27/03/2013 - 09:44

India unlikely to fulfil its potential

27/03/2013 - 09:44

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India’s future as a regional powerhouse is under a cloud as its economy slows and the need for foreign investment increases amid an environment of corruption, bureaucratic ineptitude and self-serving politicians.

India unlikely to fulfil its potential

India’s future as a regional powerhouse is under a cloud as its economy slows and the need for foreign investment increases amid an environment of corruption, bureaucratic ineptitude and self-serving politicians.

ONCE-BRIGHT hopes for the Indian economy have dimmed as it struggles to maintain the spectacular growth that led to its emergence as a rising power which could, along with China, help underpin a global economic recovery in the coming Asian century.

Between 1980 and 2010, India’s economy grew by 6.2 per cent, compared with global growth of 3.3 per cent, while its share of global gross domestic product rose from 2.5 per cent in 1980 to 5.5 per cent in 2010.  

More than $US13 billion was invested in Indian stocks by foreign institutions in 2012, while exports rose by 6 per cent. Since opening its economy in 1991, India has become the fourth biggest economy in purchasing power parity terms. 

But the glittering success story is losing its shine. After industrial production fell by 0.8 per cent in November, economists expected a rebound of 1.1 per cent. In December, however, production fell a further 0.6 per cent, dragging the overall growth rate down from a projected 6.9 per cent to an expected 4.9 per cent.

The government has taken some measures, which are expected to boost economic revival, but there are deep-rooted problems to address, starting with the country’s endemic corruption, spread throughout the government and the military.

There are numerous examples of corruption and ineptitude, such as the notorious ‘coalgate’ scandal, where a haphazard government allotment system allowed well-connected businessmen and politicians to obtain rights to undeveloped coal fields, resulting in a loss of around $US33 billion to the exchequer.

And then there was the case of the ‘2G Spectrum sale’, in which government officials undercharged mobile telephone companies for frequency allocation licences, which they would use to create 2G subscriptions for mobile phones.

Sales of the licences were held on a first-come, first-served basis rather than auctions, which benefited a small group of select bidders and cost the government billions in lost revenue. Senior politicians were involved in both instances.

In the late 1980s, the purchase of field artillery from Sweden was marred by allegations of kickbacks. Soon after, a German firm, HDW, allegedly paid commissions to the chief of the Indian Navy to purchase its submarines. 

Other scandals involving Israeli and South African firms have emerged. Meanwhile, an investigation into the purchase of 12 helicopters for use by politicians, costing about $US650 million, is about to begin.

The second problem is a bloated administration and an over-regulated business environment, which results in too many licences being required to conduct, invest in, or expand a business. This leaves many avenues for bribery and other forms of corruption. 

The third stumbling block, and arguably the most debilitating and complex one of all, is that of self-serving politicians busily pork-barrelling electorates because of affiliations with a region, tribe, caste, language or religion, without considering the needs of the nation. 

The Indian constitution lists more than 1,100 scheduled castes and close to 750 tribes, giving some idea of the magnitude of the issue. Compounding the problem, religion and language play an important part in Indian politics, with representatives also being elected according to their affiliations with these factors. A plethora of regional parties ensures virtually every government is an amalgam of vested interests, affiliations and agendas.

The distribution of religions and languages in India ensures regional political parties have strong linguistic, cultural and religious bases. 

States have been created on a linguistic basis, with the state of Karnataka giving an idea of the complexity of the issue. 

Most of the populace speaks Kannada, but many people also speak Tamil, Konkani, Kodava and Telugu. While Hinduism dominates, there is a big Muslim population, especially in the northern parts of the state, while the west of the state has a strong Christian presence. To ensure they get their needs looked after, Kodava speakers elect a representative from within their community, Muslims from theirs, and Christians in the west elect Konkani-speaking representatives.

Regional parties more often than not find themselves unable to rise above localised, identity-based issues. There is a lack of a national vision, approach or consensus. This sort of identity politics is more insidious than the other impediments to India’s growth.

While measures can be taken to minimise corruption and reduce the bureaucracy, finding a solution to the distribution of ethnicities and languages will prove far more difficult, if not entirely impossible. 

The issue of identity is systemically entrenched. It is not uncommon for the CVs of job applicants to highlight an applicant’s caste or tribal affiliation. Moreover, state and federal governments encourage quota systems, whereby a specified number of people from economically backward tribes and castes (the so-called scheduled castes and scheduled tribes) are automatically provided with employment in government departments. While it is important to improve the social and economic situation of the disadvantaged, the quota system further ingrains India’s propensity towards sectional politics and society.

In order to break with this culture, the scheduled castes and tribes system needs to be broken down. But this can only be done if and when all those who belong to these communities are raised to a standard whereby they can compete on an even field. For this to occur, more educational, health, social and economic facilities must be provided. This takes time and money. Social attitudes must change towards those seen as low caste and untouchable. 

The chance of this change occurring in the near future is remote, however.

While India’s economy is still growing, it is not at the rapid rate it experienced between 2004 and 2008. For that growth rate to recur, better governance, fewer administrative blocks, and the removal of identity politics will need to happen. But it is hard to see any political will to make the necessary changes.

To remain in power, a government that depends on an amalgamation of various regional parties, such as the current coalition UPA government, has to cater to factional interests – the national interest thus comes a distant second. There is hardly any party that has the ability or will to change this situation. 

The main opposition party, the BJP, allegedly places the national interest above all else, but its main agenda is maintaining the predominance of Hindu culture, religion and ethos. 

Until such time as systemic corruption and identity politics is removed from the Indian ethos, India’s growth will not match its potential.

Lindsay Hughes is an analyst in the Indian Ocean Research Programme with the independent WA research institute Future Directions International.


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