A blueprint to keep India shining
The condescending jokes about India are legendary: India is the economy of the future, and always will be; In an Indian car, everything makes a noise except the horn; Poor India: 200 years of British imperialism and 50 years of the London School of Economics. I am not sure which did the most damage.
When I was director-general of the World Trade Organisation, and had assisted China's entry into the body, I always hoped that its stunning economic success would inspire India, or shake its leaders into following a more open economic strategy.
Just 10 years ago, the average Indian was twice as wealthy as the average Chinese. Now, it is the reverse. But India has got the message. Recently, its growth has exceeded that of China. Its car industry grew by 200 per cent last year, and will be worth US$15 billion in five years. It has the fourth-largest pharmaceutical industry in the world and is investing heavily in biotechnology and nanotechnology. Bangalore has 30,000 more IT engineers than Silicon Valley.
This impressive growth, a good monsoon and a historic thawing of relations with Pakistan encouraged the Bharatiya Janata Party coalition government to go to the polls early with the slogan 'India Shining'. Unexpectedly, Sonia Gandhi's Congress party swept to power. The millions of rural poor were mobilised, seeking to move out of the shadows because, while India was shining, it was mainly the new middle class which was enjoying the benefits of the success. As is the case everywhere, economic success pulls more above the poverty line, and people's expectations move even higher. With Manmohan Singh as prime minister, Mrs Gandhi calmed markets that feared dramatic reversals in policy because of Congress' coalition with various left-wing and communist parties. Mr Singh is a proven reformer. As finance minister, he broke the mould of Indian politics by initiating the opening of the economy, which the BJP belatedly adopted and quietly advanced. He is a serious reformer, a patriot and has a reputation for being utterly incorruptible. However, prime ministers are answerable to forces other than logic.
Therefore, the recently unveiled Budget was eagerly anticipated. Mr Singh had to pull off a political and economic balancing act between the hopeful poor - who believe it is their turn and want expenditure now - and much-needed restructuring.
It had something for all. Most of the rhetoric was aimed at the rural poor. They received billions of dollars of support, with a warning from Finance Minister Palaniappan Chidambaram about the dangers of not reforming the bureaucracy. He pointed out that because of inefficiencies and corruption, 85 per cent of the subsidies did not reach those for whom they were intended.
The five-year road map makes some heroic assumptions about continued growth to sustain expenditure. However, the new attention given to education, rural health, water supplies, food subsidies and innovative food-for-work pilot schemes gave core supporters hope. There were also promises to review the tax system and raise the limits for foreign investment and privatisation, to bring in new capital technology and make India more competitive.
Those who feared that a new energised government might make populist and expensive policy decisions, adding inflationary pressures, were reassured.
The largest increase was in defence spending; it rose by 17 per cent to US$18 billion. But the peace initiatives started by previous governments will continue. A peaceful subcontinent has much to offer, not least the fact that there would be another economic and political superpower at the table. This can only be good for us all.
Mike Moore, a former prime minister of New Zealand, was the first director-general of the World Trade Organisation
