Thursday, November 26, 2009

India's Deluge of Challenges

This Article is written by Brother Adnan Khan

The Western world for over a century has dominated economic development and has managed to even define development as the path they undertook to achieve progress. Like China, India has been analysed by economists, geopolitical experts, intelligence agencies and futurologists. India today is recognised as a BRIC nation, a nation rapidly developing due to embracing global Capitalism. It has become difficult to not notice India whether this is its successful unmanned lunar mission, the creation of the world's cheapest car - the Tata Nano, or the acquisition of Jaguar Land Rover by the same company or the fact that India is home to many of the worlds call centers. Combined with the development of nuclear weapons and a population of 1.2 billion with a workforce of 500 million, for many India has all the ingredients to become a future power. Commentators have praised India's membership of the global free market and the Indian development model is being hailed as another success story of Capitalism. This article will chart India's development and asses the prospects of India becoming a world power and outline the lessons that can be learnt - if any, from India's development.


Indian progress: Past and Present

After partition India implemented a number of 5 year plans along Socialist lines in order to achieve economic development and prosperity. By aligning with the USSR during the cold war, technology flowed India and the territories of the USSR become India's key export market. Until the liberalisation drive in the 1990's India's economy was termed ‘licence raj,' this was the elaborate licenses, regulations and the accompanying red tape that were required to set up and run a businesses in India. India's economy was characterised with protectionism, public ownership and corruption.

It was the fall of the Soviet Union that forced India to change its direction. The collapse of the Soviet Union, which was India's major trading partner, caused an economic crisis. At the same time the Gulf war also led to oil price rises, causing a financial crisis and forcing India to turn to the IMF. India was given a $1.8 billion bailout loan from IMF, which in return required many stringent reforms. For nearly 50 years successive Indian leaders closed the Indian economy to the outside world, the IMF demanded India to open its 1 billion domestic market. With strong rhetoric directed towards India by the US administration due to the stalemate on Kashmir, Narasimha Rao began the liberalisation of the Indian economy allowing foreign multinational companies to enter the Indian market and heralding India's embracement of the global Capitalism.

The liberalisation, privatisation and opening of the Indian economy were handed to a finance minister who was at the time an unknown economist - Manmohan Singh, (the current prime minister). Manmohan Singh instituted reforms through opening Indian markets to foreign investment, opening India's capital markets to foreign investment banks, deregulating domestic businesses and reforming the trade regime. Liberalisation got rid of Licence Raj and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.

India Today

After nearly 20 years of implementing reforms cities such as Bangalore have risen in prominence and economic importance and have became centers for foreign investment. On the eve of reform India's economy was a mere $317 billion, today the Indian economy has grown to a whopping $1.2 trillion, the 12th largest economy in the world and after China and the world's fastest growing economy.

The liberalisation of India's economy has resulted in India transforming from an economy that was dominated by agriculture to one where the service sector generates 54% of the nations wealth. Business services such as IT and business process outsourcing contribute 33% to the total output of services. Several Indian firms were listed among the top 15 technology outsourcing companies in the world in 2009. The growth in India's IT sector has been a result of increased specialisation and an availability of a large pool of low cost, but highly skilled and educated workers. However the share of India's IT industry to the Indian economy is still relatively small and is currently only 7% of the economy. Annual revenues from outsourcing operations in India currently stand at $60 billion and this is expected to increase to $225 billion by 2020.

India's industry generates 29% of India's wealth but is still dominated by simple household manufacturing. Whilst advances have been made in software development India's industry is still dominated by oligopolies of old family firms who have used political connections to prosper when faced with foreign competition. Government policy is centered on promoting the designing of new products and relying on low labour costs and technology.

Agricultures generates 17% of India's wealth, however it employs the vast majority of India's workforce, 2 out every 3 Indian's work in India's agricultural sector. India is the world's largest agricultural producer after China and produces more Bananas, Sapotas, Milk, Cashew nuts, Coconuts, Tea, Ginger, Turmeric and black pepper than any nation in the world. India has the world's largest cattle population of 193 million and produces 10% of the world's fruit.

Current issues

India will soon be in its 20th year since its liberalisation drive began, it is already well behind the level China reached at the same milestone. India faces many challenges the most critical of these, in order to become a world power, are summarised below:

• - Energy

For any nation to develop a stable and secure supply of domestic energy sources is paramount. India has severe problems in this area, While 80% of Indian villages have at least an electricity line some 600 million Indians have no mains electricity at all, just 44% of rural households have access to electricity. In India's case rising energy demand due to economic development has created a perpetual state of energy crunch. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Although India is rich in certain energy resources which promise future potential such as renewable energy resources like solar, wind and biofuels (jatropha, sugarcane) such sources however are still in their early stage of development and can in no way provide sufficient energy for development of industrial scale.

• - Wealth Distribution

India's development for the last two decades has been anything but equal. The benefits of liberalisation and globalisation are still restricted to certain geographical areas of the country and certain economic sectors. The IT boom is concentrated in the Southern metros of India while the petrochemicals sector is thriving mostly in Gujarat, in western India. Large parts of Northern and Eastern India are severely lagging in economic development. The traditionally poor and populous BIMARU states - Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh - are still largely agrarian economies.

Whilst the Indian economy has grown fourfold over the last two decades, this new wealth has remained in the hands of a small minority of the population. 85% (930 million) of the Indian population lives on less than $2.50 a day, this is more than Sub-Saharan Africa. 75% (822 million) of the Indian population lives on less than $2 a day. 24% (300 million) of the Indian population live on less than $1 a day. This means 41% (444 million) Indians live below the international poverty line of $1.25. 33% of the world's population that lives in poverty resides in India.

• - Infrastructure

For any nation to have any global power projection capabilities it needs to develop domestic infrastructure of roads, ports, electricity grids, water supply and telecoms in order for the nation to move forward and contribute towards progress. Indian infrastructure has come to be characterised with crumbling roads, jammed airports, and power blackouts and rampant corruption in mega projects. Indian technology firm Infosys Technologies Ltd has confirmed that with virtually no mass transit in Bangalore it spends $5 million a year on buses, minivans, and taxis to transport its 18,000 employees to and from its offices and factories. It also confirmed that traffic jams mean workers can spend upwards of four hours commuting each day. India's spending in this area is only $31 billion. India has only 1% of the world's vehicles, but it accounts for 8% of the world's vehicle fatalities. Recent estimates by Goldman Sachs have shown that India will need to spend $1.7 trillion on infrastructure projects over the next decade to deal with its rapid economic development.

India at the same time has many other problems that it will need to overcome if it has any ambitions of becoming a superpower, among these are:

• - 1000 Indian children die of diarrhea sickness every day

• - 40% of children under the age of three are malnourished (underweight)

• - 100,000 villages have never heard a telephone ring

• - According to the World Bank it takes an entrepreneur 35 days to start a business, 270 days to obtain various licenses and permits, 62 days to register a property, nearly 4 years to enforce contracts, and a shocking 10 years to close a business

• - One in every three urban Indians lives in homes too cramped to exceed even the minimum requirements of a prison cell in the US

• - 338 million Indians cannot read or write

A False Dawn

India does not represent a unique or new form of economic development. The adoption of the free market is a tried and tested formula that has failed Africa, Latin America and the Far East. The apparent success stories utilised to prove the success of the free market, such as the Western world, has in reality been due to the leg up provided by national governments. Becoming the world's outsourcing hub will also not stimulate India's huge economy as such a strategy is too narrow to stimulate multiple sectors of the economy, this is why India's infrastructure is in chaos as only those sectors that act as supply lines to outsourcing such as IT have seen development. India's economy is mostly dependent on its large internal market with external trade accounting for less than 15% of the country's GDP. The trend of relying on International trade looks set to increase and as the financial crisis has shown dependency on the global market is a fragile way to construct an economy. This was a similar strategy the Asian tiger economies pursued through the 1980's and 1990's with disastrous results in 1997 in what has come to be known as the Asian Crisis.

Such issues will stop India from ever becoming a global power, India on the other hand has a number of more fundamental challenges that will always hinder it from becoming a global power unless they can be resolved.

• - Politically, India is a hugely fragmented nation with competing factions with varying interests pulling and pushing across various geographical, religious, caste-based and class-based faultlines. Indian politicians have, for most of India's post partition history, utilised the differences for their short term gains never bothering to rise above petty differences and marshal the resources of the nation. The fact that India is the world's largest democracy is a problem not an advantage for India. Parliamentary democracy institutionalises differences and allows parties to be established to protect such interests. This results in most issues lingering into parliamentary deadlock as was seen with the civilian nuclear deal with the US.

• - India has a population of 1.2 billion, with 80% of the population Hindu. However India is a fragmented nation that has been unable to integrate its minorities, this has created a secessionist problem with various factions leading violent campaigns against the Indian government.

India's fundamental problem lies in its identity. Is India a Hindu nation or a secular nation? Secularists are in the minority and have argued against Hindu nationalists who have led mass riots against minorities. Those who have benefited from India's liberalisation have to a large extent been those who believe Hinduism should have no role in governance. If India is a Hindu nation with Hinduism its identity, then this institutionalises the caste system which stratifies India into a system of hereditary groups. Currently India is a mixture of secularism and Hinduism which means the nation cannot move in a unified direction and this is what has caused its secessionist problem as Hinduism cannot deal with people outside such a caste system.

• - To become a word power a nation needs global ambitions. A nation would need to posses a way of life that they are prepared to take to the rest of the world. India has no global ambitions. India was a world power from the 11th to the 18th century, but it was Islam that made India think globally. Today's India has no global ambitions. India has strategic interests, such as Chinese expansion and Pakistani threats, but such interests are not sufficient to become a superpower. Hinduism looks upon India as the homeland and offers a caste system, with no integrated system of governance, economy, foreign relations and judiciary, as a result India's fundamental interest will always come from within - from its endless, shifting array of domestic interests, ethnic groups and powers.

• - Hinduism lacks the characteristics of an ideology and as a result India faces the prospects of being unable to tackle its problems with any consistency. The liberalisation of India has created issues of wealth distribution, food scarcity, and industrial priority. Every time India solves an issue this will create a host of other challenges, in order to face such issues a nation needs to adopt an ideology where solutions are derived from the same basis, be they economic, social, ruling etc. India currently is solving its issues through pragmatic polices and this will only increase the challenges and issues that India will have to deal with.

If India decides to adopt Capitalism as its ideology and take Secularism as its basis than although it will see some development it will also suffer the fate that nations that have already embraced secularism suffer from. India is already showing signs of this. Old age was never a problem in India. Old age homes were alien in concept and elder abuse was considered a Western problem. Not any more. As life expectancy has increased hundreds of old age homes have sprung up in India. The neglect of ones elders has very quickly turned into an endemic issue that the Indian government was forced to address. It has attempted this through ‘the maintenance and welfare of parents and senior citizens bill 2006.' This made it imperative for adult children to look after their parents. The regions culture is built upon parents being an honour and their neglect, a humiliation. In 1998 there were 728 old age homes in India, today there are more than 1000.

Conclusions

Many analysts have a tendency to look at economic growth and population trends when assessing potential world powers, whilst such indicators may indicate future prospects on their own they show very little in terms of future power. Throughout the 1970's and 1980's Japan was seen as the nation that would replace the US as the worlds superpower due to its rapid economic development and population, this was brought to an abrupt end when its asset bubble burst in 1990.

The real indicator of future prospects is not the resources of a nation, its population size, the technology it posses or geography - although these would be advantages. A potential global power would need to posses global ambitions, this in turn would come from the way of life of a nation or people have embraced. Japan like Germany in the 1930's had global ambitions which came from the belief that they were superior people to the rest of the world, this drove the need to develop and motivated their people to contribute towards the aims of global domination. It took WW2 to stop both nations. Japanese development in the 1970's and 1980's was economic and not political and hence it remained within Japan's borders. Both Japan and Germany have always lacked mineral resources in order to develop but their global ambitions forced them to develop a strategy to overcome such challenges.

In a similar manner Britain and the America on the eve of their development had small populations and lacked the technology to compete with their competitors. Britain's global ambitions of colonising the world, to benefit from their mineral resources, drove them to develop a state of the art navy and turned them into the world's superpower by the turn of the 18th century. American development began through the American Revolution where Briton was expelled as the American people wanted to embrace the unalienable rights of freedom. The belief in ‘manifest destiny' this is the divine belief that the original United States was ordained to conquer the North American continent motivated Americans to work for the territorial expansion Westerward. This in turn led to the US to take Latin America away from European colonisers for its own security. US industrial development was necessary as its small population would have been unable to do the necessary tasks and hence many tasks were mechanised. In the case of Britain and America all challenges were mere obstacles that stood in the way of global aims and just needed to be removed (solved). The adoption of Capitalism unified their societies and motivated them to work towards developing the nation and in turn fulfilling their global ambitions.

The image of an ‘India Shining' post-1991 is not representative or a fully accurate portrayal of a country where over 100,000 villages have never heard a telephone ring. While the economic reforms of the 1990's did much to liberalise and stimulate growth, the direct beneficiaries were more affluent urban dwellers. Whilst India has many challenges to overcome such as its lopsided development, a 1.2 billion population, who constitute a third of the world's poor, with over 70% of Indians living in deprived rural areas, these can be overcome as all the industrialised nations have shown. However solving such issues is the product of progress, at the heart of progress lays a very simple concept of global ambitions which India does not posses. Its way of life - Hinduism does not outline or give an international outlook. Whilst India will build state of the art cars, send many into Space, invent new technologies, achieve self sufficiency and superiority in various fields, this is however something sought by every independent nation, but on its own insufficient to become a superpower.

The one lesson that can be learnt from India's development is that the Muslim Ummah possesses a way of life that gives it global ambitions. It is for this reason the majority of Muslims today reside beyond the original birth place of Islam. The global ambition of taking Islam to the world is why today the majority of the Ummah are not Arabs. If there is one lesson that can be learnt from India's development, that is the fact that the Ummah is a sleeping giant, once it awakens it will again by Allah سبحانه وتعالى permission take it rightful place as the world's superpower.

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