India - An Emerging Global Power

Posted in India | 02-Jan-06 | Author: Dieter Farwick

Taj Mahal - A love story in marble.
Taj Mahal - A love story in marble.
Having traveled in recent years to China, Central Asia, the Baltic States, Russia and frequently to the United States, India made it to the top of my geopolitical interests. The crucial question : Is India a candidate for becoming a world power in the next decades to come?

The world’s attention is mainly focused on China and the US. We, too, have addressed the competition between China and the US in several newsletters in the past and we will do so in the future. After my visit to China, I titled my newsletter “China’s Two Faces” because I realized – besides other fundamental challenges - the huge gap between the haves and the have-nots leading to essential domestic problems in China that might even jeopardize China’s wish to challenge the status of the US as the lone superpower.

The US has good chances of safeguarding the present status for at least this decade. But in the long run, the US will have to accept a relative loss of power. Well aware of this possible scenario, the second Bush administration has entered into another “great game” with its main efforts in the Asia-Pacific region, where more than one third of world’s population lives.

India obviously deserves a place on our radar screen of world politics - not just because of the size of its population, but also due to its economic and social development.

What are India’s interests in world and domestic politics? Is its status of a being a so-called “non-aligned power” still prudent and possible to sustain? Is there good governance and an efficient administration? What is the quality of education in India?

India is known as a target for outsourcing in the IT sector. Is this success sufficient for a subcontinent? Is there a stable basis for the future? What are the strengths and weaknesses of the Indian state and the Indian society? What is the role of the military ? What is the significance of the various religions? What role do the about 3,000 casts still play? What is the degree of poverty?

Through preparatory studies, talks with journalists and businessmen in India as well as with members of the German Embassy in New Delhi, I acquired some good insight . I also learned a great deal through a meeting with our “Editor India,” Siddharth Srivastava, a young and skilled freelance journalist.

Then, on my tour through the state of Rajasthan, I met “the man in the street” and was able to see and smell an exciting country. New Delhi and Mombai (Bombay) gave a totally different impression. I do not pretend to now be an expert on India, but my travels provided me with a good start to learn more about this subcontinent.

My newsletter is a kind of “first impression report.” More newsletters on India will follow this year.

I will close this report with my prognosis of India’s most likely future. I will try to answer the question: Is India the better China?

India's geopolitical neighborhood.
India's geopolitical neighborhood.
What are India’s interests ?

In the past, the young State of India (1947) played a modest role in world politics. Freed from the yoke of British dominance, India took the role of a “non-aligned power” – a kind of honest broker between the established powers as well as between the developed and the developing countries.

The newly created Federal State of India had to focus on the repercussions of the foundation of the country and the equally newly formed Pakistan in the west and in the east – the latter becoming the state of Bangladesh in 1971.India has no history as a political entity. Numerous kings and maharajahs with their casts followed their own interests even under British rule.

When British India was split mainly into India and Pakistan following by and large religious borders, a very susceptible solution was found for the area of Kashmir. China, Pakistan and India still control their part of Kashmir. The artificial border between India and Pakistan was a source of conflict from the beginning. Three major wars with major casualties on both sides did not change anything. Military forces have been stationed on both sides of the Line of Conflict (LoC)

The Kashmir conflict turned Pakistan into India's primary threat. The arms race turned both countries into nuclear powers. The nuclear weapons on both sides may have actually prevented another “hot war,” in addition to the successful silent diplomacy of the US.

Since April 2003, there is a dialog between India and Pakistan – with some modest results. A bus line has been opened crossing the LoC. It was the natural disaster – the earthquake in October 2005 – that created new opportunities. More crossings of the LoC have been established allowing mutual aid activities.

The main threat for this dialog stems from repeated Islamic attacks in Kashmir and in India. India blames Pakistan for supporting these terrorists. There is some hope that these new opportunities will prevail.

India: Facts and Figures

Geography and Geopolitics

India is, by area, the seventh largest country in the world with 3,287,263 square km
Distance from North to South: 3,214km
Distance from West to East: 2,933km
Land frontiers: 15,200km
Coastline: 7,516km
Topography : from the roof of the world down to sea level
Neighbors : Pakistan, Afghanistan, Nepal, Bhutan, China, Myanmar, Bangladesh and Sri Lanka – separated by the Palk Strait and the Gulf of Mannar

Demography, Religion and Education

India is the second largest country and is expected to become Nr.1 in some decades
Population : 1 billion plus (Germany has only 80 million); annual growth rate: 1,5% (China: 0,6%)
Percentage of people who live in cities in India: 28,7%
Life expectancy: Men 62 years, women 66 years
Average age: 24
Religions (in %): 80% Hindu, 13% Muslim, 2.3% Christian, 2% Sikh and 0.8% Buddhist
Largest city: Ca. 15 million inhabitants(official figure)
Languages : Hindu and English plus 17 official regional languages plus about 1600 dialects
School attendance: Until the age of 14 years, about 80% of children go to school (official figure)
Quality of state schools is poor; better-off people send their children to private schools
Illiteracy: Ca. 40%; huge differences between urban and rural areas; men 31%, women 54%

Politics

Federal Republic since 1947
Two-house system
By population the largest democracy in the world
28 states and 7 “Union Territories”

Selected economic and financial data

GDP 2005: 740 billion US$ ( USA 12,080, Japan 4,720, Germany 2,740, China 2,180)
Distribution of GDP: Service sector: 56% (China 32%); agriculture: 22% (China 15%); industry: 22% (China 53%)
Annual growth rate, 2001 – 2005: 7%; growth prognosis for 2006: 7%
Annual per capita income: 540 US$
Annual inflation rate: 3,8%
Unemployment : 6%; differs between the 28 states and between rural and urban areas
Rise in salaries 2005: 14%
Rise in home loans 2005: 56%
Rise in consumer credits 2005: 40%
Growth in use of mobile phones 2005: 53%
Prognosis for 2006: Rise in service sector: 8%; rise in agriculture:3,5%; industry: 8%; jobs in auto sector : increase of 1 million
Oil import 2004: 30 trillion US$

Geopolitics starts with geography

The growing importance of the Asia-Pacific region has a positive effect for India. The Indian subcontinent has gained a new geostrategic position between the “strategic ellipse” – the Middle East, the Caucasus and Central Asia – where 70% of the world’s oil and gas reserves are - and the Asia-Pacific region, where one finds the main energy consumers – like China and Japan. India has a comfortable geostrategic position of the “inner lines.” Important supply lines have to pass through India. Pipelines from Iran and Central Asia are technically possible and affordable. Politically, they are not without problems. Oil and gas transports via the Arabian Sea do not cause technical problems. Mombai is already today an important harbor for oil and gas imports. Pipelines are already operating to bring oil and gas to the consumers in India. More are planned.

Tuk-tuk - The three-wheeled open air city taxi.
Tuk-tuk - The three-wheeled open air city taxi.
In the past, India’s political dealings with its neighbors were not very successful. I already mentioned Pakistan as the western neighbor. Though dialog has been started, tensions remain. Terrorist attacks across the Pakistan/India border or via Kashmir are the main source of India’s concern in the west. India blames Pakistan for not doing enough against the terrorists and extremists- as well as Afghanistan does. But India has a great interest in keeping the present government of Pakistan in power. A radical Islamic Pakistan would be more than a nightmare for India.

From Afghanistan, which borders Kashmir, there is the threat of Islamic terrorists infiltrating Kashmir because their situation will become worse if and when Afghanistan succeeds in “cleaning” the Southeast of terrorists and extremists.

India’s politics towards Nepal are not very prudent. After the king dissolved the parliament, India stopped its support of Nepal – including the delivery of weapons that are needed for the fight against Maoist terrorists. China took this opportunity to replace India as a weapons supplier. China got another “foot in the door” in India’s neighborhood. The compromise that has been found between the conflicting parties in Nepal should be used by India to regain ground in Nepal.

Bhutan seems to be a neutral neighbor. It acts as a buffer between India and China. It lies in India’s interest to safeguard the status quo. China is the most important neighbor of India, although the common border is small.

Worrisome for India is its eastern neighbor Bangladesh – becoming more and more a safe haven for terrorists and extremists. There is concern that a “corridor for terrorists” might be established from Nepal, through the northern part of India and Bangladesh. A high-ranking military source offered his assessment that the UN will have to start another military operation along the border of India and Bangladesh to cut off this corridor.

Sri Lanka, hit by tsunami and showing increasing terrorist activities is not threatening India in a direct way, but a success of terrorists there might have an impact on southern India.

India’s vital interests

The geopolitical situation, the dialog with Pakistan, the rise of China, the development in the Asia-Pacific region as well as the offer from the US of closer cooperation pushed India to look beyond the conflict with Pakistan. India has to realize that it must play a more active role in the Asia-Pacific region. Risks and chances must be defined. But India has to start defining its interests in a rapidly changing world.

To my knowledge, there is no official document showing India’s interests, but I dare to assume the following:

  • To safeguard peace and freedom in the Asia-Pacific region

  • Support the protection of human rights

  • Build a close cooperation with the US

  • Counterbalance China

  • Keep a strategic partnership with Russia – mainly for energy supply reasons

  • Enhance cooperation with Japan

  • Strengthen India's status of being an “indispensable power” in the Asia-Pacific region

  • Mitigate the tensions with Pakistan

  • Be a respected member of the coalition against international terrorism

  • Enhance India’s good governance and administration

  • Ensure a smooth transition to becoming a global power

  • Ensure reliable energy supply at affordable prices from Russia, Central Asia, the Persian Gulf and Iran

  • Strengthen the economic development of the country

  • Enhance the living conditions of the poor people

  • Avoid any conflict in the “near abroad”

It is no easy task for an Indian government, inexperienced in world affairs, to find its role on the world stage whilst protecting and promoting its own strategic interests. India has to mirror its own interests against the interests of other players. It needs to find reliable allies and partners with common interests, and it must find out who is working openly or clandestinely against India’s interests.

Barber's open-air shop.
Barber's open-air shop.
For India, the ability of its economy to bolster India's new role in world politics is crucial. Only a strong economy will enable India to cope with demanding challenges.

India’s economy: “How long will the party last?”

This was the headline of an in-depth economic survey published in “India Today," (November 28, 2005). The analysis was based upon the conclusions and recommendations of the “Board of India Today Economists” - experts from various institutes and organizations.

The report starts with a short series of questions and answers:

Q.: Who is an optimist?

A.: One who is very bullish on the Indian economy

Q.: Who is a pessimist ?

A.: One who is bullish on the Indian economy

A contradiction? There is obviously a bright side to India’s economy in 2005 - perhaps the best year of India’s economy (see data in the box):

Foreign and domestic investments – in rural areas, too - ,private consumption, rising salaries, finance and product innovation and job creation form one side of the coin. However, on the flip side of the coin, we see the darker elements: Shortage of skilled workforce, rising salaries, rising inflation rates, poor governance in the Federal State of India and in many provinces and slow administration combined with corruption as well as poor infrastructure and unequal education.

These negative factors lead some experts to a more negative prognosis. “A McKinsey survey found high costs and low availability of manpower as the two biggest constrains in India” (India Today). High salaries are good for the people and consumption, but if the rise is too high and too quick, India might lose its advantages for outsourcing from the US and Europe.

Nevertheless, the optimistic views prevail: “The interest rate is unlikely to hit demand” (Jagdish Khattar, Managing Director Maruti Udyog); “After it, the next big thing could be textiles” (Jahreim Ramesh, economist and Member of Parliament); “Companies are looking at globally competitive costs” (Mohit Batra, Head, Project Finance ICICI Bank); “Booming demand, rising productivity and high returns have revived industrial investment and the boom is here to stay till at least 2006-7”… It is not just price and income, but also innovation in financing and products that is driving consumption. That should make consumer demand lasting, even though interest rates will not fall further ... Jobs and salaries are the twin engines that fire consumer spending, the wheel on which everything from farms to factories move. A buoyant job market is one big reason to bet on the economy to keep rocking in 2006” (India Today).

It is surprising for me – living in an export oriented country - that the topic “export” plays a minor role. This is certainly due to the fact that India's own population of more than a billion is seen as a promising market.

Let’s have a closer look at some of the obvious limiting factors.

India's railway system - non reliable but overcrowded.
India's railway system - non reliable but overcrowded.
Governance and administration

Government; politicians and administration have a bad reputation in India. “The fact that the current boom is despite the government is its biggest underlying weakness”… Four consecutive years of 7% GDP growth – a record – looks certain. Government support can even deliver a double digit economic growth.…Vested interests cutting across party lines have prevented economic reforms” (India Today). The effect of poor governance is estimated at 1% of the GDP.

Corruption of members of the government provides breaking news almost on a daily basis. Two ministers of the cabinet had to resign recently because of their involvement in the UN Oil-for-Food Program and stealing a lot of money from the “Tsunami-Aid Program.” TV and radio stations play a new game with politicians: “Sting operations.” In front of hidden cameras and microphones, politicians are caught in a trap: accepting bribes – to then be asked questions in the parliament following the interests of the donor. Just recently, 11 members of the Indian parliament were arrested after a clever sting operation. Reports of this misbehavior have one good side: They symbolize that the media in India are free to criticize high ranking politicians – a good sign for the world’s largest democracy.

Government and administration lag behind in economic development: There is a poor infrastructure for transportation of goods on rail, roads and in the air.

  • Today, only six out of 450 airports can handle large aircraft. 52% of all air movements have to be handled by the airports of New Delhi and Mombai – creating bottlenecks for economic transportation and tourists.

  • The roads are too small and packed with camel-drawn odd vehicles, huge trucks and buses. In New Delhi and Mombai, there are permanent day-and-night traffic jams – in spite of the unbelievably high price of gasoline (1 euro per liter - related to the average low incomes of 300 –400 dollars per month, an equivalent of $7-8/liter in relation to an average American/European income)

  • One factor for the amount of private traffic is the lack and/or poor quality of public transport.

  • The bad traffic conditions do not allow industry to rely on a “just in time” cost-saving system.

  • Indian trains are overcrowded and unreliable.

Improving the traffic infrastructure will cost billions or even trillions over the next decade. Privatization might be the only way out – depending on political decisions, influenced by corruption.

The government and the administration are also blamed for bad infrastructure in healthcare, poor supply of drinkable water and a lack of environmental protection.

In some states – like Bihar – the situation is even worse than in the federal republic. Standing alone these states would have the status of “failed states” – safe havens for terrorists and a breeding ground for extremists and terrorists.

In my view, the central government in India should go for more decentralization. There are many states that are economically better off and could shoulder more responsibility. A better and more fair distribution of taxes between the federal government, the 28 states and the 7 union territories would enable more decentralized activities – combined with more privatization in all walks of life and more competition between the states to attract modern industries.

Hyderabad and Bangalore should not and cannot remain the lone lighthouses of the 21st Century in India.

Education and work force

Education and skilled work force are twins in India. The rapid progress in high quality jobs increases the demand for a skilled work force. There is already a shortage in cities like Bangalore or Mombai.

The educational system does not “produce” a sufficient amount of skilled people in time. This is a reason for rising salaries. The state school system offers poor quality. The middle classes send their children to private schools in India – or even abroad. Private kindergartens and private schools are not affordable for the lower classes. This well-educated, new elite is direly sought after in industry and administration. There is one piece of good news: Rural areas away from the big cities are becoming more attractive to industry. They are forced to bring the jobs to the people. This is a very positive trend in mitigating the gap between urban and rural areas.

India tries to attract qualified Indians living abroad to come back and support the country.

Indian society and religion

Life below the poverty line.
Life below the poverty line.
The structure of India’s society and the religions in India are tightly interrelated. 3,000 casts still play a decisive role in India – at least the upper ones. There are only limited chances to cross cast barriers. A marriage - still organized by the families - will not happen across cast barriers. It will also not happen between Hindus and Muslims or Christians.

To climb the social ladder is very difficult. The acting president of India is an exception – having made his way from the lower class to the top.

To give members of the lower classes a better chance, the government blocks a certain amount of places at universities for them. But this is only cosmetic.

At a thumb guess, India’s society can be grouped as follows:

  • 50,000 super rich

  • 200 – 300 million upper class

  • 300 – 400 million middle class – divided into lower- and upper-middle class

  • up to 400 million living below the internationally defined poverty line (availability of less than US $2 per day). For tourists from Western countries, the visible poverty is shocking. To see how these people live in tents and huts next to the roads and streets as well as the begging by children, handicapped and crippled human beings is hard to stand.

India is supposed to surpass China demographically within the next 30 – 50 years. The reason is a very relaxed policy of birth control. Especially in rural areas, children – primarily males – are still seen as a life insurance. More than 15 million newly born Indians per year have to be fed, have to find places in – good – kindergartens, schools and universities, have to find medical care, a job and a wife to start a family.

India should try to influence demographic development in order to decrease the growth of its population at least modestly. The driving force for India’s future is in my view the middle class. They are eager and ambitious to make their own life and that of their children. They are well educated and master the English language which is a huge advantage in dealing with the Western world.

Those who have studied in Western countries know more about our culture, mentality and attitudes – than for example the Chinese. They are open-minded, self-confident and good communicators. They can afford expensive kindergartens and private schools and universities.

Five family members on two wheels.
Five family members on two wheels.
The middle class takes blue-collar jobs as a starter - something the upper class will never do. The Hindu religion is stabilizing the present social system. Hindus believe in another future life which will be better if and when they live a “good life” – following the religion and commonly accepted rules of the society. Even the Hindus living below the poverty line obviously accept their living conditions – at least until now.

That might be different with the Muslims, who in general follow a moderate line. The Dar-ul-Ulum seminar in Deoband – 150 km northeast of New Delhi - is seen as one of the most influential Muslim “schools” in South Asia – reaching out beyond India to Afghanistan in the West and Indonesia in the East. They teach an anti-western, radical Islam. It is an open question whether or not they will be able to recruit and train radical fighters from India’s Muslim minority.

Some parts of India are undoubtedly potential breeding grounds for terrorists and extremists that could be exploited by terrorist veterans coming from Afghanistan, Pakistan, Central Asia or Bangladesh.

A strong Indian economy leading to better living conditions for the underprivileged might create a glimmer of hope and might be a good precaution against the rise of terrorism and extremism.

Environmental problems and tourism

The pollution of the environment that one can see, smell and feel in India is a time bomb. Availability of drinkable water is one of the most pressing issues. It seems like a miracle that human beings and plants can survive under these conditions. There are almost no sewerage systems operating – neither in the cities nor in rural areas. Trash is everywhere . There are almost no trash collection efforts to be seen nor garbage cans nor waste disposal sites – except in and around hotels or official sites worth seeing.

The pollution is without any doubt a limiting factor for further general development in India. The healthcare system will collapse because it cannot handle unavoidable diseases and pandemics – as is already the case today with AIDS/HIV.

The federal state and the 28 states have no time to lose. They have to start immediately. Foreign aid should concentrate on environmental issues. Environmental problems are tightly connected to tourism – another booming industry.

The mastering of the English language by most of the people tourists normally have to deal with makes traveling in India easier than in China. Just how attractive India is for tourists can be realized by trying to get a flight to India and find a convenient hotel. In November, it was hard to find one hotel room in New Delhi. However, worsening environmental conditions might work as a deterrent for tourists who do not want to run a high health risk.

The trip through Rajasthan shows the cultural richness of India and still gives an impression of “old India.” The temples of the various religions and the forts and palaces of the maharajahs offer a diversity of art and handcraft - crowned by the Taj Mahal – the tourists’ must.

Ecological but slow.
Ecological but slow.
In New Delhi, the British-influenced past is visible. The architecture underlines the political power of the capital. Mombai is the powerhouse of India. The film industry – Bollywood – produces more movies per year than Hollywood. To visit a cinema with up to 2,000 seats seems to be very attractive to Indians.

The textile industry is booming, too. In the area of Mombai, about 40% of India’s GNP is produced. We were informed that each and every day, about 2,000 people come to Mombai looking for and getting new jobs.

Even in relatively clean Mombai, British people should feel at home. The architecture of its center is very British.

Agriculture

India’s agriculture is obviously strong enough to feed its billion-plus inhabitants. On the markets, food is offered at affordable prices. 57 % per cent of the land is usable for agriculture with about one third being watered. The watering system seems to be very efficient.

One problem is the dependency on the monsoon. If the monsoon comes late in the season or even stays away, India’s agriculture comes under pressure. Normally with some plants, three harvests per year are to be expected – allowing even export of agricultural goods.

Foreign policy and the role of the military

Failure or success in the sectors mentioned above will decide which kind of foreign policy India will be able to execute – always looking at the above mentioned vital interests.

India has already given up the role of a ”non-aligned-power.” India sided clearly and openly with the US. Both regard a close strategic partnership - the US in addition closely linked with Japan – as the best chance to counterbalance and contain China.

India faces problems in the neighborhood with Pakistan in the west and Bangladesh in the east. A stable Pakistan is in India’s own interest. India will continue the promising dialog. Islamic Bangladesh causes more and more concerns for India. There is no military threat from Bangladesh, but there is a religious one. Bangladesh might try to destabilize India by infiltration and by open or clandestine cooperation with parts of northeast India.

India will try to close the border, which will not be an easy task. The containment of China will be priority Nr 1 – in spite of increasing trade between both countries.

Another important part of India’s foreign policy will be the development and protection of the supply lines from the “Broader Middle East” – including Central Asia. To build those modern lifelines is expansive but feasible. The problems come from the political side. It is not easy for India to stabilize the oil and gas producing countries from the outside. Iran, Pakistan, Afghanistan and Uzbekistan are politically fragile.

India cannot go it alone.

Therefore, India is forced to look for a division of labor with the US, China and Japan. All four have to find a balance between national and common interests.

India’s military will play an important role in foreign policy. The defense budget has been drastically increased during the last years – but it is still low in comparison with China (US $29 billion) and the US (US $450 billion). India’s navy will be more important in the “strategic neighborhood” between the Arabian Sea and the Straits of Malakka.

On the other hand, air force and ground forces remain important, too, looking to Pakistan. Nuclear weaponry is in general losing its significance, but there is certainly a need for a minimal nuclear deterrent.

India’s conventional build up has to be communicated to the neighbors as being “non- threatening” to avoid an expensive arms race. Confidence building measures – especially with Pakistan – have already been started and will be continued.

Conclusions and recommendations

India is a multifaceted subcontinent in Asia that increasingly becomes more important for the whole world.

The fate of more than one third of the world’s population is vital to the rest of the world because of a network of interdependence. The failure of one part of the world is no longer the win of the other. This is especially true for the two biggest Asian countries : China and India. I want to focus on India.

I have described the factors that will have a negative impact on the future of India: Poor governance and inefficient administration combined with a high level of corruption, bad reputations of politicians, fast-growing population, 400 million living under the poverty line, environmental problems, shortage of skilled workers, high rise of salaries, insufficient traffic infrastructure, poor education in state schools, poor healthcare and rising interest rates. In addition: Security problems with Pakistan and Bangladesh, international terrorism and the powerful neighbor China with the growing possibility for power projection in the Asia-Pacific region.

At this stage, one is tempted to write India off. Fortunately, there are positive factors, too: Democracy, free media, economic growth, rising private consumption, rising foreign and domestic investments, booming sectors (IT, textile, Bollywood and tourism), well educated English speaking upper and middle classes, understanding of Western attitudes and mentalities and – very important - optimism and resolve to succeed. In addition, there is a close strategic partnership with the US, which is closely linked to another big Asian country: Japan.

The decisive factor is in my view the middle class based upon good education, creativity and innovation.

There lies the potential and the dynamics to seize existing opportunities in education, skilled and well-paid jobs for present and following generations. It will be an uphill fight that will last almost a decade. In the long run, I believe that the “Office India” will pass the “Factory China” and will become a stabilizing global power.

India cannot solve all problems alone and with the present politics. Therefore, the following are some substantial recommendations that India should take into account:

  • Define your vital national interests

  • Strengthen the strategic partnership with the US and Japan

  • Decrease the tensions with Pakistan, Bangladesh and Nepal

  • Find a “ modus vivendi” with China – a combination of containment and cooperation

  • Attract foreign investors for the traffic infrastructure and the environment

  • Enhance privatization and decentralization

  • Improve governance and administration

  • Fight against corruption

  • Improve the education system

  • Increase the fight against poverty

  • Encourage more openness and permeability in the Indian society

  • Strengthen birth control

  • Improve healthcare

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