Amid the economic gloom, India’s rise couldn’t come at a better time
Andrew Sheng says Narendra Modi’s technology push, favourable demographics and the colonial legacy of English and rule of law are proving increasingly attractive to foreign investors, boosting growth as China’s economy slows
I spent most of December in Kerala, southern India, one of the most literate states and an important juncture of the Maritime Silk Road.
Visitors to Borobodur in Java and Angkor Wat in Cambodia would know how Hinduism and Buddhism influenced their history and culture through maritime trade. But Tamil influence in Southeast Asia was reinforced by the Cholan invasion of Southeast Asia in the 11th century under the Southern Indian Cholan conqueror Rajendra I, who at his peak conquered Sri Lanka and Srivijaya, the great Southeast Asian power based in Palembang, Sumatra.
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In a world looking for new growth markets, India is looking better and better as a destination for foreign investment, mainly because of its large domestic market, cheap labour and reasonable macroeconomic policy framework.
Unlike in China and the Association of Southeast Asian Nations, the constraints to growth in India lie in its lack of high-quality infrastructure and the famous “licence raj”, the complex bureaucratic regulations and legal issues that make it difficult for businesses to navigate.
On the plus side, the Indian growth story is founded on two major factors – the first is that it is benefiting from good demographics, since the median age is only 25, considerably less than that for China (37) and Japan (45). The second is a British colonial legacy – the English language, common law and British governance skills. The West sees India as the only population giant in the 21st century that can be an ally and counterweight to China.
Foreign investors to India are often attracted by the large and growing middle class, increasingly willing to buy the best and latest fashions of the West. But getting permission to operate has to go through the most complex of bureaucracies, run by an elite Indian Administrative Service, but manned by officials who are very local- and bureaucratic-minded. It was famously said that the Indian revolution in IT services, which occurred under the assassinated Indian premier Rajiv Gandhi, would not have succeeded if the bureaucrats had understood technology.
Today, with the internet and information communications technology taking off through financialisation and globalisation, the English-educated elite are benefiting from connectivity to Silicon Valley.
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There are two distinctive features of India’s thrust into the 21st century. The first is a bottom-up approach, with an obsession that no development is possible without improving the villages that form the core of Indian society, although the country is also beginning to urbanise. The second is the willingness to use technology to enable India to leapfrog the conventional trajectory of other emerging markets.
When Modi assumed office in 2014, one of his first acts was to axe the planning commission, which was in the midst of designing India’s 12th five-year plan (2012-2017). He replaced it with the National Institute for Transforming India, by first co-opting state governments to join the “re-imagining India” process.
As described in the new Indian bestseller, Rebooting India – by former co-founder and CEO of Infosys, Nandan Nilekani and Viral Shah – India is ripe for change because it has the second-largest mobile network in the world (900 million users) and third-largest internet user base. Instead of trying to transform government conventionally, technology is able to maximise citizen convenience in the provision of government and business services.
Whatever the strengths, we also need to be realistic. India still faces huge developmental problems. India’s GDP was US$2.2 trillion in 2015; China’s was US$10.3 trillion, while Asean, with half the population, has a combined GDP of US$2.5 trillion.
There is no doubt in my mind that the world’s fastest-growing region in the next decade will be Chindasean (China+India+Asean). The competition, as well as the potential trade and investment, within that region will define global growth.
Andrew Sheng writes on Asian and global affairs