A nation qualifies for global power status if it has the following six attributes:
 A large geographical area, population, and strong institutions.
 Economically a developed country.
 An armed force of global reach on land, air and water.
 A nation free from major internal strife and insurgency.
 The people largely united with an identity and common purpose.
 A nation with more allies than opponents internationally.
India today undoubtedly has the first, third and fifth attributes in substantial measure. It has 1.3 million square miles of largely fertile land area of differing regional climates, which permit full 12 months of agriculture, a billion plus population making it the second largest in the world, and strong institutions which has seen the country safely through several wars [1947, 1962, 1965, 1971 and 1999], near famine conditions [1966-67], economic collapse [1957, 1990-91], international sanctions [1998-2003], subversion of democracy [1975-77], grave communal riots [1947-48, 1984, 2002], and to date withstood terrorists attacks without allowing the nation to balkanise.
Indian armed forces are perhaps the fourth largest already, with demonstrated capacity to produce thermo-nuclear weapons that fit indigenously produced ICBMs, can place synchronous orbit-satellites, as also the capacity to deploy a blue water navy in the very near future.
The people of India are by and large united, the bottom line is the sheer numbers of the Hindus in the country?being 83 per cent of the population who identify with no other country as an ancestral or spiritual home. The largest minority of India, the Muslim community, some 130 million, has yet to be significantly infected by the Al Qaeda poisonous propaganda of Islamic fundamentalism, and hence interaction is wide spread with the Hindu community. The President of India is a Muslim and a distinguished rocket scientist.
India'sneighbourhood nations such as Pakistan, Sri Lanka, Soviet Union and Indonesia have split over the last four decades, but India has been unaffected. It has preserved its geographic integrity. Moreover, there are no serious secessionist movements within India. Repeatedly, Indians have demonstrated unity when required?in the smooth transfer of power through elections, rising as one at times of war, and reacting as one when popular leaders have died suddenly in assassinations.
But India is not yet an economically developed nation. While it has demonstrated prowess in IT software, biotech and pharmaceuticals, accelerated its growth rate to 7 per cent per year to become the third largest nation in terms of GDP at PPP rates, it still has a backward agricultural sector hosting 62 per cent of the people of India, in which sector, farmers are committing suicides unable to repay their loans, a national unemployment rate is of over 15 per cent of the adult labour force, prevalence of child labour arising out of nearly 50 per cent of children not making it to school beyond the fifth standard, a deeply malfunctioning primary and secondary educational system, 300 million illiterates and 250 million people in dire poverty; India'sinfrastructure is pathetic, with frequent electric power break-downs even in metropolitan cities, dangerously unhealthy water supply in urban areas, galloping HIV infections, and gaping holes on the national highways.
India is also being subject to increasingly menacing insurgency in vast parts of the country, and is currently facing frequent violent attacks from at least seven different types of terrorist organisations, some religious, some ethnic, and some linguistic.
Internationally, India seems to have fewer friends and allies compared to the situation two decades ago. This is highlighted by the recent derisive comments world wide about the advisability or prospects of an Indian candidate for the post of Secretary General of the United Nations. In foreign affairs, India is in a confused transition from being a prominent pro-Soviet Third World country with strong allies amongst Left leaning nations of West Asia, Africa and Latin America, to finding its feet in the new world order following the unravelling of the USSR. India'sclaim to be a permanent veto-wielding member of the UN Security Council has not been taken seriously, occasionally endorsed tongue-in-cheek by a few nations.
Thus, the perspective on India'spotential for future global power status is mixed. India is rising as the Foreign Affairs journal headlined its series of articles recently, but at the same time India is also hemorrhaging. The question therefore is being posed here is: whether India can minimize or rectify these liabilities to stop bleeding while growing, and also enhance its assets. The main corollary to this question is whether India can become a developed country by 2020, crush the terrorist insurgency at the root, and win some influential friends in international affairs to be acknowledged as a world power within two decades hence. This is a huge question that is worth a book, but here today I shall confine myself largely to economics.
To become a developed country by 2020, India'sGDP will have to grow at 10 per cent per year for at least a decade. Technically this is within India'sreach, since it would require the rate of investment to rise from the present 28 per cent of GDP to 35 per cent while productivity growth will have to ensure that the incremental output?capital ratio declines from the present 4.0 to 3.5. These are modest goals that can be attained by increased FDI and by use of IT software in domestic industry. But for that to happen, more vigorous market-centric economic reforms to dismantle the vestiges of the Soviet model in Indian planning, especially at the provincial level are required. The Indian financial system also suffers from a hang-over of cronyism and corruption that have brought the government budgets on the verge of bankruptcy. This too needs fixing. India'sinfrastructure requires about $ 150 billion dollars to make it world class, of which the education system needs six per cent of GDP instead of 2.8 per cent today. But an open competitive market system can find these resources provided the quality of governance and accountability is improved. Obviously a second generation of reforms are necessary for all this.
But ever since Mr. Narasimha Rao'sCongress Party was defeated in the 1996 general elections to Parliament, Indian economic reforms have however been essentially stunted or carried out ad hoc. In 2004 even the provincial-level pro-reform leaders in the nation'smost progressive state capitals of Hyderabad, Chennai, and Bangalore have been defeated at the polls. The government at the Centre also was voted out and replaced by a weak pro-Left coalition. Today, under the dictation of the Left parties, even most necessary and scheduled economic reforms have been scuttled, shelved or aborted. Unless this trend is reversed, India'sfuture growth rate might instead decelerate by the end of this decade.
There is thus a contradiction in the Indian scene between political compulsions and economic pre-requisites that are required to be resolved soon if India is to become a developed country by 2020. Political compulsions that exist are due to electoral politics. It has to be recognised that the Scheduled Castes & Scheduled Tribes, Muslims, and much of the backward castes are poor or are in below the poverty line category. They constitute about 40 per cent of the electorate. They are also more conscientious voters and turn out in much higher percentages to vote in elections than do the better-off sections. Hence, a reformer political leader to succeed in elections will have to design reforms in such a way that these poor can perceive gains from reforms as quickly as the vested interests, who are entrenched in the power structure in the 40 years of Soviet-style planning, to see their losses. This is not an easy task since gains from reforms come with a time lag while loss of rents from controls and quotas of vested are immediate upon de-regulation.
But reforms are urgently required to be carried out for accelerating India'sgrowth rate to 10 per cent per year. India has many advantages today for achieving a booming economy: A demographic dividend, an agriculture that has internationally the lowest yield in land & livestock-based products, and also at the lowest cost of production, a full 12 months a year of farm-friendly weather, a highly competitive skilled labour force and low wage rates at the national level, the advantages of which has already proved to the world by the outsourcing phenomenon.
What is required for India to blossom is a world-class infrastructure, a reasonable labour law, and vastly improved access to high quality primary and secondary education for the young.
A reform package has to be developed that resolves contradiction between political compulsion and economic pre-requisites, thus enables the politician to win elections, weakens the vested interests, the poor see benefits accruing, and the economy to prosper.
The future economic progress of India thus depends on the proper resolution of this contradiction. Will the present leaders in office be able to perform adequately to resolve this contradiction? I doubt it, because they came to office debunking economic reforms, and by disowning Mr. Narasimha Rao. Moreover the ruling coalition depends for survival on the Left parties and some regional parties of doubtful integrity. Hence, it is economic reform that will suffer.
But then the vagaries and the unpredictability of Indian political process are such that the present government may be defeated for other reasons, by defections amongst the coalition partners and alternative coalition formations. One of these other reasons could be the backlash from the continued inability of the present government to adequately address the problem of terrorism. In the present Indian political scenario, there are two poles around which coalition clusters can be formed: One pole is the Congress and the other pole is the BJP. If the backlash is sufficiently virulent and if the patron organisations of the BJP, such as the RSS and VHP, carry out the re-positioning of the party'sideological moorings to sharply contrast it to the Congress, then it is probable that the BJP will return to power riding on a wave of support arising from the backlash of continuous hemorrhaging from terrorist attacks.
It would not be an unfair characterisation to state that in these terrorist attacks, the victims are mostly Hindus, and the murderers are foreign-inspired Muslims. Therefore, the continued terrorist attacks would cause a high octane backlash amongst Hindus and promote electoral cohesiveness to favour a renovated BJP. We saw this kind of backlash in Gujarat in 2002 when Hindu mobs went out of control after 56 Hindu women and children were burnt alive in a railway compartment at Godhra. Whether that backlash could have been contained or not is a moot point, but the result was that the BJP thereafter won elections at every level?Parliament, Provincial Assembly, and Local Municipalities by bigger margins than ever.
In other words, one of the fallouts of the Hindu consolidation that will take place from the backlash is the voter unity across the income brackets. It has been observed that in backlashes observed at the micro-level in various parts of the country, it is the lower and poor castes who react the most virulently. They also bond together much more quickly and stay that way longer. We observed this when the Babri mosque in the Hindus? holy city of Ayodhya was demolished, the mob was almost all from the poorer castes. Hence, those sections who are manipulated by the Left today to discredit the reforms as a ?sell-out? to capitalists and Americans, would by the imminent backlash, electorally switch to the relatively more pro-reforms BJP? but for other reasons. This would turn Karl Marx on his head, i.e., instead of economics being the driving force, economics will be driven by other forces.
As a person with an established reputation as being the first amongst those who opposed socialism and advocated reforms long ago, and was vindicated when as a minister in the government the first major reforms were introduced, I am not advocating that we now need Hindu consolidation to reconcile the contradictions between electoral political compulsions and economic pre-requisites of reform. I believe that the resolution can be done without the Hindu consolidation.
What I am arguing here is that in the course of confronting Islamic fundamentalist terrorist threats, Indian society will suffer a backlash that would imply Hindu consolidation. Since Hindus are 83 per cent of the electorate, therefore this backlash will sweep into office a new dispensation which in all probability will be led by a re-structured, and re-positioned BJP. For that renaissance in BJP to happen, is today exercising the patron organisations of the BJP such as the RSS and VHP.
My short answer to the question posed in the very beginning of this seminar is this: India will be a mighty economic power by 2020 because it would be able to resolve, due to momentous events that I expect will take place within the next three years, the basic contradictions which have stalled economic reforms since 2004. Thereafter, Indians? innate entrepreneurial spirit and inherent innovative capacity in a truly reformed market economy system will cause impressive economic progress. In contrast, China, for reasons recorded in my new book Financial Architecture and Economic Development in India and China [Konark, New Delhi, June 2006] faced with the same type of contradiction will either fail to resolve it in favour of necessary economic reforms and thus have a serious setback to its growth process. India will then have an opportunity to overtake China by mid 20s.
[Gist of the talk at a seminar held in Fairbank Center for East Asian Studies, Harvard University on July 26, 2006. The author is currently at Harvard for the summer to teach economics.]