(Provisional transcript as delivered)
Dr John Chipman
The first speaker is Dr Sanjaya Baru. I remember the very first time the IISS did a small meeting – nothing on this scale – in India. It was in Neemrana Fort in Rajasthan in the mid‑1990s. At that time, Sanjaya Baru was the Chief Editor of the Financial Express and we had grappled with the idea as to whether the economic reforms that had begun in this country in 1991 were ones that could genuinely be sustained. He argued then that they could, and here he is again as the Official Spokesman and Media Advisor to the Prime Minister, I am sure to make that point as well, but on this broader question also of the economic and financial outlook we look forward to.
Dr Sanjaya Baru
Excellencies, Dr Chipman, ladies and gentlemen. I am delighted to be here this morning. Much of what Kamal Nath said yesterday evening and what Shivshankar Menon this morning helps me to really build my own argument. I am not going to repeat many of the things that they said, except to reiterate the point that both of them make: we are, as yet, an emerging market and a rising economy. We will leave the question of whether we are a rising great power to all of you to decide. It is not a question that I would certainly like to get into.
I will begin by quoting Nietzsche from Will to Power. He says that one of the attributes of the will to power is your willingness to live; to be. It is from that that Shakespeare asks the question: ‘To be or not to be.’ To be is necessary to have the will to power. Then he says that, ‘To be is in this life. After all, there is only one life to live and therefore you need to have that will to power in this life.’ Unfortunately for us Hindus, we believe in the afterlife. On many issues, we leave it to the next government. Therefore, if you do not have the will to do things here and now, and believe in the afterlife and hope other governments will do your job, then this ability to translate the obvious economic power which everyone has talked about so far into what Lord Powell seeks – a strategic manifestation of that power – there is a gap. Given the question that Mr Singh asked in the earlier question, there is that cultural gap in our mindset. The day we bridge that gap, then the question of whether we are going to be a rising power or not would be answered.
What we have done in this last decade is to bring economics to the centre of this journey. If you look at Shivshankar Menon’s presentation this morning, those of you who have studied India for the last two, three or four decades, I would urge you to compare a Foreign Secretary’s speech on a subject like this today, to that of 10‑30 years ago. It is only towards the end of his speech that he spoke about political issues such as terrorism and nuclear proliferation. A bulk of his speech was about economics. The issues he identified as our challenges and opportunities were all in the field of economics. That a Foreign Secretary places management of the economy at the centre of his own foreign policy challenges is a fundamental shift that has taken place in this country.
My friend expressed his angst this morning in the columns of the Indian Express, writing an essay for the Institute for Defence Studies and Analyses a couple of years ago. He elaborated what he called the ‘Manmohan Singh Doctrine on Foreign Policy.’ The essence of that doctrine is what you heard Shivshankar Menon talk about. For India to be a rising power, it must first resolve its economic challenges at home. Without doing that, we would be putting the cart before the horse in seeking a great power status or all the obligations that come with it.
I am sure most of you are familiar with the numbers, but I would like to draw your attention to one set of numbers. From 1950 to 1980 – for 30 years after independence – the Indian economy grew at approximately 3.5% per annum, with an increase in per capita income of approximately 1%. From 1980 until now, on average, we have grown approximately 6% per annum. In the last four years, we have grown at approximately 9% per annum. Most medium‑term outlooks for India suggest a range of 7‑8% as the sustainable rate of growth. It will be possible to go above that if we do many of the reforms that we still need to do. However, a sustainable rate of growth, on existing parameters, is in the range of 7‑8%.
There is a fundamental transformation of the economy and underlying dynamism. The reason I would argue that this can be sustained is four‑fold. First and foremost, the investment GDP ratio and the savings GDP ratio have gone up to around the [inaudible] levels in the last three or four years. We now have an investment GDP ratio of almost 37%, and a savings GDP ratio of almost 35%. 2% is with regards to the foreign inflows coming into India. This has happened in a secular fashion over the last couple of decades. We are now at a stage where most economists forecast that you can sustain 8-9% in the medium term – with ups and downs of course – because of this one fundamental factor.
The second fundamental factor is the demographics of the investment and savings transition. India is the world’s youngest nation. It will remain so. More than half of the population will be under 30 years of age in the next decade. As this young population comes into the workforce, the savings rate is also likely to increase. The other aspect of the savings rate is that, in the last 10 years, both the private sector and the public sector have become net savers. The public sector in fact used to be a dis‑saver until the mid‑1990s, but it is now a net saver. The corporate sector has also increased its share of savings. Given the entrepreneurial dynamism in the economy, I believe there is a second factor that will make this growth process sustainable.
The third factor is enterprise, which is often not understood in terms of its significance. In the last three decades, we have created a completely new class of businessman. If you take the top 50 business groups in the country today, in 2008, not more than three or four of them were around in 1980. In the last 25 years, there has been a complete change in the ownership structures and the number of new groups. Many of them did not exist 25 years ago. For instance, many of the big companies are now going global and acquiring firms outside. However, the more interesting piece is that there is a geographical and social spread of Indian business. Recently, a young Indian journalist wrote a fascinating book on the caste composition of Indian business. It shows how, across the country, new social groups have entered manufacturing, the commercial sector, and the financial sector. The social base of Indian capitalism and the market economy have expanded in a phenomenal way in the last two decades.
The fourth factor comes as a consequence of this process and as a consequence of increased investment in education. It is a professional middle class that is driving the services economy, the software business and the financial sector. These are India’s strengths.
What are the challenges we face? I believe there are seven important challenges that this country faces, which we all recognise. Firstly, there is the problem of education. India remains the only country in the newly industrialised economies of the world with less than 80% literacy. There is no industrial economy in the world that has less than 80% literacy. We are still at around 65%, having moved up from 50% in the last decade. However, our literacy rates are still very low compared to East Asian and South‑East Asian economies.
In the last four or five years, because of this 9% growth, and particularly because of the growth of the services economy, we have come up against a labour shortage. There is a skills deficit in the economy. As a result of this, salaries are being pushed up in a range of businesses. Many of you sitting here are being hurt by that process.
This government has just launched a ‘Skills Development Mission’ with the strategic forecast of increasing the number of engineering colleges, medical colleges, universities, secondary schools and primary education. The plan for the next five years is, as the Prime Minister called it, ‘A National Education Plan.’ Education is at the centre of national planning for the next five years because we see a major constraint on growth emerging as a result of skill shortages in a labour‑abundant society.
The second problem is infrastructure. I will not waste your time detailing the problems there.
The third problem is agriculture. We have finished the full cycle of the first ‘Green Revolution.’ In the 1990s, particularly in the period between 1996‑1997 and 2003‑2004, there was very little new initiative taking in agriculture. Many of the problems we now have – be they in productivity or farmers’ indebtedness – are all problems we accumulated as a result of the neglect of agriculture. The Green Revolution finished its course at the beginning of the 1990s and we did not then move fast enough. The government now have initiatives with the ‘Second Green Revolution.’ It constitutes an important part of the India/US bilateral relationship. The first Green Revolution was driven by US investments in research and the development of new seeds. We are looking for partners globally for a new investment, both in research and new technologies in agriculture.
The fourth constraint is fiscal. Again, I do not need to go into details with an audience like this. The fiscal constraint has eased to a large extent today, compared to 10 years ago. The fiscal deficit is now at a manageable level, but there are always temptations to spend. In the last year, there has been a steep increase in government expenditure so the fiscal problem has not gone away. We have managed to reduce the seriousness of the problem, but it has not gone away. The second reason for a concern here is that we reduced the seriousness of the problem because the fiscal problem at home translated itself into an external payments crisis in the 1990s and it is as a result of the management of the external economy that we actually addressed the domestic problem. Today we are in the interesting situation where our external economy is actually very robust. The management of the balance of payments has been robust. India’s management of external debt has also been very robust. As a result, India does not face an external challenge at the moment. This means we are neglecting the domestic problem because the external pressure to address the domestic problem is not there. This remains a concern for the government.
Two other major problems are regional imbalances in growth. The 6% growth which has been seen for the last two decades has been geographically concentrated. It is in the region from Delhi to Mumbai, and south of Mumbai, the southern states, the western states, and to some extent, the north‑western states, such as Delhi and Punjab. This part of India has actually grown upwards of 8‑9% in the last two decades. However, large parts of the north and north‑east areas of India have had very low rates of growth. Some are as low as some of the Sub‑Saharan African economies in the last two decades. This has increased the regional disparities in growth. There are social consequences with the increased labour migration resulting in increased political tensions that you see manifesting in attacks on ‘outsiders’ in different parts of the country. The regional imbalance remains a major challenge.
The final problem is with governance. This includes the whole issue of regionalisation of politics, the multiplicity of political parties, coalition governments, the lack of a national bipartisan kind of politics that we have in the past, with the decline in the influence of the two major parties – the Congress and the BJP – and the emergence of local parties. Governance challenges have emerged and these will remain into the foreseeable future.
The external management of the Indian economy has been, as I said, very robust. We do not have any major problems that we faced in 1991 that contributed to the major reform programme. On the horizon, however, we see three important problems emerging. First, as I mentioned earlier, the problem of food. Secondly, we have a problem with energy and the rising oil prices. Third, the problem of global financial management. These are three major problems which are beginning to impinge.
The food problem is the biggest problem. The world is not yet addressing what appears to be a medium‑ to long‑term problem of rising commodity prices and the shift of land away from food crops to biofuels is raising food prices all over the world. India suddenly sees itself as a country returning to the days of food imports. This will have implications for our strategy in the WTO. We were here demanding that the US and Europe should decrease their international subsidies. I am afraid, in years to come, we will be less likely to make those demands because we are going to be beneficiaries of those subsidies as we become a food‑importing country. While that may be a short‑term solution, and particularly given the domestic agriculture problem I have talked about, we need to address this in the medium term and ease the food constraint on growth that is likely to emerge.
With the oil problem, the world has failed to address the oil problem. In the 1970s and 1980s, there was a global response to the oil crisis and the energy crisis. In the last two years, we have seen the oil prices go up from $30 a barrel to $150 a barrel. There has been no global response and there are no signs of a global response. This remains the second area of concern.
Finally, the global financial stability problem. Once again, the response, particularly from international institutions, has been very weak. Unless these problems are dealt with, and unless India is part of the solution and is willing to participate in the management of these problems, and has the opportunity to participate in the management of these problems, I am afraid we may get overwhelmed by each of these three problems and then the problem of the economically‑rising India and its ability to translate into anything beyond economic power will once again emerge.
With those words, I thank you again for the opportunity to speak.
