NEW DELHI, 26 Apr – Significant domestic hurdles could hinder India’s arduous ambitions to become the world’s third largest economy over the next ten to twenty years.
Prime Minister Narendra Modi should be watchful of economic reforms and international engagements aiding the predicted growth, voiced a senior fellow at the Carnegie Endowment for International Peace.
Ashley J. Tellis, who is also the Tata Chair for Strategic Affairs at the Washington DC think-tank, opined that India faced significant hurdles of domestic agricultural and manufacturing problems, international trade, the need for deep domestic economic reforms and the preservation of social stability.
“All these, in the face of internal divisions if unaddressed, could hinder India’s journey towards true global power.
“Ever since independence in 1947, India’s leaders imagined that the country would become a great power as it possessed a storied civilisation, a large landmass and population.
“It epitomised a successful experiment in liberal democracy.
“But becoming a great power required that its large population become much more productive and the country at large approach the global technological frontier,” wrote Tellis.
He added that a post-colonial legacy of territorial disputes with neighbouring Pakistan and China, combined with slow growth during the Cold War, stymied India’s great power ambitions.
“Economic accomplishment proved elusive because of excessive statism that also choked its international trade. “After the Cold War, India’s fortunes turned for the better. “The 1991 economic reforms began to undo excessive state controls over the economy and restored external linkages, pushing India towards higher growth,” Tellis revealed.
He highlighted how since his election in 2014, Modi had embarked on a quest to remake India.
“He has invested heavily in expanding infrastructure and building a welfare state that brings its poorest people into the formal economy, while institutionalising pro-business policies to encourage higher growth.
“Problematically, he has also sought to transform India’s previously liberal political regime into a self-conscious Hindu state.
“Modi’s ambition to speed up India’s global ascendency has benefited from India’s increasing material strength. “New Delhi’s renewed international activism is now anchored in a striking realpolitik that is marked by a naked, sometimes even abrasive, emphasis on self-interest.
“This approach has benefited from global geopolitical trends, especially US-China security competition, which has pushed Washington to back New Delhi as a counter-poise to Beijing’s prominence in Asia and beyond,” said Tellis.
However, Tellis figured that the United States was not alone.
He analysed that between growing disenchantment with China and the promise of India’s large market and future economic growth, most major Western powers had doubled down on engagement with India.
So has the Global South, which sees new opportunities for collaboration.
“Realising the ambition of becoming a great power however requires more of India.
“India will need to transform its immediate neighbourhood to preserve a favourable environment for sustaining internal economic growth, deepen domestic economic reforms to accelerate long-term transformation and preserve its complex social tapestry to enable its citizens to contribute towards its goal.
“Securing a peaceful local environment has proven difficult.
“The biggest challenge has been managing ties with China. “The meltdown in bilateral ties, provoked by border clashes in May 2020, is disconcerting.
“It is also complemented by other problems around India’s periphery – the ongoing crises in Pakistan, Myanmar, Sri Lanka and the Maldives create distractions that India would prefer to avoid yet cannot,” he said.
Tellis believed that if India could avoid regional wars, its long-term success would depend fundamentally on its internal economic performance.
“The principal task facing its leaders is to convert what has been an episodic peak growth rate of 7 per cent or higher, into a new trend growth rate for at least the next two decades.
“The gains chalked up since 1991 are owed to the reforms in India’s product markets.
“But high future growth will depend on a deep liberalisation of its factor markets, particularly how it allocates and utilises land, labour and capital and provides better opportunities for entrepreneurship.
“The challenges here are myriad and difficult because they collide with domestic interests that seek to maintain the existing sclerotic system.
“They are exacerbated by Modi’s overweening ambition to ensure the nationwide dominance of his Bharatiya Janata Party through the elimination of opposition political parties and social challengers – a goal that impedes the creation of the coalitions necessary to implement difficult reforms,” Tellis said.
He outlined three immediate economic hurdles that India must overcome.
The first, he said, was agricultural reform.
“Agriculture employs close to 45 per cent of India’s population but contributes only about 15 per cent to its GDP.
“But a crying need to absorb this unproductive fraction into sectors of the economy that can better utilise unskilled labour only highlights the larger problem of India’s low labour productivity,” Tellis said.
Stimulating Indian manufacturing was next.
Studies, he said, suggested that India could not sustain a 7 per cent plus growth rate without substantially increasing manufacturing.
“Modi’s ‘Make in India’ campaign constitutes a commendable rectification.
“But concentrating on flashy, highly capital-intensive manufacturing is unlikely to produce the 56 million non-farming jobs that will be required in India by 2030,” he said.
Tellis pointed out the third challenge as international trade. He analysed that Modi’s misguided shift toward protectionism reflected all the pathologies that were now so prevalent worldwide.
“The global post-war growth record demonstrates the value of external openness.
“Though countries can grow by expanding insulated domestic markets, such growth takes longer.
“India does not have that kind of luxury. Protectionism does not serve India’s desire for rapid economic growth or for increased geopolitical influence.
“While India manages these economic tests, preserving social stability in the face of its cross-cutting internal cleavages remains a persistent challenge.
“Modi has embarked on the unprecedented experiment of transforming religious Hinduism into political Hinduism, an experiment which seeks to consolidate the Hindu electorate into a unified vote bank that will support his party in perpetuity.
“Whether this revolution succeeds without disenfranchising India’s large minority groups and deepening its significant north–south divide remains to be seen,” Tellis summed up.
He believed that India would gradually increase in power, becoming the world’s third largest economy during the next ten to twenty years.
“Yet it will also continue to be marked by the same paradox that characterises China today – having a large economic mass that does not translate into high levels of distributed prosperity.
“India’s journey towards true great power capabilities is thus likely to be long and arduous,” Tellis concluded.
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