a series of 6 articles by foreign policy analysts on President Obama's India visit.

Discussion in 'Foreign Relations' started by bengalraider, Nov 5, 2010.

  1. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    India's Strategic Future

    Why India needs to move from "strategic autonomy" to strategic cooperation with the United States.
    BY C. RAJA MOHAN | NOVEMBER 4, 2010
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    Unlike in Washington, where governments are noisy in articulating their worldviews, for the permanent bureaucracy that runs New Delhi's foreign policy, silence is golden. But Delhi's reluctance to articulate a grand strategy does not necessarily mean it does not have one. Since India embraced globalization at the turn of the 1990s, many of its traditional strategic objectives have evolved, and the pace of that evolution has gathered momentum as India's economic growth has accelerated in recent years.

    Yet the United States remains unclear about its potential ally's goals and objectives. Despite significant advances in Indo-U.S. relations during George W. Bush's presidency and bipartisan agreement in Washington to support India's rise, Barack Obama's administration has found it hard to make big strategic advances. U.S. officials dealing with Afghanistan and Pakistan seem to find India -- and particularly its reluctance to offer concessions on Kashmir that might presumably encourage Pakistan to cooperate more thoroughly in Afghanistan -- part of the problem. American negotiators on climate change and trade find the notorious prickliness of the old non aligned India alive and well. And the Pentagon is frustrated in its efforts to build a partnership with a New Delhi that resists cooperation on U.S. terms. But American strategists should take heart: If Washington can be patient, endure an extended courtship, and above all take a longer-term view of the relationship with Delhi, it will find much to like about India's foreign policy.

    The problem for India's top strategists is not that they don't seek a grand bargain with the United States. It is about negotiating equitable terms. It is also about bringing along a political elite and bureaucracy that are adapting too slowly to the new imperatives of a stronger partnership with Washington. But make no mistake: Engagement with the United States has been the Indian establishment's highest foreign-policy priority over the last decade and a half.

    India's grand strategy has four broad objectives. In all four areas, strategic cooperation with the United States is critical.

    India's first objective is to pacify the northwestern part of the subcontinent, or the AfPak region, as it is known in Washington. All of India's great empire-states throughout the last 2,500 years, from the Mauryans to the British Raj, have had trouble controlling these turbulent lands across the Indus River that frame the subcontinent's western frontier.

    Indeed, ever since Alexander the Great and his army first arrived on the banks of the Indus, most foreign forces and alien ideologies have come to what is now India through the northwestern route. In the past, India managed to absorb the invaders and modify their ideologies. All it needed was sufficient time. But weakened by the subcontinent's partition in 1947 and faced with U.S. and Chinese support for Pakistan during the Cold War, India has had little time and space to manage the conflict with its troublesome sibling to the northwest.

    American commentators often discount the threat that Pakistan's military poses to India. Indian strategists don't have that luxury. Armed with nuclear weapons and allied with radical Islam, the Pakistani Army remains extremely dangerous -- a situation compounded by America's current dependence on Islamabad to pursue its objectives in Afghanistan and in the tribal areas across the border.

    The challenge for India is not just about managing its differences with U.S. policies in Afghanistan and Pakistan. New Delhi has no choice but to work with Washington to stabilize its northwest. That in turn involves encouraging the United States to think very differently about Pakistan and its relations with Afghanistan and India. And that demands getting the United States to pressure the Pakistani Army to end its promotion of extremism in Afghanistan and India.

    Both New Delhi and Washington want to move the AfPak region toward political moderation, economic modernization, and regional integration. Neither can achieve these objectives on their own. But they have so far failed to have an honest discussion about how to move forward together, let alone begin coordinating their policies.

    India's second objective is to become an indispensable power in the littorals of the Indian Ocean and southwestern Pacific. For nearly two centuries until partition, the British Raj was the source of stability and the main provider of security in these regions. But after independence in 1947, India chose an inward economic orientation and focused on the global mobilization of the Third World during the Cold War. Not surprisingly, India resented the dominance of the Anglo-American powers in its strategic backyard.

    As the power of a rising China today radiates across the subcontinent, the Indian Ocean, and the western Pacific, balancing Beijing has become an urgent matter -- especially given the relative decline of the United States. In the past, India balanced Beijing through a de facto alliance with the Soviet Union. Today, it needs a strategic partnership with the United States to ensure that China's rise will continue to be peaceful. With Washington yet to make up its mind on how best to deal with Beijing, India has no option but to hedge against growing Chinese power as well as the dangers of a potential Sino-American condominium. This necessarily involves nuanced bilateral economic and political engagement with China, albeit with eyes wide open.

    Meanwhile, New Delhi's focus is on China's neighbors. India is holding on to its old partnership with Moscow, stepping up its economic and security cooperation with Japan, South Korea, and Mongolia, and raising its economic and strategic profile in Southeast Asia and Australasia.

    India's third objective is to increase its weight in global governance and eventually emerge as a "rule-maker" in the international system. In that sense, India's civil nuclear initiative with the Bush administration was as much about producing electric power as it was about redefining India's position in the global nonproliferation regime. But U.S. support for India's bid to become a permanent member of the U.N. Security Council has been elusive. The United States, instead, wants to test whether India is a "responsible stakeholder" in the negotiations on issues ranging from climate change to international trade. From India's perspective, these American benchmarks have tended to be self-serving and defined by the latest intellectual fashion in Washington. India is prepared to engage on these issues and participate more fully in global decision-making bodies on the basis of its own enlightened self-interest, but is not prepared to take tests from anyone.

    India's fourth objective is to strengthen the factors that are critical for becoming a credible power on the regional and global stages. This involves sustaining its current high economic growth rate, consolidating its advantages in knowledge industries, providing education and skills to its younger population, and modernizing its armed forces and security agencies. On all these fronts, India needs deeper and more open cooperation with the United States through the integration of their advanced technology sectors, trade liberalization, opening the Indian education system to American universities and community colleges, U.S. investments in the Indian defense industry, and American expertise to upgrade Indian intelligence gathering and processing. New Delhi is already engaged with Washington on all these fronts, but the results remain way below potential.

    Most of all, the United States needs to recognize that it is dealing with a new India. For too long, India saw itself as a weak, developing country unwilling to unlearn its anti-colonial grievances. Only in recent years has India begun to inch away from its previous focus on the chimera of "strategic autonomy" to emphasize its own role in shaping the regional and global environments.

    In the past, India's internal identity as a liberal democracy was in tension with its external image as the leader of the global south against the West. A rising India -- with its robust democracy, thriving entrepreneurial capitalism, and expanding global interests -- is bound to acquire a new identity as a champion of liberal international order.

    What remains to be seen is whether the Obama administration can seize this moment. Obama has certainly talked the talk, but it is not clear whether his administration is ready to walk the walk to accommodate India's rise. That might require a leap into the unknown -- a historic revision of the international hierarchy of power -- that so far, the United States has been unwilling or unable to take.




    C. Raja Mohan is the strategic affairs editor of the Indian Express in New Delhi and adjunct professor of South Asian studies at Singapore's Nanyang Technological University.
     
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  3. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    Weak Ties​

    For all the excitement about India’s rise, its economic relationship with the United States remains anemic. Why?
    NOVEMBER 5, 2010
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    On the surface, all the elements are in place for an economic love affair between the United States and India. In the last decade, three American presidents -- including Obama -- have visited New Delhi with the explicit aiming of boosting bilateral trade. India's economy is growing at a very healthy 8 percent clip, and its democratic political system and rule of law -- not to mention its widespread English fluency -- should make it relatively easy for U.S. companies to sell into India and to invest there. The U.S.-India civil nuclear agreement gave hope for billions in commercial agreements between the two countries, and the recent thaw in the U.S.-Indian defense relationship (the Pentagon now conducts more military exercises with India than with any other bilateral partner), has U.S defense companies salivating. Yet the economic relationship between these two natural partners remains far below potential. Why?

    The numbers tell the story. U.S. companies are investing heavily in India's economy, but not nearly at the level they are investing in China. In 2008, U.S. foreign direct investment in India was only approximately $3.5 billion (up from $0.7 billion in 2005), while U.S. investment into China was $15.8 billion (up from $1.9 billion in 2005).

    The power to improve these figures is largely in Indian hands. Companies invest in Colombia, Vietnam, and other emerging markets because of those countries' explicitly pro-foreign investment policies. In contrast, companies invest in India in spite of its government, where, despite Prime Minister Manmohan Singh's admirable reforms, the legendary "license raj" -- the elaborate red tape required to set up and run businesses in India -- is still much in evidence.

    India has instead relied on its inexpensive and well-educated labor force to attract foreign investment. This will not remain an asset for long. Wages are rising in some sectors at the rate of 20 percent per year. Increasingly, companies are looking at the Philippines, Sri Lanka, Vietnam, and other Asian countries as less-expensive outsourcing destinations. And despite its teeming masses, India's well-educated labor pool is actually quite small.

    India could attract investment in spite of rising wages by continuing to liberalize and simplify its investment rules. The government's recent steps to permit foreign investment in multi-brand retail by mid-2011 (allowing Wal-Mart, and other foreign grocery store chains to operate in the country), could professionalize the agricultural sector and create additional employment opportunities for rural laborers. India's commitment to simplifying the tax code and labor regulations is a good start, but it must go further.

    Bilateral trade is another missed opportunity. Although the United States is India's third-largest trading partner after China and the European Union, India ranks only 14th among the United States' trading partners. The U.S. share of India's market could shrink further due to free-trade deals India has just concluded with South Korea and Singapore, and is in the process of negotiating with Australia, Canada, the European Union, and Japan. For too many years, U.S. and Indian negotiators focused on resurrecting the failed Doha round of multilateral trade talks. Instead, the two countries should finally focus their efforts on the only achievable goal: completing their negotiations for a long-delayed bilateral investment treaty. This alone would significantly boost trade ties and encourage capital flows between the two countries.

    Finally, the billions in contracts U.S. firms hoped to obtain as a result of the U.S.-India civil nuclear agreement now look difficult: The Indian Parliament recently passed a nuclear liability law that makes nuclear equipment suppliers potentially liable for accidents for as long as 80 years. While state-supported nuclear equipment makers in France and Russia may be willing to accept such risks, American companies are not. India is increasingly buying U.S.-made military equipment, including some C-130s, military reconnaissance planes, and anti-ship missiles, but U.S. defense companies are hoping for much larger contracts in coming years. To further this trade and a more robust defense relationship in general, the Obama administration should follow through on its pledge to reform the cumbersome U.S. export-control system, which complicates India's attempts to purchase the most advanced U.S. technology, while India should revise its onerous offset regulations and allow greater foreign investment in its defense sector.

    It is of course much easier to make these suggestions from outside the government than for either the United States or India to implement them. Both countries have struggled mightily with these issues. Singh's Congress Party-led government has increased the pace of reforms since winning a new, stronger mandate from voters in 2009. Nevertheless, Singh governs an unruly democracy, where many representatives are still hesitant to embrace a closer relationship with the United States. The U.S. government has similar problems reforming decades-old "standard operating procedures," such as its export control laws, at home.

    In an increasingly multipolar world, the United States will want to foster the development of new "poles" that generally share U.S. values and can help maintain a healthy balance of power in Asia. An economically strong India is very much in the American interest. Tackling these barriers to economic cooperation in an ambitious, concerted manner would do much to sustain the positive momentum in U.S.-India relations begun by the civil nuclear accord, and is well worth the effort.




    Anja Manuel is a visiting scholar at Stanford University’s Center for International Security and Arms Control and a partner in the RiceHadley Group LLC, a strategic consulting firm.
     
  4. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    New Delhi Surprise

    Beneath the smiles, India is not happy with Obama.
    BY SUMIT GANGULY | NOVEMBER 5, 2010
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    NEW DELHI—He may not know it yet, but Barack Obama's much-heralded trip to India is already in trouble. The U.S. president is heading to Mumbai and New Delhi hoping to announce a number of economic deals he can tout back in Washington. He may well succeed, but he's also likely to get an earful about an issue that is higher on India's list of concerns: security. Over the last few weeks, Indian insiders -- key serving and retired policymakers, strategists, and senior military personnel in New Delhi -- have told me that a number of key misgivings are casting a long and disturbing shadow over the visit.

    Perhaps it's appropriate, then, that Obama will be staying in Mumbai's Taj Mahal hotel, where in November 2008, a handful of Pakistani terrorists held the city hostage and killed 166 people. Two years later, despite increased counterterrorism and counterintelligence cooperation, Indian officials complain that they're not getting enough help on terrorism issues from their U.S. counterparts. The United States is still refusing to share vital intelligence information on terrorist organizations that may have links with Pakistan's top spy agency, the Inter-Services Intelligence directorate, key Indian policymakers say.

    Indian officials are also frustrated by Obama's decision to hold a third strategic dialogue with Pakistan -- and particularly with Gen. Ashfaq Kayani, Pakistan's army chief of staff -- barely three weeks before his visit to New Delhi. The Indian government believes it has done all within its powers to reach out to the fragile civilian regime in Pakistan despite multiple rebuffs.

    The timing and symbolism of the strategic dialogue was bad enough. Worse, however, was the announcement that the United States would provide Pakistan with yet another tranche of military assistance to the tune of $2.29 billion over the next five years. This was especially galling to the Indians, who see Pakistani military leaders suckering the Americans into letting them acquire weaponry that would only be useful in a conventional conflict with India.

    Indian policymakers are also acutely disturbed by all the noises they hear about the Americans cutting a deal with the Taliban as they begin heading for the exits in July 2011. They point out that the Taliban regime, apart from playing host to al Qaeda, also harbored a host of anti-Indian, Pakistan-supported terrorist organizations ranging from Jaish-e-Mohammed to Lashkar-e-Taiba. Jaish-e-Mohammed, according to key intelligence officials in India, was responsible for the attack on the Indian parliament on Dec. 13, 2001. Lashkar-e-Taiba, in turn, is known to have masterminded the 2008 Mumbai attacks. Key military and intelligence officials in New Delhi argue that there is little reason to believe that the Taliban, were they to return to power, would not once again prove hospitable to India's deadliest enemies.

    Business groups aren't happy with Obama, either. A number of important business organizations with a significant presence in the United States are frustrated and irritated with the president's populist rhetoric on the vexed question of outsourcing. They are especially piqued because the administration's key economic advisers have hectored India to open up its markets in a host of areas ranging from agricultural products to multi-brand retail trade (think Wal-Mart). Even the heads of major Indian corporations who had long been strong boosters of a robust Indo-U.S. relationship are now openly asking if the United States remains genuinely committed to free trade or if it merely mouths the principle as a slogan of convenience.

    So will Obama's visit go down in flames? The old non-alignment sentiment is far from dead in India: Limited progress will inevitably strengthen the hands of those who never had much faith in the Indo-U.S. relationship to begin with, or wish it ill for mostly ideological reasons. They will find ways in India's noisy democracy to raise questions about the wisdom of pursuing a strategic partnership with the United States.

    Here's the good news: Those voices probably won't carry the day. Unlike during the Cold War and beyond, the U.S.-India relationship now has strategic, diplomatic, and economic dimensions. It's mature enough to take a few hits, and both sides realize that they have much to gain from working together. Let's hope they can work past their growing pains.




    Sumit Ganguly, a political scientist, is director of research at the Center on American and Global Security at Indiana University, Bloomington.
     
  5. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    We Need an Indian Civilian Surge
    The United States is still struggling to bring stability to Afghanistan. Why not ask India to help?


    We Need an Indian Civilian Surge

    The United States is still struggling to bring stability to Afghanistan. Why not ask India to help?
    BY RICHARD FONTAINE | NOVEMBER 4, 2010
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    President Barack Obama visits India this weekend amid high expectations for the future of the U.S.-India relationship. Yet of the many issues that will be on his plate -- civil nuclear cooperation, counterterrorism, China, Pakistan, and all the rest -- one that has received very little attention is the foreign-policy issue that today transfixes Washington: the war in Afghanistan.

    That needs to change. With the clock ticking down on the war and with the Afghan government and security forces plainly unable to handle matters on their own, the United States should take a new look at what India could contribute to stability in Afghanistan. Obama should use his visit to talk specifics with the Indians about leveraging their support in pursuit of success there. Such a conversation must begin, however, with the understanding that, though the United States and India share nearly identical interests in Afghanistan, they remain opposed on the best way to achieve those interests.

    Both the United States and India wish to avoid the re-emergence of a sanctuary in Afghanistan for terrorists with international reach. Both want to stem the destabilizing effect that insurgent success in Afghanistan would have on Pakistan and the wider region. And neither would like to see a superpower defeated at the hands of Islamist extremists, which would provide a major boost in recruitment and financing for the global jihadi movement. These shared interests translate into a series of mutual objectives -- to defeat the Taliban, help build the capacity and legitimacy of the Afghan government, and aid the country's reconstruction.

    But then the differences emerge. India has generally believed that embracing Afghan President Hamid Karzai is best; the Americans have blown hot and cold. Obama's policy is to begin withdrawing U.S. troops in July 2011; Indian officials have decried the existence of a public withdrawal timetable. Washington sees Pakistan, despite its many complications, as an inevitable piece of the solution in Afghanistan; India invariably views Pakistan as a part of the problem. Indian policymakers think that talks with the Taliban are pointless at best and dangerous at worst; U.S. officials appear willing to test the idea in order to hasten an acceptable conclusion to the war in Afghanistan. And so on.

    That's not to say that India is standing by idly. New Delhi has committed more than $1.2 billion in aid to Afghanistan since 2001, making it the sixth-largest donor to the country, and has provided funds for education, health, power, telecommunications, infrastructure, and food aid. It has constructed Afghanistan's new parliament building, built roads, and is erecting a dam in Herat. Several thousand Indians are on the ground in Afghanistan engaged in development activities, and India maintains four consulates (in Herat, Jalalabad, Kandahar, and Mazar-e-Sharif) in addition to its embassy in Kabul. It is developing Iran's Chabahar port, which could provide a sea outlet for Indian trade with Afghanistan, and an air base across the border in Tajikistan.

    Pakistani officials view these developments with alarm. Foreign Minister Shah Mehmood Qureshi last year told the Los Angeles Times, "If you want Pakistan focused more on the [threat from Afghanistan in the] west, then we have to feel more secure on the east. There is a linkage there." And in his subsequently leaked assessment, then-commander of U.S. forces in Afghanistan Gen. Stanley McChrystal wrote last year, "While Indian activities largely benefit the Afghan people, increasing Indian influence in Afghanistan is likely to exacerbate regional tensions and encourage Pakistani countermeasures in Afghanistan or India."

    So what is to be done? Thus far, Washington has attempted to manage two competing desires at once: to maximize support for the state-building project in Afghanistan, and avoid fueling Pakistani suspicions of Indian encroachment. The United States has gently encouraged Indian reconstruction efforts in Afghanistan while staunchly opposing Indian military or security involvement -- and India has accommodated this stance. If the United States had infinite time in Afghanistan, such an approach would make sense -- but it doesn't.

    Pakistan's fears of encirclement are bound to continue no matter what India does. The question for Obama is not whether Islamabad's concerns will increase as India gets more involved in Afghanistan -- they will -- but rather whether India's potential contribution is likely to outweigh the cost of any blowback. On this score, an expanded Indian contribution could be pivotal.

    Indian boots on the ground would be a mistake -- that would clearly be a bridge too far for Pakistan -- but an Indian "civilian surge" could be hugely helpful. In light of India's great civilian capacity, Washington and New Delhi could expand Indian efforts in the key area of training Afghan civil servants. The police training effort that took place in India in 2002, which saw more than 1,000 Afghan police learn basic policing skills, could be revived and expanded on a priority basis, given both the centrality of police to counterinsurgency efforts and the poor quality of the Afghan police force today.

    Meanwhile, the United States should aim to increase the transparency with which various regional actors, including India, conduct their affairs in Afghanistan. While the United States should not indulge Pakistani concerns that are inaccurate or exaggerated, increased Indian openness may enhance confidence in Islamabad. A regional approach could explore the possibility of joint Indo-Pakistani development projects in Afghanistan, as well as agreements that would integrate the three countries economically. Washington could encourage Islamabad to relax its restrictions on transporting Indian exports through Pakistan into Afghanistan (only Afghan exports to India are currently permitted). And the United States, India, and other states in the region could explore ways to enhance trade, transit, and energy linkages.

    Better Indo-Pakistani relations would likely prompt an improvement in Pakistan's efforts in Afghanistan. The question for the United States is how, and whether, to promote a thaw. Although it would be tempting for the United States to get directly involved in trying to mediate talks or prod the two sides on Kashmir, the reality is that the greatest bilateral progress has occurred when Washington stayed out. Not only did the "back channel" between then Pakistani President Pervez Musharraf and Indian Prime Minister Manmohan Singh nearly lead to a peace agreement on Kashmir, but between 2004 and 2007 the two sides struck a series of bilateral deals, including pacts aimed at increasing people-to-people exchanges, enhancing bilateral trade, establishing cross-border bus and train services, and encouraging travel between India and Pakistan. Of course, now might not be the time for a breakthrough: Indian officials will justly counter that fresh progress is unlikely to materialize unless Islamabad moves against Lashkar-e-Taiba, which carried out the November 2008 Mumbai attacks, and Pakistan's weak civilian government would be hard-pressed to make such a deal.

    The point is not that there is an easy path through these issues; there quite obviously is not. Yet the U.S.-India relationship has progressed to the point where a concrete discussion about Afghanistan, and the ways in which the United States and India can work together to enhance stability there, is timely and necessary. At this decisive moment in Afghanistan, there can be few higher priorities.




    Richard Fontaine is a senior fellow at the Center for a New American Security (CNAS) and co-author of the CNAS report "Natural Allies: A Blueprint for the Future of U.S.-India Relations."
     
  6. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    India's Unfinished Business​

    Nobody jokes about the "Hindu rate of growth" anymore. But with hopes for further reform fading in New Delhi, will the Indian economic miracle come to an early end?
    BY ARVIND PANAGARIYA | NOVEMBER 4, 2010
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    When U.S. President Barack Obama arrives in Mumbai Saturday, he'll be landing in what remains one of the poorest countries in the world, with urban slums that stretch for miles and a rural landscape that remains remarkably similar to that in the days of the British Raj. For all you hear about Internet start-ups and high-tech call centers in Bangalore and Chennai, India currently accounts for just 2.25 percent of the world's GDP and 1.3 percent of its merchandise exports. It ranks 11th worldwide in absolute GDP and 161st in per capita GDP. Its economy is less than one-tenth the size of America's, but its population is more than three times as large. So why all the hype?

    The United States and many other countries are betting on India not because of where it stands today, but where they see it going in the next 15 years. In real dollars, India has grown at an annual rate exceeding 12 percent during the last seven fiscal years. Even going by the conservative assumption that the country will grow 10 percent per year in real dollars over the next 15 years, it will grow from $1.3 trillion in fiscal year 2009-2010 into a $5.5 trillion economy by 2024-2025. Depending on how Japan does during these years, India would then have either the third- or fourth-largest economy in the world.

    American perceptions of India are also shaped by the large number of highly successful Indians, the vast majority of them first-generation immigrants. While the presence of Indians in the United States is not new, their phenomenal success is. Over the last 15 years, their influence in the tech and finance industries and higher education has grown as that of no other single immigrant group -- Ajay Bhatt, inventor of the USB port, Vikram Pandit, CEO of Citigroup, and Indra Nooyi, CEO and chairperson of PepsiCo, are today sources inspiration across America. At any given time, there are 100,000 bright Indian students studying at U.S. universities. They promise to be a part of the highly mobile international labor force that will play a decisive role in designing tomorrow's global economy.

    A final factor driving American perceptions of India is the resilience of its democracy during the 63 years of its post-independence existence. Its vast size and diversity notwithstanding, India has remained a vibrant democracy with a fiercely independent press and judiciary and growing oversight by NGOs. Its superior economic performance in recent years has also put paid to the notion that democracies are inherently incapable of the kind of miracle-level growth that South Korea and Taiwan achieved in the 1960s and 1970s and China has been clocking over the last three decades. Unlike authoritarian China, which seeks to be a rival power and has adopted an increasingly belligerent posture in the region, Indian democracy promises to be accommodating and friendly.

    But none of this will matter if India fails to fulfill its economic promise. As the recent revelations about corruption and mismanagement of the Commonwealth Games dramatically showed, India's government still has a long way to go -- the country's phenomenal success over the past two decades has come largely because its politicians and bureaucrats have gotten out of the way. Fortunately, there are four powerful reasons why India will forge ahead, regardless of what happens in New Delhi.

    First, except in agriculture, India is now highly open to trade. Trade in nonagricultural goods and services and the flow of portfolio and direct foreign investment are now almost as free in India as in China. Restrictions on outward investment by Indian multinationals have also been considerably relaxed. The result has been India's rapid integration into the world economy: Trade in goods and services as a proportion of GDP has risen from just 17 percent in 1990-1991 to 53 percent in 2008-2009, and foreign direct investment has risen even faster, from $0.1 billion in 1990-1991 to $64.1 billion in 2009-2010. Not just private Indian companies like Reliance Industries Ltd. and Tata Motors, but also public sector enterprises such as the Steel Authority of India and Bharat Heavy Electricals now compete against the world's best, forcing them to be efficient and productive.

    Second, while the Indian government's ability to deliver pales in comparison to that of China, India's dynamic entrepreneurs shine in comparison to their hidebound Chinese counterparts. Even with their hands (and feet) tied by the government's command and control regime, these entrepreneurs founded new business groups such as Reliance, Goenka, and Khaitan and built up existing ones such as Tata and Birla. And as the lifting of the government's heavy hand has freed up the economy's "animal spirits," India's new openness has brought supercompetitive foreign entrepreneurs onto Indian soil. This mix promises to channel savings into highly productive investments.

    Third, India's savings rate has climbed steadily upward, reaching 33 percent in 2007-2008 from 22.8 percent a decade earlier. Rarely if ever does a country's savings rate collapse quickly after reaching such a high level. So it's a safe bet that savings, and therefore investment, will remain a driver of India's fast growth.

    Finally, India has a young population that is growing younger. The dependency ratio, defined as the number of dependents per 100 working people, fell from 66.33 in 1998 to 57.5 in 2008 and is continuing to fall. More importantly, the vast majority of those dependents were below age 15 in 2008. Over the next decade and a half, most of these youth will join the workforce. Labor shortages will not hold India back.

    Can India do better? The answer is an emphatic yes. India's economy is still predominantly rural, with more than half of the workforce employed in agriculture, compared with 39.5 percent in China as of 2009. India's manufacturing sector is another disappointment. In most poor, heavily populated countries that grow rapidly, manufacturing leads the way. For example, the share of manufacturing in South Korea grew from 17.7 to 26.6 percent GDP and 9.4 to 18.6 percent in employment between 1965 and 1975. But in India, manufacturing's share of GDP remained unchanged between 1993-1994 and 2004-2005, while the sector employed only a slightly larger percentage of the Indian workforce. The result: 58.5 percent of Indian workers were still in agriculture in 2004-2005. The dismal growth in manufacturing has also meant poverty in India has declined more slowly than in other fast-growing economies.

    It's no mystery why this is the case: India's stringent labor laws, one of which makes it virtually impossible for firms with 100 or more workers to respond to changing market conditions with layoffs, have greatly inhibited the growth of labor-intensive industries like clothing manufacturing. On average, firms in India's apparel sector are much smaller than not just those in China, but also those in Bangladesh and Sri Lanka. Consequently, India exports about as much clothing each year as Bangladesh, which is one-seventh its size in terms of population and one-tenth as much as China.

    The list of unfinished reforms in India remains long. The most important ones include cleaning up growth-inhibiting laws relating to land and labor markets, privatizing state-run manufacturing firms and banks, allowing foreign investors to fully enter the retail sector, reforming the higher education system while improving the quality of primary education, overhauling the health sector, eliminating regressive subsidies on food, fertilizer, and electricity, and building major infrastructure, including roads, ports, airports, and electric power generation.

    There's a chance that during President Obama's visit the government will announce its intention to open the retail sector to foreign investors. Some partial privatization is also under way. But beyond these measures, critical reforms remain unlikely under the present government, whose left wing opposes free market policies. This means further acceleration of growth is unlikely. The good news, however, is that with considerable external and internal liberalization already in place, significantly increased savings rates, and favorable demographics, India's future looks bright indeed.




    Arvind Panagariya is a professor at Columbia University, a nonresident senior fellow at the Brookings Institution, and the author of India: The Emerging Giant.
     
  7. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    Whispers Behind the Welcome
    Indians are looking forward to Obama's arrival, but worry that he won't live up to Bush's legacy of substantive engagement.
    BY SADANAND DHUME | NOVEMBER 4, 2010
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    On the face of it, Barack Obama has much to look forward to when he visits India this weekend. His poll numbers at home may be at a low ebb, and his party may have been shellacked in Tuesday's midterm elections. But the U.S. president remains popular in the world's largest democracy, if not his own. According to the Pew Research Center, three out of four Indians say they have confidence in Obama (only two out of five Americans said the same in a July Washington Post-ABC News poll). The president will likely receive rapturous applause when he addresses India's Parliament, an honor denied to President George W. Bush on his visit in 2006. One of New Delhi's best known restaurants promises to unveil its much-anticipated "Obama platter," and the president's hotel in Mumbai is keeping a $11,250 bottle of Scotch handy, just in case.

    But among India's commentariat, the lack of enthusiasm in the run-up to the president's visit is palpable. Some are disappointed by Obama's decision not to visit Sikhism's holiest shrine, the Golden Temple in Amritsar. The White House blames this on a packed schedule, but the popular view in India suggests a president fearful of covering his head with a cloth, as custom demands, lest he bolster the persistent myth in red-state America that he is a Muslim. According to one prominent commentator, TV anchor and columnist Barkha Dutt, Obama's presidency has traveled from "audacity to anxiety."

    Nor are Indians thrilled by what many see as the United States' pampering of Pakistan, which received a $2 billion injection of military aid last month. A spate of newspaper stories and op-eds have suggested that Washington did not pass on intelligence about the Pakistani-American Lashkar-e-Taiba operative David Headley that could have helped prevent the November 2008 Mumbai terrorist attacks, which killed 166 people. Against this backdrop, Indians are bristling in advance at the thought of being asked to make nice with their Western neighbor. "Do we ask [the Americans] to kiss and make up with Osama bin Laden?" the widely read columnist Vir Sanghvi asked.

    On Afghanistan, Obama's decision to announce the withdrawal of U.S. troops beginning in July 2011 and to back negotiations with elements of the Taliban hasn't earned him many friends in New Delhi. Simply put, Indians worry that they'll be left to bear the brunt of resurgent Pakistan-backed radical Islam in the region.

    The United States and India's economic relationship is strained as well. On paper, the two countries are fast becoming close friends: Counting both goods and services, the United States is India's top business partner, with trade between the countries more than tripling between 2002 and 2008 from $19 billion to $66 billion, a whisker ahead of India's trade with China. But Indians are still smarting over an immigration bill passed by the U.S. Congress in August that makes work visas more expensive for software professionals, who are the symbol of India's economic rise. Not surprisingly, the president won't be visiting Bangalore, India's software capital. According to the Times of India, the (private) American organizers of a business summit for the president in Mumbai upset Indian CEOs by asking whether their companies were involved in outsourcing, a politically sensitive subject in job-starved America. Some detect a snub in Obama's perceived eagerness to keep a distance from anything that might play poorly with voters back home.


    Americans may be oblivious to these slights, but Indians are not -- the country's rambunctious media follows the ups and downs of the bilateral relationship in microscopic detail. This means that an obscure State Department official in Washington can be a household name in New Delhi and the most trivial diplomatic incident -- say, the president choosing not to visit one of several places scouted by his advance team -- can become front-page news. The facts don't necessarily get in the way of a juicy story: Last month, several newspapers carried a report (untrue, as it turned out) that first lady Michelle Obama would create traffic snarls and tar India's image by visiting with prostitutes in Mumbai's infamous red-light district.

    New Delhi's strategic community also harbors nostalgia for the Bush years, when the former president made India a centerpiece of his foreign policy in Asia. Bush championed an unprecedented civil nuclear deal with New Delhi, a high-profile vote of confidence in a rising Asian power. The Obama administration may claim a broader agenda -- one that includes an enhanced role for India in Africa and Afghanistan and in shaping the international rules that govern space, cyberspace, and maritime affairs -- but it has offered no big-ticket diplomatic items that ignite Indian imaginations as the nuclear deal did. It also lacks the rhetorical ambition of the Bush policy, which then-Secretary of State Condoleezza Rice described to Indian Prime Minister Manmohan Singh in 2005 as an effort "to help India become a major world power in the 21st century."

    As the pro-India argument goes, the United States may not see eye to eye with India as often as it does with traditional allies. Among other things, the two countries differ on climate change, global trade liberalization, and the best way to contain Iran's nuclear program. But the rise of a stable, multireligious, English-speaking democracy between the badlands of the Islamic world and authoritarian China is nonetheless in America's interest. This places the United States in the unfamiliar position of cultivating a relationship of equals with a sometimes prickly partner rather than naturally assuming a dominant role.

    But India is just as conflicted as the United States. New Delhi is still in the process of shedding the suspicion of the West that long defined its foreign policy, oscillating between seeking America's embrace and fretting about being suffocated by it. The nuclear deal is a case in point. New Delhi was happy to have Washington do the heavy lifting to carve out an India-shaped exception in the global nuclear non proliferation order. But it chafes at U.S. pressure to amend a tough nuclear liability law that allegedly hurts American firms by giving state-backed French and Russian companies the inside track on commercial contracts.


    In the long view, however, it's silly to read too much into a season of peevish punditry. Thanks to India's membership in the G-20 and its election to a two-year term on the U.N. Security Council beginning in January, India and the United States will have more sustained, high-level contact with each other than ever. India accounts for the largest number of foreign students in the United States, and 2.5 million people of Indian origin now call America home. According to the Pew poll, two-thirds of Indians feel positively toward the United States, among the highest such figure in Asia, and the feeling is mutual: A Chicago Council on Global Affairs poll says Americans feel nearly as warmly toward India as toward long-term allies South Korea and Israel.

    And though Indians may complain about U.S. military aid to Pakistan, the fact is that the United States now conducts more military exercises with India than with any other country. With purchases of military transport planes from Lockheed Martin, maritime reconnaissance planes from Boeing, and early-warning aircraft from Northrop Grumman, as well as a possible $12 billion fighter-jet order, India is quickly emerging as a major buyer of American defense equipment. Senior Obama administration officials have suggested that the president will ease curbs on high-tech exports to India. And U.S. backing for India's longstanding effort to secure a permanent seat on the U.N. Security Council might also be in the cards.

    Odds are, then, that with hindsight Obama, like his predecessor, will be remembered for doing his bit for a burgeoning relationship. And that's not counting the Obama platter.




    Sadanand Dhume is a Washington- and New Delhi-based columnist for the Wall Street Journal online. Follow him on Twitter @dhume01.
     

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