India: an emerging power?
Mritiunjoy Mohanty
IIM Calcutta
IEIM, UQAM
Preview
• There is no necessary convergence of
interests between USA and India
• Whether India becomes a new power will
be depend upon how it copes with internal
and external challenges
• Indeed coping with these might lead to
divergence of interests
• And new coalitions
The upside: growth and take-off
• Economy growing at nearly 9% over the
last four years, i.e., from 2003/4 to 2006/7
• Will probably maintain that this year
• Per capita income growth has more
doubled
• Currently at 7.1%, as compared with3.4%
experienced during the 1980s and 1990s
Investment and Savings Ratios
19
80
-8
1
19
83
-8
4
19
86
-8
7
19
89
-9
0
19
92
-9
3
19
95
-9
6
19
98
-9
9
20
01
-0
20
04 2
-0
5
P
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Investment Ratio
Savings Ratio
Gross Capital Formation (%GDP)
50.00
40.00
China
30.00
India
20.00
Malaysia
Korea
10.00
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
0.00
19
80
19 -8 1
82
19 8 3
84
19 8 5
86
19 -8 7
88
19 8 9
90
19 -9 1
92
19 9 3
94
19 -9 5
96
19 9 7
98
20 -9 9
00
20 0 1
0
20 2-0
04 3
-0
5P
Savings deficit small
0.02
0.01
0
-0.01
-0.02
-0.03
-0.04
S-I
Trade and Current Account
0.06
0.04
Trade Deficit
0.02
Invisibles
-0.04
-0.06
20
05
20
03
20
01
19
99
19
97
19
95
-0.02
19
93
19
91
0
Current Account
Deficit
Current and Capital Account Ratios
0.05
0.04
0.03
0.02
Current Account
Deficit
0.01
-0.03
-0.04
20
05
20
03
20
01
19
99
19
97
-0.02
19
95
19
91
-0.01
19
93
0
Capital Account
Ratio
Reserves Ratio
0.02
0.01
-0.02
-0.03
-0.04
-0.05
-0.06
20
05
20
03
20
01
19
99
19
97
19
95
19
91
-0.01
19
93
0
Reserves Ratio
• Investment and savings ratios in the low 30s,
which would seem the requirement for modern
take-off
• Domestically financed, CAD in the range of 2%
• Increased inflows of capital
• Huge increases in inward market-seeking FDI in
the last 4 years
• Rising accretion of reserves
• Sustainable macroeconomics
Private Capital
• Indian private capital finally came of age,
showcasing itself in the $12 bn takeover of
Corus by Tata Steel, catapulting it no.5 globally
• Tata Motors, currently no.2 in india in cars,
frontrunner in the bidding for Ford brands Jaguar
and Landrover
• Corporate india on a global buying binge
• Outbound FDI now almost equal to inward FDI.
Next year it is predicted to be higher
Public Sector
• A public sector renaissance
• Partial privatisation
• Privatisation stopped because of political and
union resistance
• On 21st Jan 2008, 7 public-sector firms in Top20
by market capitalisation and 14 in the Top50
• End of 2000, there were 5 in the Top20 (one of
which has been sold) and 8 in the Top50
Science and Technology
• India’s science and technology, seems finally to find its feet.
• In January 2007, ISRO successfully recovered an orbiting satellite.
• It is a technology that only China, the EU, Russia and the USA
possess.
• In April 2007 ISRO commercially launched and Italian scientific
satellite Agile into orbit and entered the international satellite launch
market.
• Two days ago commercially launched an Israeli spy sattelite.
• Successful launch of the Geosynchronous Satellite Launch Vehicle,
(GSLV-F04), which placed a 2-tonne communication satellite,
INSAT-4CR into orbit.
• Successfully tested an indigenously made cryogenic engine to
power GSLVs
• Indian made super-computer ranked in the top-10 in the world
The international stage
• Major player in the Doha Round of WTO
negotiations
• Important G24 member: coalition of shared
interests
• Expanded G8
• The Indo-US nuclear deal and the recognition of
India nuclear power without signing the NPT
• The distancing from Pakistan
• “convergence of interests”
• Increase in strategic value – an emerging power
The downside
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Internal
Unsustainable inequality
Agrarian crisis and land hunger
Poor quality of jobs
Caste inequality related violence
External
Unstable South Asian neighbours
China
Unsustainable Inequality
• the gini coefficient has gone up from 32.9 to 36.2
between 1993-2004
• Over the same period, the bottom 20% per capita
expenditure has grown at 0.85% p.a. while the top 20%
has grown at 2.03% p.a.
• In China the comparable statistics are 3.4 and 7.1%
• That is China’s bottom 20% expenditures rise 4 times
faster than India’s.
• It is this lack of growth at the bottom which makes
increasing inequality potentially unsustainable
…. because
• An unprecedented agrarian crisis of livelihoods, income,
employment and profitability has beset rural India for more than a
decade
• 86% of India’s workforce is employed in the informal sector, the bulk
of whom have gained little from the rapidly growing economy.
• Almost 97% of new non-agricultural jobs created between 2000-05
in the informal sector.
• 88% of Dalits and Adivasis population, 80% of Other Backward
Castes (OBCs) and 84% of Muslims belong to the “category of the
poor and vulnerable”. These groups constitute roughly 75% of the
population
• five years later, victims of the Gujarat pogrom still live in refugee
camps and have not been able to return home and there has been
no calling to account
… and therefore
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Land related violence
The resurgence of armed left-wings groups
Caste related violence
Not just social but political as well
In November 2006, a poor Dalit agricultural
worker who had been elected the president of
village panchayat in Tamil Nadu, was killed
because he refused to oblige his deputy, an
“upper-caste” vice-president, and become a
rubber-stamp president.
Unstable neighbours
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Pakistan
Bangladesh
Sri Lanka
Nepal
Burma
Economies have fared well
• Democracies and polarisation:
Bangaldesh and Sri Lanka
• “Convergence of interests”: Pakistan
• Nepal
• Burma
• China
Deepening of democracy and lower caste
political mobilisation …
• Affirmative action in politics
• ensured that there were seats for socially disadvantaged
groups (including lower castes) in all publicly contested
elected bodies, from the parliament downwards to now
the panchayat.
• Politics of affirmative action – lower caste mobilisation
around quotas
• Upper caste response – politics of religious identity
• It is this political mobilisation and the consequent access
to political power that probably explains one of the most
truly remarkable aspects of India’s democracy – that in
India it is the poor and not the rich who are more likely to
vote
…. new players and tradeoffs
• India’s first low caste (Dalit) chief minister at the head of
Dalit majority government
• Changing elites – the rise of the urban bourgeoisie and
the middle class
• Eclipse of the rural bourgeoisie
• Deepening agrarian crisis and caste conflict
• Agrarian crisis and financial liberalisation
• Tradeoffs - land reforms will not be supported by rural
bourgeoisie
• Tradeoffs - non-agricultural employment for reducing
poverty – rural biased growth strategy will not be
supported by urban bourgeoisie
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The 2004 defeat of the BJP-led coalition
The coming of the Congress-led UPA
Rural employment guarantee scheme
Doha: defensive interests
Power of the urban bourgeoisie
Continuing agrarian crisis
Resistance to Indo-US nuclear deal
Pragmatic India and stable neigbours
No necessary convergence
A new coalition of interests
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Thank You