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The Importance of India

Bush deserves credit for boosting relations with New Delhi.

11:00 PM, Jan 14, 2009 • By DUNCAN CURRIE
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In response, the Indian finance minister, Manmohan Singh, embraced a bold agenda of deregulation, privatization, tariff reductions, and tax cuts. Singh devalued the rupee, removed obstacles to foreign investment, and expanded trade. "Early steps were also taken to open telecommunications and domestic civil aviation to the private sector," writes Panagariya. "These measures yielded the handsome growth rate of 7.1 percent between 1993-94 and 1996-97, and also placed the economy on a long-term growth trajectory of 6 percent."

The reform process stalled in the late 1990s but regained momentum during the third term of Prime Minister Atal Bihari Vajpayee, which began in 1999. As Panagariya writes, "the Vajpayee government systematically moved to open the economy to foreign and domestic competition and to build the country's infrastructure." Singh's Congress Party took power in 2004 as the leading coalition member of the United Progressive Alliance, and Singh became prime minister. Economic reformers had high hopes for the government, especially given Singh's record as finance minister, but they have been disappointed, as the reform process has stagnated.


Moving forward, further economic reforms will be critical. The United Nations Population Fund says that India will eclipse China as the world's most populous country by 2050. Will India's population explosion produce a "demographic dividend," or a demographic disaster? "That's the million-dollar question," says Bose. Indeed, a rising population does not guarantee that India will fulfill its potential. It will need to create millions of new jobs and also ensure that its workers are properly equipped to do those jobs. In their recent paper, O'Neill and Poddar outlined ten steps that India must take "to achieve its 2050 potential." These include strengthening its education system, containing inflation, liberalizing its financial markets, boosting trade with its neighbors, and improving its infrastructure.

India's biggest weaknesses are education and infrastructure. As Emmott writes in his 2008 book, Rivals, "The country's large, young population will not be an economic advantage unless it can be educated to the standards required by manufacturers and service companies." The current Indian education system "is grossly inadequate for that task, and putting that right will be costly." Consider these numbers: "Only 28 percent of India's schools had electricity in 2005; only half had more than two teachers or two classrooms." India has a significantly lower literacy rate than countries such as China, Vietnam, and Malaysia, Emmott notes.

As for the infrastructure problem, it remains a huge drag on Indian economic growth. According to the World Bank, more than half of India's state highways are in "poor condition." In its latest survey of global competitiveness, the World Economic Forum found that Indian business executives consider "inadequate supply of infrastructure" to be "the most problematic factor for doing business" in their country. The next four "most problematic factors" were (in order) "inefficient government bureaucracy," "corruption," "restrictive labor regulations," and "tax regulations."

Though India has come a long way since the 1991 crisis, its business sector remains heavily shackled. The latest World Bank report on "the ease of doing business" around the world ranks India a lowly 122nd out of 181 economies. By comparison, China ranks 83rd. Meanwhile, the most recent Index of Economic Freedom, compiled by the Heritage Foundation and the Wall Street Journal, ranks India 123rd out of 179 economies, barely ahead of Rwanda.

"Indians joke that India is like a drunk walking home: it takes one step forward, then two steps sideways, but eventually makes it home," writes Meredith. "Indian reforms, hampered especially by local politics, tend to lurch ahead, then jolt to a stop, only to hurl forward again." Besides local politics, Indian reforms have also been hampered by persistent social tensions, ethnic conflicts, and domestic security threats. As Meredith observes, "The advances of the glittering New India mask stubborn problems, such as high child-mortality rates, violence against women, caste-based discrimination, and religious strife."

The 2008 Mumbai massacre offered a grisly reminder that India has long been plagued by Islamic terrorism. (In December 2001, jihadists attacked the Indian parliament building.) It has also spent several decades battling Maoist rebels known as "Naxalites." Then there is the longstanding dispute over Kashmir and plenty of other spats with India's nuclear-armed neighbor, Pakistan. Tensions with Islamabad have been high in the aftermath of the Mumbai attacks. Though many Indians wish they could just disregard Pakistan, that is not a viable option. "When you have a neighbor whose house is falling down, you simply can't ignore it," says Cohen.

Barack Obama will inherit a dangerous situation in Pakistan, but he will also inherit a U.S.-India partnership that is stronger than ever. Over the coming decades, as global power continues shifting to Asia, the importance of that partnership will only increase. Embracing India may indeed prove to be a significant part of President Bush's legacy. As Bose puts it, Bush elevated the relationship "to a completely new level."

Duncan Currie is managing editor of The American.