The 1st IISS-Citi India Global Forum
India as a Rising Great Power:
Challenges and Opportunities
New Delhi, 18–20 April 2008
First Plenary Session:
Economic and Financial Outlook
Jeffrey R Shafer
Former Undersecretary of the US Treasury for International Affairs; Vice Chairman, Global Banking, Citi, US
Dr Sanjaya Baru
Official Spokesman and Media Advisor to the Prime Minister; former Chief Editor, Financial Express, India
Sir Tim Lankester
President, Corpus Christi College, Oxford; former Director, School of Oriental and African Studies (SOAS), UK
Questions and Answers
(Provisional transcript)
Dr John Chipman
Thank you very much for five specific recommendations. People will also want to take seriously the admonition coming from someone in the UK about over-reliance for growth on the services sector and under‑reliance on maintaining some degree of manufacturing capability.
Satish Chandra, Former Deputy National Security Advisor, India
I agree with much that Dr Baru has said in his very fine presentation, but I have a point of concern. Notwithstanding that spending on agriculture seems to have increased in the 11th Plan, he mentioned that we may start supporting US subsidies on their agriculture. I hope that this does not mean that we are giving up on Indian agriculture because I very seriously believe that given our very low productivity in agricultural products that we can feed not only ourselves, but also our neighbours. Could I please have clarification on that point?
Secondly, I believe that our government, and successive governments in India since the 1990s, have been committed to liberalisation, but I believe that there would have to be some constraints imposed by government to ensure that this does not happen, particularly in the crisis situation of price rises that we face, apart, of course, from supply-side problems which need to be addressed. Could Dr Baru clarify that point, as well?
General (Retd) Jehangir Karamat, Former Chief of Army Staff and Ambassador of the Islamic Republic of Pakistan to the US, Pakistan
The Foreign Secretary in the morning talked of the impact of India’s economic growth on the region, by which I assume he meant South Asia. How do you see this benign impact taking place? You talked of translating economic growth into more assertive power, and Lord Powell talked of India stabilising the region, or of giving priority to stabilising the region.
Major General (Retd) Dipankar Banerjee, Director and Head, Institute of Peace and Conflict Studies (IPCS), India
One of the challenges for India referred to by the speakers yesterday and today includes uplifting large sections of people in the country. Once again, some of the advantages talked about this morning from an economic perspective include the enormous potential demographic dividend we have, which we are likely to enjoy in the next couple of decades. However, unless this large demographic potential is harnessed through empowerment – empowerment through education, training and instructions – it is going to pose a challenge more than an opportunity.
The recent five-year plan provides enormous incentive to education, and it quite rightly highlighted the emphasis on education in this five-year plan, so one could argue that this should have happened three five-year plans ago, or at least since the early 1990s. What is the potential to really develop on the educational and instructional front? Indian education has to be internationalised and reformed very substantially. What are the initiatives, and perhaps the policy prescriptions, we are now thinking of that might be expected in that field in the near future?
Yasukuni Enoki, Counsellor, Mitsui & Co, Japan
Thank you, Dr Baru, for your comprehensive overview of the Indian economy, but I find there is one very important factor that is missing as a major obstacle Indian economic development: the environment. The demography of India has two aspects: one is the political and increased economic dynamism. But, there is another factor: the negative impact on the environment. Indian population density is now the same as the Japanese, but the Japanese population is decreasing, while the Indian population will increase by another 50%. I am not talking in terms of a health problem for the population, but the environment issue will inevitably increase the economic costs. Water pollution will inevitably increase the costs in the beverage industry, higher costs will decrease domestic demand for the car, and so on. I am quite optimistic about the India of the future, but I find that the major obstacle is the environment and the subsequent costs. I believe that India, however, has the wisdom to overcome these problems.
Evgeny Kozhokin, Director, Russia's Institute for Strategic Studies (RISS), Moscow
Every crisis usually has different facets, not only negative, but also positive. Usually, however, economists pay attention to the negative aspects. Just now, there is no crisis in the United States, but there is a recession. During a recession, there is usually a certain acceleration of restructuring of the economy and of finance. What kind of new phenomena do we now see in the American economy? How could these new phenomena influence emerging markets, especially India?
Participant
Could Dr Baru comment on the role of non-merit subsidies and the government’s reluctance to cut down the size of the bureaucracies acting as a drag on the Indian economy?
Manish Tewari, Spokesperson, All India Congress Committee; Advocate, Supreme Court of India
I was listening to Sir Tim Lankester’s policy prescriptions with great tension. He mentioned deregulation of labour laws. This has been on the agenda for a very long time, ever since the process of liberalisation commenced in India. I would like to draw his attention to a report that has been given by the National Commission of Unorganised Labour, which says that 93% of the Indian labour force actually works in a completely unregulated environment. They have no health benefits and no insurance, and in fact they make a recommendation for more regulation. Could he please respond to that?
Dr John Chipman
I would like to revert to the panel and invite them to respond to the questions and close this morning’s session.
Sir Tim Lankester
That is a very interesting point. I would favour more regulation in the unorganised sector and less regulation in the organised sector because in the organised sector, if you wish to make one man or woman redundant, you have to get permission from a bureaucrat, which is a tremendous obstacle.
Jeffrey Shafer
It is certainly true that every crisis brings positive as well as negative things, and there is already an accelerated restructuring going on in the US, which is where we are refocusing our business. There will be more, although it is hard to see what form that will take. I think the structure of and instruments in the financial system will change; you will see reforms in the credit rating agencies; and we will fix some mistakes. I have some concern as to whether the regulatory outcome of this will be positive. Certainly we have seen, and those of us in the industry have to accept, the lesson that there were failures that justify closer oversight of our industry, but we could see it in a form that is heavy handed and not pointed at the problems, which would make things more complicated and worse rather than better.
For the rest of the world, the important thing is to learn the lesson that even though we are in the most sophisticated market in the world, one can make terrible, almost unimaginable, mistakes. It underscores the need to have good surveillance over financial markets. On the other hand, I think it would be a terrible mistake to draw the wrong lessons and to stifle finance, which is the backbone of allocating savings to efficient investment and in the economy.
Dr Sanjaya Baru
The first question on agriculture underscores the point I was trying to make: there is inadequate recognition in this country about the need for a completely new look at the way in which we have pursued agricultural policies. We were under the impression in the past decade that we could actually be an agriculture-exporting country; those of you who follow the WTO will know that India was even in dialogue with the Cairns Group, which we saw ourselves as likely members of. As a result of 9% growth in the last four years, food demand in this country has enormously increased, and there is now a realisation that India will increasingly consume more food at home, and therefore surpluses for exports are likely to be less and less. There is a fundamental shift, and we have to recognise that unless we increase agricultural productivity in the near term, for which we need a dramatic solution in terms of a second generation evolution, we are unlikely to be an agriculture-exporting country in the near future. In fact, we are going to be an increasingly agriculture-importing country. This is an important change that has happened, and there is not adequate public recognition of this fact.
Right now we have an immediate problem of a spurt in food prices. I think it is a combination of factors, both internal and international, and therefore the government’s response has been dramatic in terms of imposing export restrictions and some degree of price control. I think it is a short-term response to an immediate problem. My guess is that if we get a good monsoon, and all satellite projections currently forecast a normal monsoon, we will have some easing of food price inflation. This temptation to go in for quick-fix price controls will therefore go down as inflation management improves.
A very interesting change has happened in the last decade in terms of our own response to regional economic cooperation. A decade back, you will have seen a lot of resistance in this country to unilateral trade liberalisation. The official Indian policy was in fact to seek bilateral concessions: we will liberalise provided you liberalise. The first time there was a change in that position was when Prime Minister Vajpayee offered concessions to Sri Lanka to move the Sri Lanka Free Trade Agreement forward. Subsequently, you saw a shift of strategy, and certainly this government has followed that policy of offering unilateral concessions in order to increase regional trade very clearly. We now seek much more economic integration, and there is willingness in this country now for taking steps without insisting on bilateral agreements. But, there are certain kinds of bilateral concessions, particularly in the context of Pakistan, which are waiting to happen – for instance, transit rights for Indian products to go through Pakistan to Afghanistan. There are one or two issues which are obviously waiting to happen where we expect our neighbours to offer transit rights through Afghanistan to the north eastern region and Myanmar. There are one or two initiatives of this sort which we expect our neighbours to take, but I think there is much greater willingness to unilaterally increase trade through concessions from our side. If you look at the SEAC Summit in Delhi, many of the concession that India gave were really within this context.
On the demographic dividend, I actually agree with you, which is what I was trying to say. On the positive side, India is seen as a country that is a source of labour. Labour is an important asset, but labour can only become an asset if we invest in its education and skill development, and there has not been enough of that. I did mention that the 11th Plan is viewed by the government as an education plan. In fact, the prime minister has called it the national education plan. There has been a threefold increase in the allocation for education. I think this is a major area where at all areas of the knowledge pyramid – primary education, secondary education, technical education, and higher education – we are increasing investment. There are problems: for instance, we will very soon come up against the constraint of an inadequate number of teachers, and we need to address those problems.
I did not discuss the environment partly because of time and partly because Shivshankar Menon spoke about India’s policy on climate change, which I did not want to repeat. The global community must recognise that India’s track record in this respect has been much better than many other developing countries, and certainly China. The Western media and political clubbing together of India and China as if they are one basket as far as the environment and climate change are concerned is completely flawed. The numbers show it, and the policies show it. We have been proactive. The Prime Minister set up a national panel on climate change, which was very well staffed, in which we are looking at what unilateral initiatives we can take to deal with some of the problems. We recognise that this is a problem, but we want you to recognise that we have addressed it very differently than any other developing country, and we will continue to do so in order that India does not become part of the problem as far as climate change and global warming are concerned. India will be a part of the solution to the problem.
Finally, on subsidies, I mentioned the fiscal problem as a problem, and I think others have mentioned it. This is what I was saying when I talked about the problem of coalition governments being a constraint on growth and on India’s ability to realise its potential. There can be many a slip between the cup and lip, and this is certainly one. The only reason we are not able to address the subsidy problem is because of the nature of coalition politics. I do not think you can underestimate that problem in our ability to translate the rising economic power into any form of real political power.
Dr John Chipman
On that note, thank you very much to the panel for ending on such a striking note.
