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  • Sep 17, 2014
  • Updated: 3:48am
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INDIAN ECONOMY

Hope at last for India after 30 years

Narendra Modi just might be what is needed for a country blighted by decades of corruption and inequality to start realising its promise

PUBLISHED : Wednesday, 21 May, 2014, 3:37pm
UPDATED : Thursday, 22 May, 2014, 4:42am

For three decades, I have seen India as a depressing, also-ran economy, blighted by the iniquities of caste and lumbering bureaucratic corruption, of marginal importance even in Asia in spite of its huge population.

I have been consistently sceptical of arguments claiming that India was set to travel along the trail blazed by China since 1978.

But the landslide election of Narendra Modi and the undignified ejection of the muddled Congress party perhaps justify a review.

I must confess a bias. Sitting in Hong Kong in 1983 in the Financial Times' one-man bureau, I was wearied and worn down by arguments with London headquarters on the need to build a bigger office in Hong Kong, to acquire a local newspaper and to build an editorial presence on the mainland.

I was wearied not just because of the stonewall scepticism of executives in London but by their blind colonial preference for building an editorial presence in India.

For three decades, I have seen India as a depressing, also-ran economy

After all, my London-based adversaries argued, India was the world's largest democracy, and it had the largest stock exchange and a huge English-speaking readership.

Today, millions of pounds of investment later, the Financial Times still has no publishing presence in India.

And China, despite its lack of democracy, its paucity of English speakers and the labyrinthine opacity of its stock markets, has left India in the dust.

Books and books have been written about the similarities between these two giant emergent economies, and how India will soon challenge China. Most have not been worth reading.

But maybe Modi really can change all that.

For a start, he has a big enough majority not to have to arm-wrestle with a self-interested gaggle of coalition partners.

He has a mandate to tackle the tentacles of the country's ridiculous bureaucracy and to cut the subsidies that so distort the economy and hobble its finances.

The time is also ripe for India to emerge from the economic penumbra and seriously engage the world.

Production costs are rising in China, mainly because of deliberate government policies to improve efficiency, raise incomes and move away from low-value-adding, polluting and low-technology manufacturing. Therefore, the quest is on for new homes for these unloved areas of manufacturing industry, which none of us like but which will continue to be needed, perhaps for decades to come.

Many have talked of Vietnam, Cambodia, Bangladesh or Sri Lanka as providing such a home, but this is fantasyland: these economies are smaller than even small Chinese provinces, with tiny supplies of skilled manufacturing workers.

But India? Now you may be talking.

Both economies have populations of about 1.3 billion. India's most populous state, Uttar Pradesh, had a population of almost 200 million in the 2011 census, almost double that of China's most populous province.

Like China, India has 10 states with a population higher than 50 million. Maharashtra, India's richest state, has a population of about 110 million - roughly the same as that of Guangdong, which also happens to be China's richest province.

But here, similarities are harder to pin down. After more than 30 years of intensive industrial development, Guangdong today has a gross domestic product of about US$930 billion, growing at more than 8 per cent a year.

By contrast, Maharashtra has a GDP of less than US$200 billion. China has no fewer than 20 provinces with a larger GDP than this. Even the municipality of Tianjin has a bigger GDP. Note also that China today has an average urban population of 52 per cent - and this is much higher near the affluent municipalities and in industrial provinces such as Guangdong, Jiangsu, Shandong and Zhejiang.

This means China's provinces have immensely deeper human pools from which to drive labour-intensive manufacturing.

India's urban population amounts to just 32 per cent of the total. Its largely agrarian states remain ill-equipped to provide the manufacturers of the world with the skilled workforces they need.

Even Gujarat, where Modi was leader for many years and which has become a poster-child for improved economic management, has a long journey to travel. Its population of 60 million puts it on a par with Anhui province, but its GDP, at US$100 billion, is less than half the size of Anhui's and would rank behind that of 25 Chinese provinces.

In short, therefore, India's economy remains a pygmy, but mismanagement and bureaucratic corruption have been so egregious that even modest improvements by a new Modi administration have the potential to make a massive difference.

For the first time in 30 years, I believe there is a chance the country may at last begin to move towards its potential.

An important litmus test will remain my alma mater, the Financial Times: if the Indian government at last allows it to publish and distribute inside India, then that will be an important sign of change in the wind.

It is a tribute to Mr Modi that he has hoisted me out of 30 years of cynicism and pessimism to believe that at last things might change.

David Dodwell is the executive director of the Hong Kong-Apec Trade Policy Group

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