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Will India Become a Global Power? [Transcript; Federal News Service, Inc.]

Speakers: C. Raja Mohan, Strategic Affairs Editor, India Express, and Member, India’s National Security Advisory Board, and Gurcharan Das, Former CEO, Proctor & Gamble India, and Author, “India Unbound: The Social And Economic Revolution From Independence To The Global Information Age”
Presider: W. Boman Cutter, Managing Director, Warburg Pincus
June 19, 2006
Council on Foreign Relations New York, NY

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W. BOMAN CUTTER:  I wanted to, on behalf of the Council, thank everyone for coming this evening.  I think that this is going to be a fascinating discussion.  Our guests this evening are Gurcharan Das and Raja Mohan.  I am not going to go through their resumes; they’re available for you to read, and you probably already know them.

I thought I’d begin, since the topic of this evening is “Will India Become A World Power?  Will India Establish Global Supremacy?,”  to introduce just at the start an alternative point of view, from someone who has also spoken at the Council—our guests know that I’m going to do this—from Jim Rogers, who is one of the country’s most successful investors and the author of “Microcapitalists” some time ago.  And, just so that we’re all aware that there’s an other side to this issue, Jim said a couple months ago that it’s best to stay clear of India.  “As an investment destination, India is a sham,” he said at a hedge fund conference recently.  “It’s a bit of a mess as far as being a country, and it’s the single worst bureaucracy in the world.” So we all thought it would be better to have an—it would be good to have an alternative here.

Let me just say a word about both of our guests.  Gurcharan has had a extraordinary and eclectic career, 30 years as a successful man, and then, in quotes, “retirement” to become a even more successful author.  For those of you who have not read “India Unbound,” I recommend it to you.  And he has an article in this edition, the summer’s edition, of Foreign Affairs, which you all perhaps probably picked up at the table.  Raja Mohan is one of India’s foremost national security and foreign policy thinkers.  He also has an article in this summer’s edition, and he’s written—recently written several books.  He’s recently come out with a book called The Impossible Alliance:  India, the United States and Nuclear Proliferation—no, and Global Order.

Let me say in a hurry that while the issues that are discussed in both of these articles are going to be—will inevitably be some of the material and the substance of this discussion this evening, the topic of this discussion is not those two articles.  They sort of form some of the context.

The context really is kind of, what next?  And some of that context is obvious, and I’ll state kind of four obvious points as: the striking improvement in India’s economy over the last 10 years; the difference between India’s development path and those of others, most notably another country of more than a billion people in Asia; the emergence—or the evolution of a de facto U.S.-India strategic alliance, what that might mean and where that might go; and India’s clear interest in playing a global role in the future.  I think there are two more fundamental points to that; is that if it’s a reasonable question to ask, “Will India become a global power?,” it’s a strikingly new kind of question, and it’s one that the established world has had difficulty in the past.  If you think about the beginning of the 20th century, when there were two rising powers, Germany and Japan, we didn’t deal with those rises and those changes in the global order particularly well.  And while the results of the rise of India, and parenthetically the rise of Japan, would hopefully not lead to a century like the last one, it’s nevertheless the case that these fundamentally upset and changed the established order.

There’s a second piece of context, which is that India’s path of development has been quite different and quite distinct from those of most other emerging economies and developing nations.  And it leads to a different sense, I think, of implication.  I thought in Gurcharan’s book, India Unbound, that there was more to the word “unbound” than simply the notion of an economy that would grow rapidly.

Why don’t I start with a question to both of you, which is:  What do you take in the meaning of the title of this evening’s discussion, “Will India become a Global Power?”  What’s that mean?  How do we know when we’re there?   And what’s the time frame?  Gurcharan, why don’t I start with you and then go to Raja.

C. Raja Mohan and Gurcharan Das

GURCHARAN DAS:  Well, frankly, I’ve not spent too much time thinking about India as a global power.  I’m sorry.  Raja is much better qualified to talk about it.  I’ve been concerned about questions of society, economy, our culture and where we are going.  And certainly the central idea of India Unbound was the idea that the old centralized bureaucratic state is now finally in decline, and has been in decline for at least 15 years or more.  And while the West has just discovered India in a sense, the story of India’s growth is a 25-year-old story.  I mean, India has been growing at 6 percent from 1980 to 2002, and at 7.8 percent from 2002 to 2005.  That’s a 25-year-old story.

The basic thing that happening—what’s happening at the same time is the fact that the population has begun to slow down, and you know from sort of our historic viewpoint a 2 percent growth rate after independence.  It was down to about 1.7, and now most demographers project 1.5.  And our base rate of growth, economic growth, is now at 7.  So 7 minus 1.5, which is the population, gives you a per capita income growth of 5.5.  Now, that is really what Korea grew at for 20 years.  And that’s sort of where India is at today.

So I see it—I see the economic rise of India as an inevitable fact.  It’s not dependent on any state or any government.  Obviously if you have reforming governments, it will happen faster, but that’s why I say in my article that India is rising despite the state.  And because it’s a people’s success, it’s a success, an organic success from below, therefore it is more likely to endure.  And, unlike China, which is dependent—China is a state-inducted success, and India is a success despite the state.

RAJA MOHAN:  I think on the question between the relationship between the economic capability and great power status, now, we see—we’ve known from the history of the history of the United States itself that the U.S. became the number one economy at the turn of the 20th century.  But after that it was a struggle for 40 years within the U.S. of some wanting to play a much larger role; others said, No, we should not.  Therefore it’s not automatic that once you have strong economic capabilities you inevitably become a great power.  So there have to be forcing events.  It is the nature of the domestic debate. That follows—(inaudible)—the British intelligence had to run a whole operation here in New York to force the Americans to draw them into the second World War.  So the lag between capability and actual exercise of power, I think it’s a natural one.    So I don’t think we need to worry about time frames when exactly—which is the point when India crashes into the—(inaudible)—as a great power.  I don’t think you’re going to get that moment of India opening the doors of the salon and saying, “Look, here we are.”

It’s already happening in spite of India being a relatively in per capita terms such a low income—what India and China do in relation to energy policy affects moral outcomes.  That is the significant thing that has happened that what India does, but in relation to how it organizes itself at home are the kind of policies it will adopt to balance of power automatically will have influence on the outcomes.  So what it seems in India is India is no longer merely a subject of a system of international affairs.  What India does today, what India thinks today, can have a difference on the actual outcomes. And I think that is the surer sign of the rise of a new power.

MR. CUTTER:  I can follow up that, and then I want to follow up with your point about the rise despite government.  In the ‘80s and ‘90s, when I was in the U.S. government at one of those periods, one of the complaints from Indians was always that India tended to be defined in terms of external issues, so that India was defined by the Pakistan issue or India was defined by the nuclear proliferation issue, or India was defined by its perceived antipathy to alliances.

Presumably one of the things that you’re saying is that there will be a lot more self-defining?

MR. MOHAN:  Absolutely.  And I think one of the things I’ve tried to do in this essay in Foreign Affairs was to write about Indian foreign policy without reference to Pakistan or nonalignment.  It—

MR. CUTTER:  You almost succeeded.  (Laughter.)

MR. MOHAN:  Yeah, almost.  So I think that the shift that I think that is taking place in India is—but, for years the, given the significance of partition and its consequences, I would say the India-Pakistan problem is really a reflection of what happened in 1947.  And then India’s own policies, economic policies, which actually prevented India from realizing her full economic potential—once the economic direction changed, there was the automatic consequence that a large country like India begins to integrate with the world.  It didn’t take more than 10 years for the effects to be felt.

Asia Society President and Council Member Vishakha Desai
and C. Raja Mohan

Second, I think the Indian discourse itself and the outside world was so focused on nonalignment, the—if you step back from the last 60 years, and it is possible to interpret India’s actions in the last 60 years purely in terms of power—it’s relationship with the Soviet Union, its—(inaudible)—leadership of the Third World, whatever you—but there was a power dynamic to it, and that it is possible to interpret India’s own nonalignment as a balance of power between the two blocs.

So I think that the change that is taking place in India today, it can historicize its own experience.  It can look at itself and its outcomes in terms of power, and not the moral politics which we people are so fond of fooling ourselves and fooling the rest of the world.  I think we’re moving away from that to one of seeing India in terms of power.  Let me just conclude with one thought:  that many of the ideas of India’s foreign policy actually go back to British India.  These are not—(inaudible)—nonalignment our rhetoric on nonalignment, but you step back and say Nehru continued much of (Cozen’s ?) policies when you talk about India’s neighborhood.  If you ask our ambassador—(inaudible)—how we deal with our neighbors, he’d tell you that level changed from the British conception of the nature of India’s policies to determine the geography.   So I would geography, power, those enduring elements of India’s foreign policy, it’s possible to see them more clearly today, once we step back from the self-deluding rhetoric about India being a nation of moral politics.

MR. CUTTER:  Gurcharan, if you, both in your other writings and this edition of Foreign Affairs writing, suggest quite a trick for government.  You make the point that anyone who has ever invested in India, or dealt with the Indian economy would agree with completely, which is that India’s rise is almost despite the government and the bureaucracy rather than because of it.   And you comment on how difficult it has been for India to pursue consistently a policy of the retreat of the government from the economy.  But, at the same time, implicit and explicit in your writings are two advances of government. One is in the provision of government services, and the other is one might say in governance, I guess, in the transparency of governance, the provision of the right context for markets for industries and business.  Can India make that novel change?

MR. DAS:  Well, you know, I think it’s a bit simplistic actually to think that any nation can do without the government.  You need the government.  You need the government at least to be the umpire, and you need—and, you know, despite my being such a critic of the Indian government, I think there are real achievements that we should recognize.  Certainly the non-economic achievements are obvious: democracy, keeping the country the most diverse, and most infuriating diverse country in the world together is a great achievement of the state.  So democracy and the things that— So, and also in more recent times, some of the regulators we have put in place, the telecom regulators—why we’ve had a telecom revolution, which is completely mirroring the Chinese revolution, is because of a good regulator.   

But having said that, I think the problem is that where you need government it’s asleep, and it’s hyperactive still where you don’t need it meddling around.  And where it’s asleep is in the provisioning of the basic services that in the West you take for granted; you know, good primary schools, primary hospitals where people can go.  And in my piece I provided some data showing how one out of four schoolteachers doesn’t show up in a government primary school, and nothing—you can do nothing about it, because the union of teachers is so strong, plus the fact that teachers are the—(word inaudible)—at the elections.  And so politicians are scared of teachers.  And elections take place in schools generally.  The same thing for doctors:  two out of five doctors in a primary health center do not show up when they should.  

So these kinds of things—and the state of course believes that only it can provide it.  It cannot conceive of the thought that, okay, we can provide the money, but other people can provide it.

But against this depressing statistic, you have to see the happy side: that the demand for education is so great is that what’s happening is that even the poor are pulling their kids out of government schools and putting them into private schools, which costs $1 to $3 a month.  And those schools which cost $1 to $3 a month deliver a better quality of education; the teacher shows up; they even try to teach some kind of English there.  They’re not very good schools, but the fact is—and this is what I mean—I think the success of India is the success of its people.  And the people are able to rise on their own and create these institutions by—you know that spending on health care—now, the U.S. is supposed to be the most private sector country in the world; but India has doubled their rate, doubled the ratio of spending as a percent of GDP than the U.S. on health care, which is private; that is, private—percent of private spending on health care is double than even the most sort of free market system.

So what I think the story really is that people don’t just sit around and complain.  They get up there.  They pull their socks up or their shoelaces or whatever it is, and lift themselves up.  And why India matters and why you talk about power is, I think, the Indian middle class, because much reviled by all the leftists and all in India.  But it is really the class that is the fastest growing class in the world.  And this class has quadrupled since—it’s now about 250 million, 25 percent.  But by 2020 it will be more than 50 percent of the population.  And then of course with 50 percent of the population in a democracy, then perhaps governments will also change.

And the other fact of course is the English language.  India already, according—

MR. CUTTER:  We’re going to get to it—we’re going to get to the English language.  Let me ask each of you a quite different question.  And I’m going to conclude with a question about the English language with you.  We had a fascinating discussion on that.

I’d like to ask both of you about China.  The—I’m interested from your perspective of the nature of the relationships as both countries become or aspire to global power within Asia over let’s say the next decade.

MR. MOHAN:  I think I would say between India and China these are the best of the times and these are also the worst of the times.  Our relationship at the level of politics and economics has never been as good.  In a matter of time, two years, China will be our largest trading partner.  For the first time we’re talking seriously about the boundary dispute that’s been there for 60 years.  There’s much—a lot more exchange between the politicians and people, a full spectrum of exchange that is taking place between the two countries.

Yet, you’re beginning to see the emergence of a significant competition between the two, both for influence as well as for a greater say in how the region has to be managed.  So therefore it is those elements of expanding engagement between ourselves, as well as competition for influence in the rest of Asia.  Now, you know Burma—(inaudible)—(Ambassador Dave ?) dealt with—but I think there’s not a day that passes—in fact, our foreign secretary is right now there.  If China builds a road, we’re going to build another two.  If China builds—gets a contract for a port, hopefully we’ll get another one.  But it is a relentless competition.  Let me say this:  A lot of Americans feel somehow it’s all about China.  And India is not going to wait—has never waited for American permission to balance China.  We don’t need American permission, American support or American endorsement, because from 1950, ever since we hit the world at the same time, ‘47 and then 1949, that the competition for influence are being two different models that existed.  That I don’t think you can take it away.

The challenge I think for us in the coming years is really:  Can India and China prevent this competition from turning into rivalry? There are two reasons:  one which is there is a perfect security dilemma—two rising powers, neighbors, both have outsized egos and outsized ambitions, so they’re going to clash; the other of course says there is a prospect of cooperative security that there is so much in the world today of globalization that we need to cooperate.  And I think we’re going to see both elements.  And which one will prevail will depend upon how internal change—internal objectives.

Let me just conclude with the thought that India is not going to play second fiddle to the Chinese.  And so we’re not going to become a (clapper boy ?) behind the Chinese in saying we are against the United States, or we want a multipolar world.

We also want the multipolar world, but we also want a multipolar Asia.  We don’t want just to limit China to take over Asia.  We’re not going to accept it.  We’re terrified the Americans might be wrong, because you’ve been with the Chinese for the last 20 years.  So we’re not going to accept that situation.  We will on our steam try to balance the Chinese.  But at the same time we want to avoid that as long as possible and try to expand our own cooperation with China.

MR. CUTTER:  You’ve had some absolutely fascinating points of view about the difference between the Indian and the Chinese model. You were going to interject—

MR. DAS:  Well, I—you know, the way I think about India and China is really that India has law and China has order.  (Laughter.) And that really in a way defines the two countries.  And what is the chaotic democracy of India?  See, democracy came before capitalism in India, and capitalism came before democracy—or maybe we don’t know. (Laughter.)  But hopefully capitalism before democracy in the case of China.  Now, I think these really differentiate these two countries.

But I think at heart, because I’m in touch with people who are in the business world, what the big difference is that while China is making these huge strides in exports, manufactured exports.  These exports are produced either by foreign companies or by state-owned Europeans.  A very small part is really the entrepreneurial success. And that’s why a Chinese businessman was telling me that, you know, You guys, you have over a companies over a billion dollars in India. And he was talking about the entrepreneurial success again, as a private equity value you’d sympathize with this.  In India we have I think today about 20 to 25 companies which are either globally competitive or are on the verge of being so.  And China has maybe three, four, five.  And this is why a professor in Beijing University sent me an e-mail, and was saying, you know, We would die for that kind of thing.

And so this goes back to my earlier point that India’s success is a success of the private individual.  And that private individual has had to fight not only the competitor in the market, but also has to fight his own government.   So he’s a hardier soul.  (Laughter.)  You know?  And I think that that’s—

And the other part of course is our histories.  China has had perhaps one of the most violent histories in the 20th century.  And India was spoiled by amazing peace.  We skipped the two world wars, practically, and in fact we were a nation created by saints in the shadows of Hitler, Stalin and Mao.  And so I think that India can only be a democracy.  It cannot be anything else.  That was—I mean, people, this is one of the questions, the conundrum of our times, is how this nation really got democracy.  And very few people can explain it.  But I think it’s what we were talking earlier, what you were talking about, that it’s the temper of the people.  We are basically anarchic individualist state people, who cannot be—each of the 600,000 Indian villages thinks it’s still a self-governing republic. And the brahman in the temple of these villages thinks he’s the pope. So that’s the temper.  That’s the temper of the people.  And I think that’s perhaps what explains a lot about India.

MR. CUTTER:  I know that I very soon have to turn to the audience, but there are two questions I’ve been dying to ask.  One is to ask you to expand on a line that is in the article—this is not—this discussion is not about the article, but I was dying to have a discussion about it, where in discussing the potentialities of the U.S. and India alliance you say that it’s really more dependent upon the U.S. developing a hitherto for undemonstrated capacity for equal alliances, equal partnerships.

MR. MOHAN:  The Americans are used to—either they lead or they get out of the way.  There’s no other option.  I think the U.S. has been so strong for so long that the idea of sharing leadership or sharing responsibilities with anyone, it does not arise.  And given the way the U.S. towered over Europe at the end of the Second World War—and East Asia—that it was a natural thing for the U.S. to do that kind of thing.  But the problem—India, of course, is not going to be—it can’t follow.  India is not going to accept a subsidiary junior partner status to anybody, because India is too large to be able to fit into anybody’s pocket.  

So how do you structure the balance then between India and the U.S.?  That is, both countries are used to playing solo.  Each one things too much of himself.  Therefore, how do you structure this relationship?  And I think that is going to be our main challenge.  It is not that the interests of the two countries don’t converge.  They have—they do converge, whether it’s on the question of promoting democracy, the question of dealing with the energy issues, whether it is the whole range of stability related issues on the Indian Ocean issue.  But how can we work together?  I think that’s where the problem is.

And I think then I would say the U.S., the luxury for the U.S. post-1991, that its centrality, its unipolar status is going to help solve problems.  Hopefully the debate there has shifted, saying, Look, the U.S., how powerful it is, because the U.S. is going to be the number one power for the foreseeable future.  But if it wants to deal with problems, it needs to share responsibilities with other powers. And I would say India is never going to be a Britain to the United States, nor a Japan to the United States. I mean, India is not a defeated nation.  It’s not that the U.S. came and rescued us from our collapsing situation.

As India rises, I think it’s necessary for the U.S. to see India as a partner.  And the U.S. itself I think in the coming years needs strong partners, not yes-men all around the world.

QUESTION:  You made a fascinating point about English when we were talking earlier, and it goes I think to the heart of—everyone says that English is the largest English-speaking nation in the world now. But what’s that actually mean?  And the point you made was that at the end of the 19th century the language of power was British English and at the end of the 20th century it was American English.  And at the end of the 21st century it will be Indian English.  I would like you to elaborate on that.

MR. DAS:  Well, English became an Indian language in the 1990s, when the minds of the young people finally became decolonized.  And David Crystal, who is the author of the Cambridge Encyclopedia of the English Language, he says India already has the largest number of English speakers. I feel that’s a bit optimistic.  I feel probably by—but certainly it will be by 2010 or 2015 India will have the largest number of English speakers.  How you define what kind of comfort does a person operate—the fact of the matter is that a German can get a good job without knowing English, and a Chinese can get a good job without knowing English.  But an Indian has to know English.  So the driving force is very great in India for learning. And the effort is spreading very rapidly.  And any of you who are entrepreneurs, that is the single biggest opportunity for making a cool billion dollars.

It was David Crystal who said that the language of the world at the end of the 19th century was British English, end of 20th century was American English.  And he predicts that it will be Indian English at the end of the 21st century.

Now, I think this—the dynamics, certainly the numbers, are going in a way that if—and with the media expanding and the global media coming, if 400 million Indians speak a word in a certain way, that will be the way the word will be spoken around the world.  For this whole thing—for Indian English to become a reality, I think we will have to produce a Shakespeare of Indian English.  And the things that will help I think in the process will be—I mean, Salman Rushdie played an important role, because Salman Rushdie allowed Indians to write in a way that was different, and just as Mark Twain did for you Americans he liberated the Americans to write in a certain way.  But Salman Rushdie is not Shakespeare.  And I think that it is very important to produce—and I think India will produce a lot more writers.  Already India is producing writers in English, and this will continue.

But, you know, being a noisy democracy there are a lot of people who are pulling the other way—the linguistic chauvinists of the different languages naturally.  And what they, instead of concentrating on making their own languages successful, they’re still trying to pull English down, but they’re—the water—they’re trying to push water up the hill.  The market is just too powerful for them to have an effect.

But still, I mean, like I was telling you in Bangalore, in the city of Bangalore, which you associate with New India, in this city, in this state of Karnataka, where Bangalore is the capital, it is illegal to teach English from grade one to grade five.  And so how do schools and parents cope with this?  They cope with it by having classes called physical education, knitting, where it is English—(laughter)—as a subterfuge.  And of course the irony is that the minister of education of Karnataka went to China, and the government in China asked them, Would you teach our children English, our primary schoolchildren English?  And he was not honest enough to admit that he was not allowed to do that.

Anyway, that’s just an aside.

I think these are the realities of the democracy when funny things like these keep happening.  I think the future language of India is a very interesting question, and I have called it in an article I wrote that it’s “Inglish,”—“I”—“Inglish” with an “I.” “Inglish” with an “I” because there are different parts of India, and there is Bengali, which has a lot of Bengali words into English, so it’s a kind of—they call it “Benglish.”  And Punjabi, which has “Benglish” and Tamil, which is “Benglish.”  And so we have all these “Inglishes” all over.  But what is uniting them together is media. Very strongly, you cannot be a copy writer today unless you combine some English words with Indian language words for success.

Essentially I think the linguistic chauvinists are, you know, their case is not very—they’re not going to prevail.

Indians know—every Indian knows two or three languages very easily, and they’re very comfortable.  But English I think will become—will be the language of India.

MR. CUTTER:  I’d like to turn it to you all now.  I’ll state the rules.  Wait for mike.  Ask a question; don’t give a speech.  Give your name and affiliation.  And while you’re thinking about it, we also have a number of people in this discussion as part of a teleconference, and one of them asked the following question, which I think, Gurcharan, is probably more directed to you, but I think you should respond also, is that:  “When considering whether India will become a global power, two seemingly contradictory images of India are juxtaposed.  On the one hand, India is a Third World country with potable water unavailable to much of the population, exceedingly poor transportation, disease and poverty on a massive scale.  And on the other hand, India is a model of development based on a highly educated population, the IT boom, nuclear weapons and high-tech medicine.  Can India become a global power if it does not reconcile these two aspects of its national identity?”

MR. DAS:  I think this is how all countries have actually developed.  Maybe in the case of India it is more polarized, that you have a very highly educated population which is comfortable in business-class lounges around the world. But in fact you always had in every society parts of society which move faster than others, and slowly—I mean, the American South was so poor before the second World War.  You couldn’t get a job.  And then it was only the invention of air conditioning in the second World War which made Atlanta, Dallas, Houston come up as places where you could actually go and work.  So I think we have our Bihars, we have our Orissas.  And eventually they’ll be 20 years behind, but then catch up.

MR. MOHAN:  I think the point that Das is making is capitalism always develops in an uneven manner, and there’s been never a country where everything is done in a neat—that’s called socialism, when you try to do everything in a neat way.  And now the Chinese have given that up.  When Deng Xiaoping said, you know, some people should get rich first, I think that was a brilliant formulation.  He said the coastal regions will get rich first.  Now then we’ll extend it to the interior.  And that’s how now you see the Chinese moving huge amounts of investment into the so-called go West policy.  And why go to the south?  What would about Appalachians in this very state of New York?  So even when you have such a developed state like New York—I mean, you have large parts of it were poor, were underdeveloped.  Southern states, even politics, are one-party states. It was only until the ‘70s no Republican could show face or to contest a local election.  So I think these things never come in neat packages.  They always come in complex dynamics.

And in the case of India and China especially, given the size, the Chinese and the Indians have to be only $2,000 per capita.  That dramatically changes the world.  You don’t have to get $20,000 per capita of the type that you see Europeans or some might get, the Americans have. So I think you’ve got to keep this at a different—I think as we grow into a power, some of these problems themselves will be addressed, because in a democracy I think the pressure of words, of getting people to line up and vote, that itself is going to act as an incentive to move it.

MR. DAS:  I think the big difference ultimately is here with India and China.  In India we have free migration.  In fact, the big story of India is the internal migration.  The Indian Railway sells 4.5 billion tickets a year, and India has one billion people.  So four—the average Indian takes four journeys on the railways.  And often they’re for work.  They go from Bihar to Bombay, et cetera.  And I think that’s our safety valve in a sense.   And therefore we shouldn’t be too obsessed I think at this stage with inequality.  The important thing is that 1 percent of India has been crossing the poverty line every year for the last 25 years. And that adds up—I mean, 200 million Indians have crossed the poverty line in 25 years.

MR. CUTTER:  Let me turn it to—yes, ma’am.  Wait just a second.

QUESTION:  Lynn Nesbit, Janklow & Nesbitt.  Gurcharan, you said that in 2020 that more than 60 percent of the Indians will be middle class. Either one of you, how does that relate to China and the middle class?

MR. DAS:  Ah.  Well, I certainly can speak a lot more comfortably about India on this score than China, but you know, first of all, our middle class, the way we define it is not a car-owning middle class. It’s a scooter-owning middle class.  But the values of the middle class are the same; that is, it’s a middle class that invests in the future, in the education of its children, pulls itself up by its bootstraps.  That’s the kind of middle class I’m talking about.  And I think China is ahead.  But as far as middle class numbers, et cetera, Lynn, I don’t really know.  Maybe, Raja, you can throw some light on that?

MR. MOHAN:  In fact, I was in Beijing two weeks ago.  We were debatingwhether—what India and China can learn from each other. The Indian participants were saying we should learn from China, and the Chinese were saying, No, we have to learn from India.  So I think you show the Indian middle class is acutely conscious of what it does not have of infrastructure—(inaudible)—state.  But the Chinese middle class I think they’re beginning to see what they don’t have; that is, some element of democracy, some way of participatory government and some way of building—of even talking about corruption openly.  So I think it’s not numbers that matter, but once you cross the threshold how this class is going to react against their seeming oppressors in both the states in different forms, that will be more interesting I think to watch.

QUESTION:  Jacob Frenkel, AIG.  This was indeed a fascinating presentation.  Thank you very much.  I’d like to make a couple observations related to the China-India—

MR. CUTTER:  Short observations.

QUESTION:  Very short.  But I would like to get some view.  As one looks at the world in 2020, demographers tell us that the size of the population of India and China will be larger than what it is now by close to half a billion people, where India will surpass China. But India has a dream of a demographic map, whereas China has a very severe aging population. Now, this I wonder if you would agree with this and the implications.

The second point is about the growth strategy.  Whereas India has a very—while China has a very clear export strategy for growth, India has less so.  And there is an observation that says as a result China’s growth has created much more antagonism from the rest of the world because of its export domination, and as a result may be actually disturbed through protectionist pressures and the like, whereas India may sail much more smoothly.

MR. DAS:  I think that—let me take the second part first.  And the fact of the matter is that India has kind of stumbled into a model which is really not at all planned.  It’s really quite scary in a way, because India is not following the classic Asian model of growth, which was based on low-cost manufacture of toys and shoes and no-tech items.  It is a much more domestic-led growth.  It is not an export- led growth.  It’s a consumption-led model.  India’s consumption rate is 64 percent of GDP, versus China’s 42 percent of GDP.  It is a services-led growth, rather than manufacturing-led growth.  And you’d think services come after manufacturing, but here services have preceded manufacturing.  And, finally, even in manufacturing it is high-tech manufacturing, which is not labor intensive, versus China’s much more labor intensive manufacturing model.  So the Indian model is a unique model.

And the scary part about it is that the question remains about how are we going to create the jobs for the millions on the farms who we have to get out of the farms.  And there is not an easy answer to that question.

To your second point about population, the fact—you’re absolutely right that today India’s labor is about 400 million people are working; China, 800 million people are working.  This is because of the demographics of the two countries.  But in 2025 it will be the opposite:  there will be 800 million working people in India versus 400 million working people, because of the aging problem and the democratic  dividend that we talk about vis-a-vis India.  And when you have a growth rate now of 7 percent you can actually absorb—at 3.5 percent we couldn’t absorb people into the labor market.  But at 7 percent, and hopefully going to 8, you can absorb the people.  So really it’s a situation where India, because half the population of India is below the age of 25, it is demographically a better place than China is.  Does that answer your question?

MR. CUTTER:  Yes?

QUESTION:  I’m Bruce Schearer from the Synergos Institute.  This question is for Mr. Mohan.  Mr. Mohan, do you believe that human progress essentially depends on justice and human rights and democracy and pluralism?  And, if so, why shouldn’t India be a moral democracy rather than jockeying for a realpolitik power position and standing?

MR. MOHAN:  Good question.  The tension I think for all democracies, from the beginning—and I think you have—do you work for order or you do work for justice?  And that’s one (tension ?) in the foreign policy, whether the U.S. has faced this dilemma again and again, that today the idea that the U.S.—when the Bush administration talks about promoting democracy it’s attacked from both the left and the right, saying that you’re crazy, you’re out of your mind—(inaudible)—stability in the Middle East.  Why are you talking about democracy in the Middle East?  So at the same time you have people on the left, on the liberal side, who always argued promotion of democracy is an important thing.  And I think the challenge for any democratic state in conducting its foreign policy is how do you balance what is imperative?  If you stand for certain values, do you export them and do you insist on giving it to others?  Or do you believe that, look, in international politics where there’s no—the state is still the sovereign body within itself, there is no international civil society, there is no supranational ordering mechanism within international politics. Therefore the compromise between order and justice is a prominent one, and that all states better be, whatever we may say publicly, whatever the presidents and prime ministers might say, you are constantly troubled to make the compromise.

Like today, India, we talk about promoting democracy in Nepal, but we are happy to deal with the military regime in Burma, because the Chinese are moving into northern Burma.  We can’t let the Chinese take over northern Burma, period.  It’s a straightforward assertion of the question of Chinese power, the acts of Chinese power in northern Burma.

Similarly for the U.S.—it talks about democracy in Iraq.  But Saudi Arabia?  Okay, let’s give it a little more time.

So I would say, the U.S. tells us, you know, Be nice to General Musharraf.  You know, he’s a nice guy.  We can actually—you engage him, maybe there will be democracy five years down the road.  But they tell us, Why you  deal with the Burmese? You can pass sanctions on the the Burmese.  They’re both general.  But actually one general doesn’t use terrorism against us—is actually helping us fight terrorism. The other guy continues to use—so our judgment is—we actually end up in getting both agendas.  So I think the choice is—I mean, it is not a morality play when I think how much illusion that liberals in the West have created post-1991, that the problem of our challenge has been eliminated; therefore, it is only a question of ordering institutions and rules and getting to do that.  And I think what the world has—we have seen in the last few years we don’t have the luxury and that the compromise between order and justice will remain a central element, even for the most consistent democracies of the world.

QUESTION:  Hi, my name is Fatula Wai (ph).  If I understand you correctly, Mr. Das, when you were talking about industrialization and your economic growth in the past few years, it’s not giving any credit to the government, because the industry, they’re pulling their shoelaces by themselves.  Isn’t that Prime Minister Manmohan Singh did economic reform in 1991-92?  And now he is really keen on improving the economic situation, putting a lot of investment into infrastructure.  Could you elaborate a little bit?  Can he bring the Indian government out of the shadow of a huge bureaucracy of 10 million people and improve the corruption situation?

MR. DAS:  I wish I could be optimistic about that.  The fact of the matter is that here is a prime minister who really did—was instrumental—played a very important role in 1991, and really deserves a lot of credit, and deserves credit for pushing the government out of the way.  That’s what their liberal reform is. That’s another definition of reform.  There are many ways you can define it, as creating competition and all.  But very largely it has meant that state monopolies have been broken and bureaucracies have had to step out—pushed out of the way.

It is disappointing for us, frankly.  Two years have gone by, and this government has done probably the least amount of reform.  I mean, it’s got—it was a dream team—three people, all were associated with the 1991 reforms—and it has the worst record.  The nice thing is that every government has done some reform after 1991, and therefore those reforms have added up, even slow reforms.  And for various reasons this government has actually - it hasn’t gone backwards, because it hasn’t undone the reforms, but the attitudes it has brought—and perhaps under a very strong leftist pressure of the left it has had to do it.  And I understand that.  I mean, a lot of people are willing to appreciate the fact that the historic role of the left is to make us realize that there are poor people, and make us realize—to humanize capitalism.  

But, frankly, we have so far the pendulum still to go that, you know, at this—we can’t start humanizing—you can’t start sort of distributing the pie before it’s baked.  And that’s what we were doing for 14 years; we were redistributing poverty.  And so all the ideas of this government are about redistributing poverty once again.  So it’s a great sense of personal disappointment I feel, because I tell you I was in New York just after he became prime minister.  The market had crashed—the stock market had crashed, because the leftists had made some statements.  And on Wall Street a number of people had asked this question to me, well, what do you think?  And I said, look, you’re in safe hands—Manmohan Singh—(inaudible).  My God, what kind of a—what better team could you have?  This team has let us down.

MR. CUTTER:  We have time for one more question.  Yeah?

QUESTION:  Bal Gopal Das, InsCap Partners.  This is a question for Mr. Mohan here.  I’d like for you to share some of your thoughts on the issue of the rise of Islam, fundamentalist Islam, and the rise of India.  How do you see the two interacting over the course of the next several years?  Thank you. 

MR. MOHAN:  It’s a very important question.  Firstly, you must be clear that India is an Islamic nation; that we have one to two million Muslims, and that the subcontinent has actually—India, Pakistan, Bangladesh—40 percent of the world’s Muslims live in the subcontinent.  Given the of course New York’s obsession with the Middle East, you might think that most of the Muslims live between Iran and the Atlantic.  But actually 40 percent live between Iran and Bangladesh, and then another 20 percent are in Indonesia.

So the struggle against the question today, whether it’s the war on terror, or whatever you want to call it, or the struggle for modernizing Islam, or Islamism and modernity, or however you pose the problem.  I think the success of that struggle is going to be in South Asia, not the Middle East, how much the delusions of the debate here might take it.  But the origins of quite a bit of political Islam—(inaudible)—in the subcontinent, and the partition of the subcontinent was the first success of political Islam in the history of political Islam.

My sense is that if India can reconcile with Pakistan and Bangladesh, if it can—if India can overcome the consequences of partition that took place in ‘47, if India, Pakistan, Bangladesh can structure a different frame of regional cooperation and coexistence, I think we’ve taken one big leap against radical Islam.  And I think that is the  challenge.  And I think there for the first time Americans don’t have to intervene as for Pakistan against India, for India against Pakistan.  But if U.S. joins India in constructing a cooperative framework in South Asia, and in reintegrating what was actually a single economic space—the subcontinent was a single market in 1947—so we’re like Europe.  We’re not integrating, we’re reintegration.  We’re removing the barriers that exist today.  Once we do that, I think then the fact that 40 percent of the world’s Muslims can live with a large community of other religions in the subcontinent, that message itself will be a big demonstration of faith, and a powerful lesson for the rest of the world in terms of how we deal with radical Islam.

MR. CUTTER:  Thanks.  Whatever you do this year, the sternest adjuration that you’re given is to end at 7:30.  I want to thank our guests for extremely perceptive and interesting remarks.  And thank you all.  (Applause.) 

 

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