything goes’. That said, I would argue that letting a Muslim woman wear a hijab in a public place can sit within liberal secularism as in America. The French disagree. Well, such debates over diversity and differences are what liberalism is all about.

Courtesy of the Asia Society.

Related articles

• The curious case of Shah Bano (secularnewsdaily.com)
• Return of the Sacred Cow (secularnewsdaily.com)
• India accused of map censorship (bbc.co.uk)
• “Indian Growth Slows” and related posts (thenewspundit.com)
• The importance of India’s diaspora (theglobeandmail.com)
• Religious conversion worst form of ‘intolerance,’ Bhutan PM says. (jwitness.wordpress.com)
• Sociological trend? (sueghosh.wordpress.com)

India Will Overtake China by 2025? Not So Fast…

India won’t outpace China without a few miracles

FORTUNE

Anja Manuel, contributor, On Friday February 18, 2011

Several recent economic reports glowingly predict that by 2013-15, India will start outpacing China’s stunning annual GDP growth rate of 8.5-9.5%. A number of trends in India lead to this conclusion, including a young, increasingly educated labor force, relatively few retired people to care for, India’s high savings rate, the massive structural reforms the Indian government continues to undertake, and increased infrastructure spending.

The UN estimates that India’s age dependency ratio (the number of working age people supporting children and the elderly) will improve substantially, from 55.6% in 2010 to 47.2% in 2025. China, by contrast, has already reaped the benefit of a large working age population, which will soon begin to age and decline: its dependency ratio will rise from 39.1% in 2010 to 45.8% in 2025. India alone will contribute 26% of the total rise in the world’s entire working age population over the next 10 years, thus — the argument goes — adding a large number of skilled workers, who will have larger savings, which can in turn be invested in their economy.

India will only be able to take advantage of this “demographic dividend,” however, if it can educate its people, move more quickly on long-delayed business reforms, and tackle the environmental consequences of an even larger population.

The Indian government has taken promising steps to improve its inadequate education system, but an enormous amount of work remains. Only 74% of Indian men and 48% of Indian women are literate, compared to 96% (men) and 88% (women) in China. India’s much-touted knowledge economy employs only about 2.23 million Indians out of a 750 million strong working population.

Prime Minister Manmohan Singh‘s government is aware of these deficiencies and has started to implement a series of reforms, including setting aside $60 billion over the next several years to augment the primary education system, tabling bills that allow foreign education providers to operate in India, and others that will facilitate private sector investment in Indian education. Thanks to these reforms, the number of children out of school has dropped from 18 million in 2000 to 5.6 million in 2005, and dropout ratios in primary schools have improved as well.

Obstacles to growth

Even with these promising developments, however, the challenges ahead are daunting: at present, only 12% of India’s citizens enter higher education, and the government hopes to increase this to 21% by 2017. The Indian Institutes of Technology — a group of universities focused on engineering and technology — are world-renowned, but offer only a miniscule 7,000 places to students each year. The Indian government has identified a skills gap in between 240 — 250 million persons in the next ten years. Current vocational and technical training schools unfortunately only have the capacity to absorb 1.1 million students a year. Kapil Sibal, the talented and energetic Minister for Human Resource Development has a herculean task ahead.

Indian corporate sector reforms are also only half complete. Despite Prime Minister Singh’s admirable efforts, the legendary “license raj” — the elaborate red tape required to set up and run businesses in India — is still much in evidence. Again, the government has taken some steps in the right direction: it is actively working to simplify the byzantine tax code, and many new sectors have been opened to foreign direct investment. In spite of these promising steps, India still ranks a low 134 out of 183 countries on the World Bank‘s Ease of Doing Business Index. For example, the per capita cost of setting up a warehouse in India — which involves the acquisition of permits and licenses as well as obtaining necessary utilities connections — is slightly more than four times higher than in China.

Indians are increasingly frustrated at the slow pace of reforms, which the Congress-led government has now promised for the past six years. Speeding up their pace is critical both to make local businesses more efficient, and attract foreign direct investment (which lags far behind foreign investment in China and sank by over 30% in 2010).

Finally, before we celebrate a “demographic dividend,” can the Indian subcontinent (and the world) sustain 1.4 billion Indians? Calcutta’s population is more than twice as dense as that of New York City. Food inflation currently plagues the Indian economy: onion and other vegetable prices (staples for most poor Indians) are up 71% since last year. Streamlining the agricultural supply chain can help to relieve immediate food shortages, but in the long run, environmental degradation will make it difficult to vastly increase crop yields.

Global warming and the “atmospheric brown cloud” — a dense smog that permanently hangs over much of India from burning diesel, wood, and dung — negatively impacts crop yields already. To compound the problem, India suffers from chronic electricity shortages of about 8%. And with a growing middle class buying more TVs, air conditioners and the like, the situation will only get worse. India is already the world’s third largest-emitter of greenhouse gases, and that is with is current low per capita emissions rate. One American currently creates almost 13 times as much CO2 per year as one Indian. Combine a more carbon intensive, prosperous economy with a rapidly growing population, and the environmental problems India faces look even more overwhelming than its education and economic challenges.

As desirable as Indian economic growth is — are India and the planet ready for 1.4 billion more prosperous Indians?

Anja Manuel is a Principal at The RiceHadley Group LLC and a Visiting

 

Asian Business Hour Shows on February 16th and 23rd

THE ASIAN BUSINESS HOUR – FEBRUARY 2011 – UPCOMING SHOWS

February 16, 2011: Doing Business in India with Gunjan Bagla. Mr. Bagla is the author of the acclaimed book “Doing Business in 21st Century India: How to Profit Today from tomorrow’s most exciting Market” and the Managing Director of Amritt, Inc. He has been interviewed on Fox Business Television, BBC World News, BBC Television’s The Hub with Nik Gowing and National Public Radio’s To The Point with Warren Olney. He’s been quoted in the New York Times, the  Los Angeles Times, Business Week, Industry Week, the Hollywood Reporter, and other global media for his expertise on India. His articles have appeared in Business Week, CIO Magazine, Purchasing Magazine, Quality Magazine, Business World, Daily Variety, and many other publications.

February 23, 2011:  Customs and Transportation Issues in Exporting and Importing with Susan Kohn Ross. Ms. Ross is a partner with the Los Angeles office of Mitchell Silberberg & Knupp LLP (MS&K) where she heads their international trade practice. She represents companies and entities in both administrative and commercial settings, regarding the importation and exportation of goods before the U.S. Customs and Border Protection, Food and Drug Administration (FDA), Departments of Justice, Commerce and State, Federal Maritime Commission, U.S. Trade Representative and International Trade Commission, the Court of International Trade and various other federal and state courts and agencies.