Re: India Rising!!!

Even the here and now is impressive. Indian companies are growing at an
extraordinary pace, posting yearly gains of 15, 20 and 25 percent. The
Tata group, the country's largest business house, is a far-flung
conglomerate that makes everything from cars and steel to software and
consulting systems. In this sense, it is a useful window on India's
industrial and postindustrial economy. Its revenues grew last year from
$17 billion to $24 billion and it is heading for extremely strong
growth this year. At another end of the scale, the automobile-parts
business is made up of hundreds of small companies. Five years ago the
industry's total revenues were $4 billion. This year they will exceed
$10 billion. In 2008, General Motors alone will import $1 billion of
auto components from India.

That's outsourcing—as it is any time an American company buys goods
or services from abroad. It's also called trade or globalization or
capitalism. Those who want to stop it—and it's not clear how you
could do that—should remember that the United States' prosperity has
come from its very willingness to open itself up to the world. Over the
last 60 years, manufacturing employment in the United States has
plummeted as those industries went abroad—and yet average American
incomes have risen to be the highest in the world. Over the last 20
years, as globalization has quickened, American companies have
outsourced first goods, then services—and American incomes have risen
faster than those of any other major industrial country. Banning
auto-parts factories or call centers will not save General Motors.
Globalization highlights some problems for America, but the solutions
are all at home. As they have in the past, Americans must—and
can—make goods and services that people will pay for freely, not
because the government forces them to by shutting out the competition.
That is the only stable path to economic security.

At this point, anyone who has actually been to India will probably be
puzzled. "India?" he or she will say. "With its dilapidated airports,
crumbling roads, vast slums and impoverished villages? We're talking
about that India?" Yes, that, too, is India. The country might have
several Silicon Valleys, but it also has three Nigerias within it, more
than 300 million people living on less than a dollar a day. India is
home to 40 percent of the world's poor and has the world's second
largest HIV population. But that is the familiar India, the India of
poverty and disease. The India of the future contains all this but also
something new. You can feel the change even in the midst of the slums.

To new visitors, it won't look pretty. Many Western businessmen go to
India expecting it to be the next China. But it never will be that.
China's growth is a product of its efficient, all-powerful government.
Beijing decides the country needs new airports, eight-lane highways,
gleaming industrial parks—and they are built within months. It courts
multinationals and provides them with permits and facilities within
days. It looks good and, in many ways, it is that good, having produced
the most successful case of economic development in human history.

India's growth is messy, chaotic and largely unplanned. It is not
top-down but bottom-up. It is happening not because of the government,
but largely despite it. India does not have Beijing and Shanghai's
gleaming infrastructure, and it does not have a government that rolls
out the red carpet for foreign investment—no government in democratic
India would have those kinds of powers anyway. But it has vast and
growing numbers of entrepreneurs who want to make money. And somehow
they find a way to do it, overcoming the obstacles, bypassing the
bureaucracy. "The government sleeps at night and the economy grows,"
says Gurcharan Das, former CEO of Procter Gamble in India.

There are some who argue that India's path has distinct advantages.
MIT's Yasheng Huang points out that India's companies use their capital
far more efficiently than China's; they benchmark to global standards
and are better managed than Chinese firms. Despite being much poorer
than China, India has produced dozens of world-class companies like
Infosys, Ranbaxy and Reliance. Huang attributes this difference to the
fact that India has a real and deep private sector (unlike China's many
state-owned and state-funded companies), a clean, well-regulated
financial system and the sturdy rule of law. Another example: every
year Japan awards the coveted Deming Prizes for managerial innovation,
and over the last four years, they have been awarded more often to
Indian companies than to firms from any other country, including Japan.

This bottom-up activity is evident not simply among entrepreneurs. The
Indian consumer is also rearing for action. Most Asian success stories
have been ones in which the government forces its people to save,
producing growth through capital accumulation and market-friendly
policies. In India, the individual is king. Young Indian professionals
don't wait to buy a house at the end of their lives with their savings.
They take out mortgages. The credit-card industry is growing at 35
percent a year. Personal consumption makes up a staggering 67 percent
of GDP in India, much higher than China (42 percent) or any other Asian
country. Only the United States is higher at 70 percent.

Statistics don't quite capture what is happening. Indians, at least in
urban areas, are bursting with enthusiasm. Indian businessmen are giddy
about their prospects. Indian designers and artists speak of extending
their influence across the globe. Bollywood movie stars want to grow
their audience abroad from their "base" of half a billion fans. It is
as if hundreds of millions of people have suddenly discovered the keys
to unlock their potential. A famous Indian once put it eloquently, "A
moment comes, which comes but rarely in history, when we step out from
the old to the new, when an age ends and when the soul of a nation,
long suppressed, finds utterance."

Those words, which Indians of a certain generation know by heart, were
spoken by the country's first prime minister, Jawaharlal Nehru, just
after midnight, on Aug. 15, 1947, when independent India was born. What
Nehru was referring to, of course, was the birth of India as an
independent state. What is happening today is the birth of India as an
independent society—boisterous, colorful, open, vibrant and, above
all, ready for change. India is diverging from its past, but also from
most other countries in Asia. It is not a quiet, controlled,
quasi-authoritarian country that is slowly opening up according to
plans. It is a noisy democracy that has finally empowered its people
economically. In this respect India, one of the poorest countries in
the world, looks strikingly similar to the world's wealthiest country,
the United States of America. In both places, society has triumphed
over the state.

The Indian state has been a roaring success on one front. India's
democracy is a wonder to behold. One of the world's poorest countries,
it has sustained democratic government for almost 60 years. And this is
surely one of the country's greatest strengths when compared with many
other developing countries. If you ask the question "What will India
look like politically in 25 years?" we know the answer: like it does
today—a democracy, probably with a coalition government. Democracy
makes for populism, pandering and delays. But it also makes for
long-term stability. (In case President Bush is looking for some
answers for Iraq, he should recall that the British were able to stay
in India for 200 years and built lasting institutions of government
throughout the country, and that India got very lucky with its first
generation of leaders. Men like Nehru may not have understood
economics, but they deeply understood political freedom.)

If the Indian state has succeeded in one crucial dimension, it has
failed in several others. In the 1950s and 1960s, India tried to
modernize by creating a "mixed" economic model, between capitalism and
communism. This meant a shackled and overregulated private sector, and
a massively inefficient and corrupt public sector. The results were
poor, and in the 1970s, as India became more socialist, they became
disastrous. In 1960 India had a higher per capita GDP than China; today
it is less than half of China's. That year it had the same per capita
GDP as South Korea; today South Korea's is 13 times larger. The United
Nations Human Development Index gauges countries by income, health,
literacy and other such measures. India ranks 124 out of 177, behind
Syria, Sri Lanka, Vietnam and the Dominican Republic. Female literacy
in India is a shockingly low 54 percent. Despite mountains of rhetoric
about helping the poor, by any reasonable comparison, India's
government has done too little for them.

Is this a problem with democracy? Not entirely. Bad policies fail
whether pursued by dictators or democrats. But there are elements of
democracy that have hurt, certainly in a country with rampant poverty,
feudalism and illiteracy. Democracy in India too often means not the
will of the majority but the will of organized minorities—landowners,
powerful castes, farmers, government unions and local thugs. (Nearly a
fifth of the members of the Indian Parliament have been accused of
crimes, including embezzlement, rape and murder.) These groups are
usually richer than most of their countrymen, and they plunder the
state's coffers to stay that way. It is ironic, for example, that
India's Communist Party does not campaign for growth to lift the very
poor but rather works to maintain the relatively privileged conditions
of unionized workers. As these power plays go on, the great majority's
interests—those 800 million who earn less than $2 a day—often fall
through the cracks.

But democracy has its own way of rebalancing. The wave of Hindu
nationalism that raged through the country in the 1990s is on the wane,
for now, and a thoroughly secular government is in power. Headed by
Manmohan Singh, the former Finance minister who opened up India's
economy in the summer of 1991, it is also committed to economic reform.
In an act of great wisdom and restraint, Sonia Gandhi, who led the
ruling coalition to victory in the polls, chose to appoint Singh as
prime minister rather than take the job herself. As a result, quite
unexpectedly, India's chaotic and often-corrupt democratic system has
yielded as its head of government a man of immense intelligence,
unimpeachable integrity and deep experience. Singh, an Oxford Ph.D.,
has already run the country's central bank, planning ministry and
Finance Ministry. His breadth, depth and decency are unmatched by any
Indian prime minister since Nehru.

But Singh has disappointed many of his fans. They had hoped for another
set of large-scale reforms, but the government has been cautious and is
implementing programs that look suspiciously like another round of
subsidies (programs that have had such little success in the past).
These are the constraints of democracy. Singh heads a fragile coalition
government without a strong mandate for economic change. He is not
himself a powerful politician, depending on Mrs. Gandhi for his clout.
But his quiet determination to keep moving forward—on economics,
politics and foreign policy—has been underestimated. His Economic
ministers are all reformers. They work within the political limits, but
they work. For example, infrastructure in India is slowly getting
better and will be funded through public-private partnerships. India's
two major airports will be privatized and improve dramatically. Every
week you read of a set of regulations that have been eased or
permissions that have been eliminated. These "stealth reforms," too
small to draw vigorous opposition from the unreconstructed left, add
up. And India's pro-reform constituency keeps growing. The middle class
is already 300 million strong. Urban India is not all of India, but it
is a large and influential chunk of it.

Democracy is India's destiny. A country this diverse and complex—17
major languages, 22,000 dialects and all the world's major
religions—cannot really be governed any other way. The task is to use
democracy to India's advantage. In some cases this is happening. The
Indian government has recently begun investing in rural education and
health, and is focusing on ways to make agriculture more productive.
Good economics can sometimes make for good politics, at least that is
the Indian hope. Another change is that, since 1993, democracy has been
broadened to give villages greater voice in their affairs. Most
important, village councils must reserve 33 percent of their seats for
women. As a result there are 1 million elected women in villages across
the country. They will now have a platform from which to demand better
education and health care. It's bottom-up development, with society
pushing the state.

Will the state respond? Built during the British Raj, massively
expanded in India's socialist era, it is filled with bureaucrats who
are in love with their petty powers and privileges. They are joined by
politicians who enjoy the power of patronage. And then there are some
journalists and intellectuals who still hold on to some romantic idea
of Third World socialism. There are many in India's ruling class who
remain deeply uncomfortable with the modern, open, commercial society
that they see growing around them.

But the state fills a vital role. Look at India's great success—its
private companies. They flourish because of a well-regulated stock
market and financial system that has transparency, adjudication and
enforcement—all government functions. Or consider the booming
telecommunications industry, which was created by intelligent
government deregulation and re-regulation. Or the Indian institutes of
technology—among the world's best—all government-run. But that's
just a start. The private sector cannot solve India's AIDS crisis or
its rural education shortfalls or its environmental problems. If
India's governance does not improve, the country will never fully
achieve its potential.

This is perhaps the central paradox of India today. Its society is
open, eager, confident and ready to take on the world. But its
state—its ruling class—is far more hesitant, cautious and
suspicious of the changed realities around it. Nowhere is this tension
more obvious than in the realm of foreign policy, in the increasingly
large and important task of determining how India should fit into the
New World.

Most Americans would probably be surprised to learn that India is, by
all accounts, the most pro-American country in the world. The Pew
Global Attitudes Survey, released in June 2005, asked people in 16
countries whether they had a favorable impression of the United States.
A stunning 71 percent of Indians said yes. Only Americans had a more
favorable view of America (83 percent). The numbers are somewhat lower
in other surveys, but the basic finding remains true: Indians are
extremely comfortable with, and well disposed toward, America.

This may be because for decades India's government tried to force-feed
anti-Americanism down people's throats. (Politicians in the 1970s spoke
so often of the "hidden hand" when explaining India's miseries—by
which they meant the CIA or American interference generally—that
cartoonists took to drawing an actual hand that descended every now and
then to cause havoc.) More likely it is because Indians understand
America. It is a noisy, open society with a chaotic democratic
system—like theirs. Many urban Indians speak America's language, are
familiar with the country and often actually know someone who lives
there, possibly even a relative.

The Indian-American community has been a bridge between the two
cultures. The term often used to describe Indians leaving their country
is "brain drain." But it's been more like brain gain, for both sides.
Indians abroad have played a crucial role in opening up the mother
country. They returned to India with money, investment ideas, global
standards and, most important, a sense that one could achieve anything.
An Indian parliamentarian once famously asked the then prime minister,
Indira Gandhi, "Why is it that Indians seem to succeed everywhere
except in their own country?" The stories of Indians scaling the
highest peaks in America have produced pride and emulation in India.
Americans, for their part, have embraced India in some measure because
they have had a positive experience with Indians in America.

Americans also find India understandable. They are puzzled and
disturbed by impenetrable decision-making elites like the Chinese
Politburo or the Iranian Council of Guardians. A quarrelsome democracy
that keeps moving backward, forward and sideways—that they know. Take
the current negotiations on nuclear issues. Americans watch what is
going on in New Delhi, with people inside the government who are
opposed to a nuclear deal leaking negative stories to the media,
political opponents using the issue to score points, true ideological
opponents being utterly implacable—and this all seems very familiar.
Similar things happen every day in Washington.

Most countries have relationships that are almost exclusively between
governments. Think of the links between the United States and Saudi
Arabia, which exist among a few dozen high officials and have never
really gone beyond that. But sometimes bonds develop not merely between
states but between societies. Twice before the United States had
developed a relationship with a country that was strategic but also
much more—with Britain and later with Israel. In both cases, the
resulting ties were broad and deep, going well beyond government
officials and diplomatic negotiations. The two countries knew each
other, understood each other and as a result became natural and almost
permanent partners. America has the opportunity to forge such a
relationship with India.

This is not a matter of strategic "balancing" against China. The world
is not that simple. The United States should not create a
self-fulfilling prophecy of a conflict with China. The American
relationship with China is complex, with many elements of cooperation.
China, after all, is one of America's chief creditors, and Americans in
turn buy Chinese goods, fueling its growth. Nor will India want to play
along as a counterweight to China, since its own relations with its
powerful neighbor are crucial. Beijing will overtake America as India's
largest trading partner within a couple of years. Both India and
America will want to retain their independence in dealing with the
Middle Kingdom. That said, the rise of China is the fundamental
strategic shift that is altering Asia's—and the world's—landscape.
And the United States and India will be glad to have each other's
company in that circumstance.

This doesn't mean that the United States and India will agree on every
policy issue. Remember that even during their close wartime alliance,
Roosevelt and Churchill disagreed about several issues, most notably
India's independence. America broke with Britain over Suez. It
condemned Israel for its invasion of Lebanon. Washington and New Delhi
have different interests and thus will inevitably have policy disputes.
But it is precisely because of the deep bonds between these countries
that such disagreements would not alter the fundamental reality of
friendship, empathy and association.

Such a relationship between the United States and India is almost
inevitable. Whether the nuclear agreement goes through or not, whether
the governments sign new treaties, the two societies are getting
increasingly intertwined. A common language, a familiar world view and
a growing fascination with each other is bringing together businessmen,
nongovernmental activists, journalists and writers.

I say almost inevitable because there are pulls against it on both
sides. In America, there is always the danger that politicians will
turn to populism and protectionism as a cheap way to get votes. So far
the pandering has been limited and temporary, but as elections approach
and politicians grandstand, it's always convenient to find foreigners
upon whom to blame your ills. Additionally, Washington is still
learning the art of treating other countries with the respect and
deference they expect—and India can be prickly and proud.

But the real stumbling block to a deep Indo-U.S. relationship will come
not from Washington but New Delhi. While Singh and some others at the
top of the Indian government see the world clearly, and see the immense
opportunities it opens up for India, many others are blinded by their
prejudices. For many Indian elites, it has been comfortable and
comforting to look at the world from the prism of a poor, Third World
country, whose foreign policy was neutral, detached (and, one might
add, unsuccessful). They understand how to operate in that world, whom
to bargain with, whom to beg from and whom to be belligerent with. But
a world in which India is a great power, in which it moves confidently
across the global stage, and in which it is a friend and partner of the
most powerful country in history—that is an altogether new and
unsettling proposition. "Why is the United States being nice to us?"
several such doubters have asked me repeatedly. Even now, in 2003, they
were searching for the hidden hand. China's Mandarin class has been
able to rethink its country's new role as a world power with skill and
effectiveness. So far, India's Brahmins have not shown themselves the
equals of their neighbor.

The danger for India is that this moment might not last forever. The
world turns and India will have its ups and downs. But today it is
India's moment. It can grasp it and forge a new path for itself. Along
that road lies a genuine and deep relationship between the planet's
largest democracy and its wealthiest democracy. Until now, this has
merely been a slogan. It could actually become a reality, and who knows
what such a world might look like?

.