A Vision for a 21st Century India:
Economic Powerhouse and Global Leader

Thursday, March 17, 2005

Introduction
Panel One: India’s Comparative Advantage and Global Competitiveness
Panel Two: New Social Agendas and Actors
Panel Three: India’s Worldview: Constructing Engagement
Conclusion

Introduction

In March 2005, the Asia Society held an all day conference to explore India’s emerging role as a prominent international power. The Conference concentrated on economic development and international competitiveness, social and environmental issues, and current foreign policy initiatives in effort to gain a comprehensive insight into the possibilities and challenges India confronts in establishing itself as a global leader. Panelists discussed India’s recent trajectory in all three spheres – economic, social and foreign policy – and focused on areas in which government and public attention are of immediate priority.

A core objective of the conference was to generate a set of pragmatic policy recommendations that will engage the new government as India seeks to expand its international influence. They are included below. While India is emerging as a global power, its future as an international leader rests on its political will to achieve good governance at a domestic level and foster constructive partnerships regionally and globally. India’s transformation can serve as a blueprint for sovereignty and democratic nationhood for other countries in the developing world that are tackling the challenges of development and leadership.

Policy Recommendations:

Economic Priorities

• Direct policy reform at activities that encourage labor-intensive employment, particularly agricultural production and small-scale industry reform.
• Invest in agricultural diversification, including meat, fishing, and dairy industries.
• Expand agricultural productivity by investing in rural infrastructure, expanding upon microfinance projects, and investing in human capital, such as rural education and child day care.
• Enhance current small-scale industry reforms, such as in the textile and apparel industry.
• Reduce the remaining vestiges of protectionism, such as tariffs in the automobile sector.
• Strengthen implementation stages of current and new economic reform programs by bolstering regulatory agencies, and establishing precise monitoring processes and systematic mechanisms for ensuring accountability.
• Adopt a participatory approach to economic reform by initiating more public-private partnerships.

Development Agenda

• Develop a comprehensive socio-economic reform agenda that recognizes that social and economic challenges must be addressed holistically, rather than in isolation.
• Ensure that reforms efforts are participatory, encouraging the involvement of and coordinating efforts with local governments, businesses, civil society and non governmental organizations.
• Recognize that it is a mistake to replicate US development models. India can not afford to address resource misuse ex post, but must do so immediately, to improve the livelihoods of the lower quintiles of society and sustain its current path of development.
• Increase water supply and distribution in agricultural areas by designing tank rebuilding projects to store and distribute rain water during dry periods, and by focusing on attention to sewage system design in urban areas.
• Continue to strengthen policies for reducing vehicle pollution and encouraging innovative strategies that would challenge the reliance on private transportation.
• Recognize that focus on HIV/AID treatment should not come at the cost of directing adequate to HIV/AIDS prevention; an appropriate balance must be struck between treatment and prevention to successfully battle the AIDS/HIV crisis.
• Acknowledge the connection between women’s unequal status in India and their high rates of infection; reform laws to protect women’s rights, including those regarding marriage, sexual and domestic violence, inheritance, and education.
• Enhance funding and strengthen programs concerned with social factors underlying the current HIV/AIDS crisis, particularly those focused on women’s unequal status, including women’s health, education, and legal issues regarding marriage, sexual and domestic violence.

Multilateral Engagement

• Secure the country’s position as a regional leader by mobilizing international efforts to return democracy to Nepal, including pressuring King Gyanendra to rescind the declared state of emergency and restore civil and human rights.
• Demonstrate greater political will and leadership on south-to-south cooperation by pressing forward on a South Asian Free Trade Agreement and strengthening organizations already in place, such as SAARC and ASEAN.
• Work towards resolving the India-Pakistan conflict by establishing a bilateral and preferential trade agreement with Pakistan .
• Continue to strengthen non-security and economic Indo-Pak programs, such as those that foster people-to-people contacts.

Panel One: India’s Comparative Advantage and Global Competitiveness

The first panel assessed India’s current national and international economic status, focusing on the tremendous achievements of recent economic reforms and identifying remaining areas requiring increased policy attention. Panelists agreed that India’s economy is experiencing, for the first time in a decade, unprecedented growth. The painful transition of the mid-late 1990s, in which the corporate sector was forced to adjust to sweeping economic reforms and confront heightened domestic and international competition, has passed. India’s position in the global market is stronger and the confidence of the industrial and businesses sectors is unparalleled. Yet panelists also noted that to maintain current growth rates, the government should focus on expanding productive labor, particularly in agricultural and small-scale manufacturing sectors and ensuring policy implementation.

Indicators of Economic Strength and International Competitiveness

The recent surge in India’s economy is uncontested. The 1991 liberalization reforms have prompted a dramatic increase not only in direct foreign investment, but also in Indian foreign investment abroad and the expansion of Indian companies multinationally. They have also fostered the burgeoning IT and software sectors, the modernization of telecommunications, and the increased pace of privatization. Participants highlighted a range of indicators that underscore India’s robust economic performance. They include a strong GPD growth rate between 6.5 to 7.0 percent and a per capita income of approximately 600 dollars in 2004.

Statistical indicators, however, do not fully capture India’s recent economic achievements. Panelists emphasized the success of the government’s recent infrastructure investments such as Golden Quadrilateral, a national highway development project connecting Delhi, Mumbai, Chennai and Calcutta, that is near completion. Two other innovative development projects, now in the early stages, also hold promise. The National Urban Renewal Mission, when implemented, will provide grants to cities for infrastructure projects. A Special Purpose Vehicle has been approved and will finance financially sound infrastructure projects to a maximum of 10,000 croires to encourage growth in certain sectors, such as roads, ports and airports.

Areas of Priority for Sustained Growth

The panelists warned that India’s recent successes should not overshadow the multiple areas still in need of reform. Three issues in particular emerged repeatedly during the discussions. First, the government should direct its efforts towards encouraging productive labor. Service exports and the production of capital-intensive goods such as pharmaceuticals have been the primary beneficiaries of reforms, while unskilled and labor-intensive production has grown at average or below average rates. There is a particular need for agricultural and small-scale industry reform. As an example, one panelist highlighted the striking difference between China’s and India’s textile sector, noting that China occupies 14 and 11 percent of US and EU textiles markets respectively, whereas India holds five and seven percent. Reform in other labor-intensive manufacturing industries, ranging from automobile production to toys, were also considered imperative for fostering higher levels of productive employment and economic growth.

New reforms, moreover, must be accompanied by a precise and steadfast commitment to policy delivery. The government should spend equal energy on designing growth programs and ensuring their appropriate implementation. This entails strong connections with local organizations responsible for implementation, and concrete mechanisms for establishing accountability. One panelist emphasized the crucial role that regulatory agencies must play in the future for overseeing policy implementation.

Finally, it was noted that India faces a qualitatively different economic era ahead. In contrast to the past decade, the next era of growth will be primarily private-led. The core question concerns the rate at which this growth will take place. Investment in productive labor and effective policy implementation will prove critical to ensuring a strong growth rate.

Panel Two: New Social Agendas and Actors

This panel opened with a fundamental question, what is the appropriate measure of development and societal well being? While participants acknowledged the accomplishments of recent economic reforms, they called for heightened awareness of the multidimensional nature of development – including social and environmental factors. Panelists discussed two impending crises: the unsustainable use of natural resources and the spread of HIV/AIDS, particularly among women. They also emphasized that environmental and social problems have a direct economic impact and pose crucial obstacles to further development. Finally, it was noted that private industries can not substitute for the public sector in addressing social and environmental problems. Instead, the government must take initiative to effect reform. It should do so in a participatory manner, working with and encouraging the involvement of local governments, private companies, and non-governmental organizations. The government has the capacity to address most of these problems, particularly when it does so in collaboration with other sectors of society, but it must make doing so a priority.

Diversifying Development’s Indicators: India’s Social and Environmental Challenges

Panelists provided statistics regarding the natural resource and HIV/AIDS crises that stood in sharp contrast to the optimistic statistics offered by the first panel. They include:

• One person dies every 24 hours in Delhi because of air pollution
• One out of every seven people in the world living with HIV/AIDS is in India
• 5.1 million Individuals are infected with HIV/AIDS in India and 41 percent of them are girls.

These statistics also do not fully capture current difficulties in development. The increasingly wide-spread phenomenon of rural distress and farmer suicides reveals that the benefits of development have proved uneven, and that significant work remains. For one, the wasteful use of water and water scarcity in rural areas is the most critical environmental obstacle facing India. While the rest of the world is moving towards water conservation, the use of water in India’s urban areas is on the rise. 80 percent of India’s water use stems from its connection to city sewage systems, and is in turn causing rapid water depletion and contamination and posing an acute financial burden on the public sector. The HIV/AIDS situation in India is also urgent. South Africa is the only country that surpasses India in HIV/AIDS infection rates. The intersection of multiple social factors has placed India on the brink of a full-scale epidemic, and includes high rates of poverty, inter and intrastate migration of men looking for jobs in construction and trucking, the trafficking in women, the absence of public education and outreach given the stigma related to sex, HIV/AIDS, and the practice of early age of marriage, particularly of young girls to older men.

The Social/Environmental Constraints on Economic Development

Panelists underscored that environmental and social problems are not only urgent in their own right, but also pose direct obstacles to economic development. Still, such issues continue to receive inadequate attention. Concrete examples of the social/environmental-development nexus include:

• Air pollution affects cognitive development of children, and has long term impacts on working population.
• Agricultural productivity and diversification is crucially dependent on the continued supply of water and its efficient allocation.
• Rural HIV/AIDS causes premature disability and death among prime age segments of working populations.
• School nutrition programs guarantee higher rates of performance in school and encourage gender equity which has meaningful consequences for women’s status – particularly with regards to health and employment.

Those in charge of economic policy should recognize that their involvement in social and environmental issues is indispensable and that social issues must be integrated into their reform efforts. In contrast to the United States, for instance, protecting the environment is a development challenge, not a conservationist one. Land and water are integral to both the livelihood and work productivity of India’s public, particularly the rural poor. Issues such as education, literacy, nutrition and gender equity can not be addressed in isolation, but are inextricably connected to one another, and to the potential for economic growth. Recognizing the overlap between social and economic factors, moreover, is fundamental for confronting impending crises, such as the increasing rate of HIV/AIDS transmission. Until both social and economic challenges are incorporated into a comprehensive development agenda, people will continue to question whether India’s economic development can be deemed a success.

The Need for Public Initiated, Participatory Reform

Addressing environmental/social challenges is vital – both in order to overcome obstacles to economic development, but also to protect the rights and improve the livelihood of those who are socially and economically marginalized. Panelists noted that there is substantial room for private-public partnerships in addressing these issues. But they emphasized that the government must not wait for the private sector to initiate reform. The government has demonstrated its capacity to address crucial environment and social problems. For instance, it has enforced vehicle and petrol policies, which has greatly reduced pollution levels in Delhi. The government needs to, however, improve both its foresight and commitment to these issues. In terms of foresight, it must recognize that many of the benefits of addressing environmental and social problems will emerge not immediately, but in the long term. In terms of commitment, the government must prioritize its social reform policies. The National Employment Guarantee Act, which guarantees one hundred days of employment per year at the cost of one percent of GDP, is currently blocked in Parliament, deemed as unaffordable for the government. While there may be grounds on which to criticize and then strengthen the Act, unaffordability is not one of them. It or a similar proposal should be passed. Investment in these issues is both productive and imperative.

The government can enhance reform efforts by adopting a participatory approach. Successful development must occur in the context of deepening democracy, and enhancing public control over allocation of resources and reform efforts. Involving different segments of society – local governments, businesses, NGOs -- in reform initiatives will strengthen the potential for new and innovative reform ideas, expand the number of stake holders in reform projects, and widen responsibility for reform efforts. This will, in turn, help the government to overcome current reform blockages and resistance, such as that which has stalled the Employment Guarantee Act. The Government must recognize that solutions to social-environmental development challenges are at hand, but they require leadership, political will, and democratic participation.

Panel Three: India’s Worldview: Constructing Engagement

The final panel considered India’s current worldview on inter-state relations and its recent efforts towards constructive international engagement. Panelists noted that India’s foundational principles of equality and peaceful cooperation predate the colonial era, were reinforced by the Freedom movement and have helped since then to guide India’s foreign policy. Along these lines, much of the discussion focused on India’s recent efforts to bolster international cooperation with US and UN, improve its relationship with Pakistan, and strengthen inter-state ties at the regional level.

Relations with the US and UN

Participants suggested that US Secretary of State Condoleezza Rice’s recent visit to India both underscored a strong US-Indian partnership as well as highlighted areas of tension, such as India’s plan to build a joint pipeline with Iran through Pakistan. It was noted that there has been no indication that US disapproval would deter India from pursuing the pipeline project – and that India has adhered to other positions on international policy opposed by the US. India, for example, has been at the forefront of efforts to reform the UN and Security Council. An expanded Security Council would strengthen UN legitimacy among developing countries, augment support for its efforts to address social and economic problems, and enable it to confront more effectively issues regarding terrorism and weapons proliferation. While India’s position on such international policy matters may increase friction with the US, contributors noted that it may also strengthen prospects for multilateral cooperation and increase India’s prominence both regionally and globally. To enhance its position within the UN and bolster its call for a seat on the Security Council, however, India needs to show leadership on crucial regional issues, including resolving long-standing tensions with Pakistan, addressing the Nepal crisis and strengthening regional economic and political ties.

Building On India-Pakistan Cooperation

Panelists agreed that current relations with Pakistan are promising, but felt that India could do more to advance cooperation. One panelist in particular felt that as India emerges as an economic and international leader, it must takes steps to reassure Pakistan that it would not misuse its position of strength. Other participants suggested that the public in Pakistan recognized that it could benefit from India’s prosperity and did not feel threatened by India’s improved economic and international standing. All panelists supported continued efforts by India to engage Pakistan constructively and beyond the question of Kashmir. Promising recent developments in Indo-Pak relations include the establishment of confidence-building measures to prevent accidental nuclear weapons launchings, recent meetings between Prime Minister Vajpayee and President Musharraf, the opening of Consulate office in Pakistan, renewed inter-state bus services, and increased people-to-people exchanges. Panelists called, however, for more interactions in the economic sphere, and urged India to strengthen trade and business ties between the two countries.

Regional Leadership and Cohesiveness

At the same time that India has channeled its efforts towards improving its relations with Pakistan, it has given inadequate attention to the region more generally. Currently, South Asia stands as one of the least integrated regions in the world. Panelists underlined that India has much to gain by directing its attention at the regional level, and enhancing south-to-south cooperation. The India-Iran-Pakistan pipeline project, one panelist suggested, is a step in the right direction. India’s role in providing economic aid to its neighbors was also highlighted, including its contribution of 500 million dollars to Afghanistan’s reconstruction and its provision of aid to other countries following the Tsunami disaster.

The most crucial focal point in terms of regional cohesion and India’s leadership centers on Nepal. Following the King Gyanendra February 1 st royal takeover, India has frozen military aid to the country – refusing to acquiesce in authoritarian rule and requesting the King to restore multiparty democracy immediately. It has also canceled its participation in the SAARC summit to protest the expected participation of the King. But it can do more. Participants stated that India should lead multilateral efforts to press for the return of democracy in Nepal, and initiate dialogue between Maoists insurgents and the military/government. Finally, India can recognize that it has a significant role to play in securing cohesive relations beyond its immediate neighbors. Panelists urged India to take initiative in creating a vibrant and cohesive Asian economic community by working to strengthen regional organizations such as ASEAN and SAARC. By taking such measures, India can demonstrate its commitment to regional and international cooperation, and will prove itself a salient and effective international power.

Conclusion:

Despite existing social challenges for development, India is emerging as a potential global leader. Reform in the IT and industrial sectors have strengthened India’s economic position substantially; in the second era of reforms, opportunities for growth remain in small scale manufacturing sectors and agricultural productivity. India, however, must recognize that reform can not be focused only on economic challenges, but needs to integrate social and environmental dimensions as well. India must encourage the widespread participation of civil society, businesses, local governments and non governmental organizations in reform efforts. By increasing democratic participation, India will be better positioned to confront growing social and environmental challenges, such as rural distress, resource misuse, and the HIV/AIDS epidemic. At a regional level, India should recognize it has a major role to play in fostering south-to-south cooperation and strengthening regional economic ties. It must take pragmatic steps to resolve the long-standing Indo-Pakistan dispute, address current regional disputes over resources like water, and help return democracy to Nepal. By demonstrating good governance and political will at a domestic and regional level, India will move closer to establishing itself as a global leader.