India: an emerging power?

Mritiunjoy Mohanty

IIM Calcutta

IEIM, UQAM

Preview

• There is no necessary convergence of interests between USA and India

• Whether India becomes a new power will be depend upon how it copes with internal and external challenges

• Indeed coping with these might lead to divergence of interests

• And new coalitions

The upside: growth and take-off

• Economy growing at nearly 9% over the last four years, i.e., from 2003/4 to 2006/7

• Will probably maintain that this year

• Per capita income growth has more doubled

• Currently at 7.1%, as compared with3.4% experienced during the 1980s and 1990s

Investment and Savings Ratios

00.050.1

0.150.2

0.250.3

0.350.4

Investment Ratio

Savings Ratio

Gross Capital Formation (%GDP)

0.00

10.00

20.00

30.00

40.00

50.00

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

China

India

Malaysia

Korea

Savings deficit small

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

S-I

Trade and Current Account

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

Trade Deficit

Invisibles

Current AccountDeficit

Current and Capital Account Ratios

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04

0.05

Current AccountDeficit

Capital AccountRatio

Reserves Ratio

-0.06

-0.05

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

Reserves Ratio

• Investment and savings ratios in the low 30s, which would seem the requirement for modern take-off

• Domestically financed, CAD in the range of 2%• Increased inflows of capital• Huge increases in inward market-seeking FDI in

the last 4 years• Rising accretion of reserves• Sustainable macroeconomics

Private Capital

• Indian private capital finally came of age, showcasing itself in the $12 bn takeover of Corus by Tata Steel, catapulting it no.5 globally

• Tata Motors, currently no.2 in india in cars, frontrunner in the bidding for Ford brands Jaguar and Landrover

• Corporate india on a global buying binge• Outbound FDI now almost equal to inward FDI.

Next year it is predicted to be higher

Public Sector

• A public sector renaissance• Partial privatisation• Privatisation stopped because of political and

union resistance• On 21st Jan 2008, 7 public-sector firms in Top20

by market capitalisation and 14 in the Top50• End of 2000, there were 5 in the Top20 (one of

which has been sold) and 8 in the Top50

Science and Technology• India’s science and technology, seems finally to find its feet. • In January 2007, ISRO successfully recovered an orbiting satellite. • It is a technology that only China, the EU, Russia and the USA

possess. • In April 2007 ISRO commercially launched and Italian scientific

satellite Agile into orbit and entered the international satellite launch market.

• Two days ago commercially launched an Israeli spy sattelite.• Successful launch of the Geosynchronous Satellite Launch Vehicle,

(GSLV-F04), which placed a 2-tonne communication satellite, INSAT-4CR into orbit.

• Successfully tested an indigenously made cryogenic engine to power GSLVs

• Indian made super-computer ranked in the top-10 in the world

The international stage

• Major player in the Doha Round of WTO negotiations

• Important G24 member: coalition of shared interests

• Expanded G8• The Indo-US nuclear deal and the recognition of

India nuclear power without signing the NPT• The distancing from Pakistan• “convergence of interests”• Increase in strategic value – an emerging power

The downside

• Internal• Unsustainable inequality• Agrarian crisis and land hunger• Poor quality of jobs• Caste inequality related violence• External• Unstable South Asian neighbours• China

Unsustainable Inequality

• the gini coefficient has gone up from 32.9 to 36.2 between 1993-2004

• Over the same period, the bottom 20% per capita expenditure has grown at 0.85% p.a. while the top 20% has grown at 2.03% p.a.

• In China the comparable statistics are 3.4 and 7.1%• That is China’s bottom 20% expenditures rise 4 times

faster than India’s. • It is this lack of growth at the bottom which makes

increasing inequality potentially unsustainable

…. because• An unprecedented agrarian crisis of livelihoods, income,

employment and profitability has beset rural India for more than a decade

• 86% of India’s workforce is employed in the informal sector, the bulk of whom have gained little from the rapidly growing economy.

• Almost 97% of new non-agricultural jobs created between 2000-05 in the informal sector.

• 88% of Dalits and Adivasis population, 80% of Other Backward Castes (OBCs) and 84% of Muslims belong to the “category of the poor and vulnerable”. These groups constitute roughly 75% of the population

• five years later, victims of the Gujarat pogrom still live in refugee camps and have not been able to return home and there has been no calling to account

… and therefore

• Land related violence• The resurgence of armed left-wings groups• Caste related violence• Not just social but political as well• In November 2006, a poor Dalit agricultural

worker who had been elected the president of village panchayat in Tamil Nadu, was killed because he refused to oblige his deputy, an “upper-caste” vice-president, and become a rubber-stamp president.

Unstable neighbours

• Pakistan

• Bangladesh

• Sri Lanka

• Nepal

• Burma

Economies have fared well

• Democracies and polarisation: Bangaldesh and Sri Lanka

• “Convergence of interests”: Pakistan

• Nepal

• Burma

• China

Deepening of democracy and lower caste political mobilisation …

• Affirmative action in politics• ensured that there were seats for socially disadvantaged

groups (including lower castes) in all publicly contested elected bodies, from the parliament downwards to now the panchayat.

• Politics of affirmative action – lower caste mobilisation around quotas

• Upper caste response – politics of religious identity• It is this political mobilisation and the consequent access

to political power that probably explains one of the most truly remarkable aspects of India’s democracy – that in India it is the poor and not the rich who are more likely to vote

…. new players and tradeoffs

• India’s first low caste (Dalit) chief minister at the head of Dalit majority government

• Changing elites – the rise of the urban bourgeoisie and the middle class

• Eclipse of the rural bourgeoisie• Deepening agrarian crisis and caste conflict• Agrarian crisis and financial liberalisation• Tradeoffs - land reforms will not be supported by rural

bourgeoisie• Tradeoffs - non-agricultural employment for reducing

poverty – rural biased growth strategy will not be supported by urban bourgeoisie

• The 2004 defeat of the BJP-led coalition• The coming of the Congress-led UPA• Rural employment guarantee scheme• Doha: defensive interests• Power of the urban bourgeoisie• Continuing agrarian crisis• Resistance to Indo-US nuclear deal• Pragmatic India and stable neighbours• No necessary convergence• A new coalition of interests

• Thank You