India and Indonesia are two of a kind

Pallavi Aiyar and Tan Chin Hwee say while 'Chindia' is seen as an obvious growth engine, Indonesia and India are a more relevant matchup to fuel the global economy

PUBLISHED : Tuesday, 28 April, 2015, 5:29pm
UPDATED : Tuesday, 28 April, 2015, 5:29pm

The discourse on Asia's "rise" is dominated by China and India, countries whose vast populations and buoyant economies have captured the imagination of international investors, journalists and policy analysts. "Chindia"-scented rhetoric abounds with catchphrases that state the obvious, but whose import is less so. China has the hardware, India the software; India needs China's roads, China could do with India's political inclusiveness. Given how fundamentally different India and China are, though, such "lessons learnt" are of limited value.

The more relevant comparison in Asia - and one with enormous implications for the global economy - is between India and its civilisational sibling, Indonesia. These two eclectic democracies share more in common than India and China, yet they are rarely hyphenated. Last year's elections saw the elevation of a new breed of popular leader in both countries. Narendra Modi, whose family ran a tea stall, has risen from near the bottom of India's caste and class hierarchies. Joko Widodo is from a similarly underprivileged background.

While China's per capita GDP in 2013, adjusted for purchasing power parity, was US$9,600, the equivalent for India was a mere US$4,000, putting it closer to Indonesia's US$5,200. China's investment in fixed capital in 2013 accounted for 46 per cent of its GDP, compared to only 30 per cent in India, a figure again more comparable to Indonesia's 33 per cent.

On parameters of human development, from sanitation to malnutrition, India and Indonesia are closer to each other than to China. A list of the most fundamental challenges confronting India today could just as well be Indonesia's. On the economic front, they both need to boost manufacturing competiveness to create the millions of jobs required to ensure their young and growing populations become a demographic dividend. Both have governments tasked with attracting foreign investment and fixing creaky infrastructure, even as they assuage protectionist lobbies and battle entrenched corruption. Weak governance plagues both.

" Bhinekka Tinggal Ika" (multiple but one), the Indonesian national motto, is in essence identical to the Indian catch phrase of "unity in diversity," and underscores their comparable accomplishments in having managed to sustain national identities in societies fractured along ethnic and religious lines.

China, with its one official language (India has 23), standardised written script, one major ethnic group, and political tendency (both past and present) towards imposing uniformity, is also a more homogenous nation in ethnic and religious terms than India or Indonesia.

An Indian's first reaction to China is often bewilderment. The language is wholly alien. The scale of the architecture seems outlandish. And there is an underlying uniformity to the lives of the Chinese that is unfamiliar to an Indian.

Indonesia, on the other hand, is immediately familiar. Regular demonstrations, featuring protesters ranging from workers clamouring for a higher minimum wage to religious hardliners demanding the cancellation of beauty pageants, cause massive gridlock. Little retail shops shelter in the shade of extravagant malls, while the call of muezzins punctuates the day. Everywhere, embedded in the language, on street signs and in political commentary, are references to the Hindu epics of the Ramayana and Mahabharata. A huge statue of Krishna leading Arjuna into battle dominates the roundabout in front of Monas, Jakarta's main nationalist monument. Even Indonesian Muslims are often named after Hindu gods and goddesses.

The explanation for this affinity: For centuries, Hindu-Buddhist kingdoms ruled over large parts of the Indonesian archipelago. And Hindu cultural norms continued to infuse indigenous mores, even after large-scale conversion to Islam in the 16th century.

Colonial rule disrupted many of the direct links between Indian and Indonesian kingdoms. Long-established trade routes were gradually taken over by European powers from the 17th century.

India and Indonesia both gained their independence in the late 1940s, but the turn to autarky that characterised decolonisation in both only cemented the colonial disconnect. As a result, Indians and Indonesians today are generally unaware of their strong cultural ties. Yet, the India-Indonesia hyphenation is a reality that finds present-day resonance not only in value systems, but in language. A large percentage of the vocabulary of Bahasa Indonesia derives from Indian languages.

India, the world's largest democracy, is a Hindu-majority country - but is home to almost as many Muslims as Pakistan, in addition to substantial numbers of Christians, Sikhs, Buddhists and Zoroastrians. Contemporary currency notes have the denomination written in 15 of India's 23 official languages. Indonesia's remarkable diversity is less widely understood. With 250 million citizens, it is the world's fourth most populous nation and third-largest democracy. It is home to 719 languages, spoken by people from over 360 ethnic groups, (unlike India, it does have a national language: Bahasa Indonesia).

Religion remains a political force in both, even as development and fighting corruption have emerged as vote-winners.

Although India initiated economic reforms in the early 1990s, more than 20 years after Indonesia's liberalisation, the countries share a variety of similarities on the economic front. Over the past decade, both have managed sustained growth and have made considerable strides in opening their economies to global forces, with exports now amounting to a quarter of GDP. The median age in India is 27 years, close to the 29 years in Indonesia, and considerably more youthful than the figure of 37 years in China.

In 2013, the two countries were part of the so-called "fragile five", a term coined by Morgan Stanley to indicate emerging economies with large trade deficits. But since the elections of Modi and Widodo in mid-2014, investor sentiment has improved. Tough reforms could translate into long-delayed, structural changes that open the door to more rapid growth. It is possible to substitute India for Indonesia and end up with a similar inventory. The World Bank's Ease of Doing Business index ranks Indonesia 114th out of 189 countries, while India is 142nd. Health care expenditure as a percentage of GDP is a low four per cent for India, and three per cent in Indonesia. According to Transparency International's 2014 corruption rankings, India placed 85th out of 175 countries, while Indonesia is 107th - major drags on productivity, innovation and capital formation in both.

Both countries, moreover, urgently need a boost to manufacturing to absorb the underemployed labour flooding into cities. The success of Modi and Widodo in achieving this goal will depend in large part on their skill in balancing protectionist lobbies and subsidy-habituated state-owned enterprises with reforms aimed at opening up to foreign investment, cutting red tape and taking on entrenched elites.

Analysts have forecast six per cent-plus growth for India and five per cent-plus for Indonesia in 2015. This is not enough to be truly transformative over the medium to long term. New Delhi and Jakarta must lift millions out of poverty, a task that will require them to innovate and invest on a much larger scale.

Some prerequisites for the sustained growth needed are clear: openness to foreign investment, suppression of corruption, regulatory streamlining, investment in education, health and infrastructure. But there are a variety of imponderables - among them, rising income inequality, ethnic conflict, helter-skelter urbanisation, air and water pollution and climate change - that will complicate navigation. Both India and Indonesia seem poised to make up for lost time, but the road to success is long and pot-holed.

Pallavi Aiyar is an award-winning author and journalist based in Jakarta. Tan Chin Hwee is a founding partner in Asia of a major global private equity firm