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Touch and not go

India’s ambitions of becoming a rising power will have stronger foundations if its rapid growth is far more socially inclusive, writes N C Mohan.

india Updated: Apr 02, 2009 14:45 IST
N Chandra Mohan

The India story still remains the flavour of the season, never mind the global financial turmoil. With a 8.9 per cent per annum growth during the last five years, the country remains one of the fastest-growing economies. Not surprisingly, this is generating a lot of buzz internationally as it did during the halcyon decade of the 1950s. Those years were also the heydays of heightened interest in its prospects and some of the best minds in the world closely tracked the country’s development strategy.

Five decades later, India is attracting renewed attention as a rising economic power. Without recognition of its growing stature, there was no way that the international system would have modified the nuclear regime to admit the country to the high table. A strategic Indo-US relationship is also on the cards with an agreement on cooperation in nuclear power likely to be approved by the US Congress before Manmohan Singh meets George W Bush later this week.

This accord with the Americans is not just about India’s ambitions as a nuclear power. The big picture is that it will provide access to high technology that has been denied since it conducted an atomic test way back in 1974. For instance, the denial of the Cray supercomputer due to its dual-use civil and military applications certainly had an impact on the country’s ability to model weather patterns. The freedom to use high technology in a range of scientific and industrial sectors is bound to boost its global competitiveness.

The glare of global attention, of course, is not necessarily adulatory. Not so long ago, the country’s rapid growth faced criticism. The Economist, for one, struck a sceptical note, arguing that India’s economy was displaying alarming symptoms of overheating. This implied that demand was outpacing supply and hence the pace of growth was not sustainable. The same magazine now forcefully argues that exempting the country from the world’s nuclear rules compromises the drive for non-proliferation.

Nevertheless, there is no denying that such a broader partnership will enable India to leverage the opportunities thrown up by globalisation. No country has become an economic power of any consequence during the post-World War II period without the US’s help. While this is generally true, the near-term prospects don’t appear too bright as the American economy convulses from financial turbulence that shows no signs of abating. The dreaded ‘R’ word has perhaps already kicked in.

India’s room for manoeuvre to push a more outward-oriented strategy, thus, is bound to be somewhat constrained over the immediate term.

The unfolding crisis, with big US investment banks going under, has reverberated in domestic stock markets. Nervous foreign institutional investors have already withdrawn $9 billion from the markets this year. Other capital inflows like foreign direct investments (FDI) are also expected to slow down due to what Union Commerce and Industry Minister Kamal Nath calls, the “frenzy effect”.

In an adverse external environment, India, therefore, has to rely on domestic drivers to keep the overall growth momentum going. This implies further liberalising the regime to attract the necessary investments — both domestic and foreign — to help build more roads, ports and airports. This means creating a more hassle-free business environment in the various states to enable industrial projects to get off the ground.

Above all, it also calls for second-generation economic reforms in insurance, pensions and the financial sector.

The worst possible augury in this regard is that capital expenditure by India Inc. might decline significantly this year after having grown by 40 per cent during the past four years. A sobering fact is also that no major industrial project has come up in recent years. The largest-ever FDI deal to set up a 12 million tonne steel plant by South Korea’s Pohang Iron and Steel Company in Orissa is still bogged down in land acquisition problems. The Tatas face similar problems to assemble the world’s cheapest car, Nano, in West Bengal.

There is also a far graver internal threat to the growth process if it is allowed to spiral out of control — notably, the
spectre of Left-wing extremism that casts its shadow over 150 districts. The writ of the State doesn’t extend to these parts that account for nearly 40 per cent of the country’s geographical area and 35 per cent of its population. They have plentiful reserves of coal, iron ore and aluminum. The contiguous states of Orissa, Jharkhand and Chhattisgarh are the main theatre of action for these extremist forces.

In several districts of these states like Dantewara in Chhattisgarh — which is where the Bailadila iron ore deposits are located — the extremists run a parallel administration. These are also tribal heartlands that have been bypassed in the process of development. So long as the growth process is accompanied by a dangerous widening of disparities between richer regions and poorer ones, the prospects of any major industrial project taking off in these parts is not too good. The same applies to India’s 660,000-odd villages.

The upshot is that while this is, indeed, India’s moment to take its place in the sun, its ambitions of becoming a rising power will have stronger foundations if its rapid growth is far more socially inclusive in nature. Only then can a feasible way be found to induce millions of small farmers, landless labourers and tribals to seek alternative livelihoods in the towns and cities.

Only then will the energies of a billion people be truly unleashed to enable it to complete the transition from an agrarian to a modern industrial nation.