RENOVATING OUR IMAGE - The Indian Ocean countries are the best trade partners for India

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By The Telegraph Online
  • Published 29.12.09

A couple of hours’ drive out of Delhi, there is the ancient fort of Neemrana stuck on a hill. Francis Wacziarg and Aman Nath renovated it some years ago; it has since been a popular conference venue. In 1995, an Indo-Pakistan friendship group invited me to give a talk there. I looked at national income figures of major countries, and found something striking. Converted to common prices, India’s national income in 1980 was a fraction of the national income of all major countries; it was a half of Germany’s, a third of Japan’s, and an eighth of America’s. In the 1980s, India grew much faster than most other countries. In 1992, India had overtaken all European countries except France and Germany; its national income had risen to two-fifths of Japan’s and one-sixth of America’s. I projected the 1980-92 growth rates to 2004, and predicted that India’s national income would overtake that of all countries except the United States of America, Japan, China and Germany, and that it would rise to a quarter of the US’s and a half of Japan’s by 2004.

In 2003, Goldman Sachs did projections similar to mine for what it called Bric countries, with one difference. It did not correct for price differences between countries. Prices in India are only about a fifth of those in industrial countries, so in the Goldman Sachs report, it started with a much lower base and took much longer to catch up with other countries. According to Goldman Sachs, India’s gross domestic product would catch up with Britain’s in 2022, Germany’s in 2023 and Japan’s in 2032. But income comparisons with correction for price differences are wrong and misleading.

Now the World Bank has published GDP figures for 2008 at purchasing power parity for 2008; they are comparable to my calculations of 1992. According to them, India had overtaken all countries by 2008 except the US, China and Japan. Its GDP was 77 per cent of Japan’s, 42 per cent of China’s and 24 per cent of America’s. If we take the World Bank figures and apply the growth rates of the last 15 years to them, we must conclude that by 2020, India will overtake Japan and will have the world’s third largest GDP. But it will be decades before it overtakes the US; and it will never overtake China. On the contrary, China’s national income will be a progressively increasing multiple of India’s. Just now it is two-and-a-half times India’s; it will rise to three, four and five times India’s.

We Indians tend to be paranoid about China; a trivial encounter between our troops and theirs at the borders leads to banner headlines. Everyone thinks a war is going to break out; and if we look at the forces and the logistics, we can be sure that in a war, India would be as badly mauled as in the 1962 encounter. I do not want to add to this paranoia, because I do not believe that there is going to be a war. The Chinese leadership is far too intelligent. The projections I have cited suggest that the 21st century is going to be a Chinese century; it will fall into China’s lap without China having to fight for it.

From this I draw three conclusions. First, India should aim at higher growth — at least as high as China’s. We are so proud of growing at eight or nine per cent; instead, we should aim to grow at 12, 13, 14 per cent. Second, we are not going to be a global power; we should accept this and work out our strategies on that assumption. And finally, we cannot do everything and achieve everything; we should choose what we want to do and do it well.

Look at the map of the world. India is on the southern edge of the Eurasian continent stretching from Spain in the southwest to Russia’s Kamchatka peninsula in the northwest. This continent is being divided up into a Chinese sphere of influence in the east and a European sphere of influence in the west. The border between the two is uncertain, and there may be none; the European Union and China are not in open competition. India is not affected by this division of Eurasia, and cannot do anything about it. But between the two, the EU is a better ally for us; we should get closer to Europe, and work together with it. The other regions of the world — around the Pacific and the Atlantic — are even more remote from India. The ocean that surrounds us is the Indian Ocean; this is where we should concentrate. It is the countries around it to which we should try to sell Brand India. We do not realize it, but this has been happening already in a small way. The share of our exports to the Indian Ocean region in our total exports was six per cent in 1991-92; by 2007-08, it had risen to 20 per cent. Its share in our imports grew very little, from 12 to 14 per cent; but this area has been increasingly looking to us as a supplier of industrial goods.

It would do so even more. But these developing countries of Africa and Asia are always short of foreign exchange; they would buy more from us if they had more foreign currency. And we can give them more by buying more from them. India has always been very protective of its agriculture, and so has missed out on becoming a market for African and Asian countries. We have reduced our industrial duties to single figures. We should do the same with our agricultural duties, and import cotton from Chad and Burkina Faso, coffee from Burundi and Ethiopia, cocoa beans from San Tome, cashewnuts from Guinea Bissau, tea from Kenya and lentils from South Africa.

In return for their exports, we should not confine ourselves to our commodities. We should build on the specialities we have been developing in the last two decades, namely tertiary education and healthcare. In these two industries, we have built up volume without much care for quality. Now we should introduce grading and standardization. We should aim to become the educational and medical fulcrum of our region. These two industries will lead to other fields of specialization. For instance, education can lead to computer hardware and software, telecommunications and broadband; healthcare can lead to biotechnology and medical engineering.

We are saving 40 per cent of our income; in 10 years, we could be saving 50 per cent or 60 per cent. We will have plenty of savings; we should build up a robust, efficient capital market to channel them into these industries. We should give Indian Ocean countries access to our capital market, and invest in their growth and diversification. They can be our hinterland. We can go to see their wildlife, and they can come to see our holy men. Together with our neighbours, we should work out our own brand of a good life — a more relaxed, more meditative, less frenetic, less energy-intensive way than the West’s. That way, we would maximize our gross national contentment as Jaswant Singh called it.