I traveled through Delhi, Agra & Jaipur what is called the Golden Triangle of India by the booming tourism industry and talked to a cross section of people – businessmen, journalists, shopkeepers, drivers, road side vendors – the mood is upbeat. Why? Adit Jain, who is one of the sought after consultants by the local and foreign business, explains it well: “If everyone went to sleep, the Indian economy would still grow at 6.5%…”
This statement is based on the recent sound economic and political history and forecast. Let’s have a closer look at what’s happening in India in recent years. In the 70s low GDP growth rate slowed India, it was labelled by the economists as Hindu growth rate; in the 80s Rajiv Gandhi’s government started reforms, which began showing results in the 90s and the manufacturing sector developed a strong base. The real growth trajectory has taken off with the turn of the century. The growth rate has been at an average around 7% in the last 4 years. And all economic pundits agree that this trend is likely to sustain at least till the end of this decade.
All this has brought up India to claim the 4th largest economy of the world (calculated on Purchasing Power Parity) position, behind USA, China and Japan. The Indians love it and are aiming to climb to 3rd position in another 25 years. Calculated on PPP basis Indian GDP stands at US$ 3.7 trillion. Germany which has the 5th position has an economy of US$ 2.5 trillion. This information is something which Pakistan’s policy makers should keep in mind while making our India policy. In real time the economic strength of a country should be given more weightage than its military strength.
Most Indians agree that decision making is painfully slow in their country which is a drag on the growth of the economy. Like Pakistanis they have also tales of politicians and bureaucrats corruption and inefficiency. In spite of the weight of these elements they say India has come out of nowhere and is on the road to progress.
Much of the slow decision making is also blamed on the fact that the Federal government is a coalition of many parties; hence it is difficult to get the important reforms through. But there is also consensus that as the nationalist forces are becoming powerful in most of the states of India the time to have a strong single party government has gone. If you look at the 1999 and 2004 election results this view is further confirmed. In 1999 BJP and its allies had 55% seats; in 2004 this shrank to 34%. On the other hand Congress and its allies seats increased from 32% to 40%. This led Congress to joining hands with the left parties whose share in the parliament went up from mere 6% to 15% and other smaller parties share also grew from 7% to 11%. The share of regional parties has gone up from 9% in 1991, to 36% in 1999 and to 55% in 2004 elections.
The situation is not much different from Pakistan, as the centrifugal forces are rising here and the federal government will have to live with coalition government in the foreseeable future. I think most of the countries are going through this phase and its time that the constitutions are rewritten with greater fiscal and economic devolution. A subject I shall deal with in these columns some other time.
Nevertheless most Indian businessmen are not disturbed who rules In Delhi. They are not expecting any major change in the economic policies with the change of guard, except that Congress is looked at as more pro-rural poor at this stage. The present government is continuing with the opening up process and its most attractive deal, though controversial, is the plan to set a number of Special Economic Zones (SEZs). These zones offer fantastic tax and infrastructure incentives to the investors, such as tax holiday for 5 years, another 50% tax break for next five years and the same if the profits are ploughed back. As India has also serious infrastructural problems, the investors are allowed captive power plants and all other amenities from one window. Many investors are flocking in and the country is expecting US$ 20 billion investment this year.
Many local companies are investing billions of dollars in the R&D projects in India thanks to its highly qualified professionals. MNCs are finding to re-locate their R&D work in India & China these days. Cisco and Microsoft alone have invested US$ 4 billion on R&D in India. This is the next phase of development where a country graduates from manufacturing to knowledge industry, and India is there.
Many critics may say that I am sounding too enamoured by India and completely ignoring the poverty which stares every visitor in the eye. But we have to understand that a poor nation can only distribute poverty and it is only when there is economic growth and prosperity that one can distribute better life to all. The process has begun and it is evident. Even the beggars are getting better alms. The government is becoming more conscious that if they have to win another elections they will have to address this issue squarely particularly in the rural areas, which makes the government.
In Pakistan we have been achieving a high growth rate, there is a realisation that poverty issue has to be addressed. But the political stability is missing and the poor image of the country is scary for those who look at it from outside. We have to also work on making the world believe that by and large all governments have been consistently following liberal economic policies. And that life before Musharraf wasn’t that bad, as painted by the government and that it won’t be a deluge after him. Linking the country’s future with one man is dangerous and should be shunned.