As China falls, sleeping giant India rises

I spent most of December in Kerala, southern India, one of the country’s most literate states and an important link for the new Maritime Silk Road. 

Visitors to Borobodur in Java and Angkor Wat in Cambodia will know how Hinduism and Buddhism influenced those countries’ history and culture through maritime trade. Less well known is Tamil influence in Southeast Asia, which was reinforced by the Cholan invasion in the 11th century under the Southern Indian conqueror Rajendra Chola I, who at his peak conquered Sri Lanka and also defeated Srivijaya in Palembang, Sumatra, then the greatest Southeast Asian power. 

But more recent Indian influence came when the British imported large numbers of South Indian Tamil workers to Malaya to provide labour in their railways and rubber estates. In the meantime, Indian traders, goldsmiths and moneylenders were active in all the free ports established by the British throughout Asia and Africa, including Hong Kong. Until the rise of Silicon Valley and London, Hong Kong hosted one of the richest Indian disapora community. 

India’s growth story is impeccable in terms of timing. She has already overtaken China as the fastest growing economy with 7.3 per cent growth in 2015 and an expected 7.5 per cent in 2016. India is a major beneficiary of low oil and commodity import prices, and because exports comprise only 16.5 per cent of GDP, she is also less vulnerable to external demand slowdown.

In a world seeking new-growth markets, India is looking better and better as a destination for foreign investment mainly because of her large domestic market, cheap labour, reputation for being technology-savvy, and reasonable macro-economic policy framework.

Unlike China and the Association of Southeast Asian Nations (Asean), the constraints to growth in India lie in her lack of high quality infrastructure and the famous “licence Raj”, the complex bureaucratic regulations and legal issues that make it difficult for businesses to navigate. 

On the plus side, the Indian growth story is founded on two major factors – the first is that it is benefiting from good demographics, since the median Indian is only 25 years old, considerably less than that for the average Chinese (37) and Japanese (45). The second is a British colonial legacy – the English language, common law and British governance skills. The West sees India as the only billion-class population giant in the 21st century that can be an ally and counter-weight to the other billion-class giant, China. 

Visitors to both China and India contrast the differences in the quality of the infrastructure. Building world class infrastructure is now the mantra of the Narendra Modi government. 

Foreign investors to India are often attracted by the large growing middle-class, increasingly willing to buy the best and latest fashions of the West. But getting permissions to operate have to go through the most complex of bureaucracies, run by an elite Indian Administrative Service, but manned by officials that are very local and bureaucratic minded. It was famously said that the Indian revolution in information technology services, which occurred under the Indian Premier Rajiv Gandhi (later assassinated), would not have succeeded if the Indian bureaucrats had understood technology. Today, with the Internet and information and communications technology taking off with financialisation and globalisation, the highly English-educated elites are benefiting hugely from connectivity to Silicon Valley.

There are two distinctive features of India’s thrust into the 21st century. The first is a bottom-up approach, with an obsession that no development is possible without improving the villages that form the core of Indian society, although the country is also beginning to urbanise. The second is the willingness to use technology to enable India to leapfrog the conventional trajectory of other emerging markets. 

When Prime Minister Modi assumed office in 2014, one of the first acts was to axe the Planning Commission, which was in the midst of designing India’s 12th Five Year Plan (2012-2017), comparable to the Chinese Thirteenth Five Year Plan (2016-2020). He replaced it with the NITI Aayog or National Institute for Transforming India, by first co-opting the state governments to join the “re-imagining India” process. 

But its most remarkable innovation was to rethink development as a bottom-up drive for changing India through innovation and entrepreneurship. The SETU (Self Employed and Talent Utilisation) programme involves the use of technology, finance, incubation and facilitation to support start-ups and self-employment business in all areas, including rural and primary industries, through the application of technology. India is already famous for “frugal innovation” – the ability to deliver products and services both cheaply and for the poor. 

As described by the new Indian best-seller, “Re-booting India” by former co-founder and CEO of Infosys, Nandan Nilekani and Viral Shah, India is ripe for change because it has the second largest mobile network in the world (900 million users) and third largest Internet user base. Instead of trying to transform government conventionally, technology is able to maximise citizen convenience in the provision of government and business services, with transparency and ease of entry and with the aim of inclusion as the driver. 

Nilekani is also the founding chairman of the Unique Identification Authority of India, which gives each Indian a unique social identity number called Aadhar. Combined with the increasing use of Global Legal Entity Identifier (LEI) and block-chain technology, India would be able to deliver electronic services with trust, speed and scale, thus leapfrogging many of the problems of service delivery by both government, businesses and social enterprises in a large country. 

Whatever the strengths, we need to be realistic that India still faces huge developmental problems. By comparison, with a GDP of $2.2 trillion in 2015, China is still larger at $10.3 trillion, while Asean, with half the population at 600 million, has a combined GDP of $2.5 trillion. 

There is no doubt in my mind that the world’s fastest growing region in the next decade will not be Chindia, but Chindasean (China + India + Asean). The competition as well as the potential trade and investment within Chindasean will define global growth. 

 

Andrew Sheng writes on Asian and global affairs.