Seven Decades of Independent India

by Vinod Rai

  India–China relations have always had elements of both cooperation and competition, and are undergoing a shift, though the prospect is more positive than for India–Pakistan relations. The older modus vivendi from the eighties is no longer sufficient.1 Several signs of stress in the relationship have surfaced in the last two years such as China’s attitude to India’s National Security Guard (NSG) membership (in contrast to her attitude in 2008 to the special exemption by the NSG for India), the listing of Masood Azhar as a terrorist in the UN, India’s attitude to the BRI, and so on. As India and China have grown and their definitions of their own interests have expanded, they increasingly rub up against one another in the periphery that they share, whether on the southern Asian landmass, in archipelagic and mainland southeast Asia, in the Indian Ocean, or in the seas near China such as the South China Sea. However, a new strategic framework for this relationship will probably be worked out by the two countries. Since both countries have other domestic and international priorities, their core interests are not in fundamental conflict, and their differences can be managed.

  Today, as a result of reform and rapid growth, both India and China need and see the world as essential for their domestic purposes—Chinese Dream and single-party rule, or New India and economic transformation. Therefore, expect more interventions, expeditionary and activist external politics playing to the nationalist gallery at home relatively soon, and backed by the military in China’s case. India and China will try and shape their world, China alone, and India working with coalitions.

  The future does not hold only doom and gloom. One effect of the economic growth spurt in India in the last three decades is that it today has tools and abilities it never had before. It may face new problems but there are also new ways of dealing with them. And the new problems in themselves possess potential opportunities.

  This becomes evident when considering security issues facing India, such as cross-border terrorism, maritime security, or cyber security, all of which need primarily domestic capabilities and responses. They have a significant external element and also bring opportunities in their wake.

  Security Issues

  Consider national security, internal security and personal security—three domains where Indians expect their government to deliver security.

  National security: India’s real threats to national security today are internal, but with strong external linkages. Cross-border terrorism from Pakistan, and the corrosive effect that extremism and radicalism can have on a plural and diverse society like India’s, are major security concerns. The situation in West Asia, which has deteriorated over the last decade, is further fuelling terrorist, extremist and radical religious forces in the subcontinent.

  Given transborder ethnicities, there is fertile ground in the region for separatist movements and insurgencies. Many of these insurgent groups operate in less governed spaces and across national boundaries. Fortunately, cooperation among southern Asian states in dealing with these movements has improved considerably in the last decade, and India is getting better at mastering the techniques to deal with such problems through a combination of political and other means. Deaths from terrorism and internal conflict in India have declined steadily over the last decade.

  The risks of interstate conventional conflict in the Indian subcontinent have been managed successfully for over four decades now, and its costs and risks are better appreciated than in the fifties and sixties. The fact that there are two declared nuclear weapon states in southern Asia has actually stabilized the situation as far as conventional conflict is concerned. It has driven conflict to other sub-conventional levels—to terrorism, covert action and forms of asymmetric warfare.

  Another aspect of national security that is increasingly relevant for India is maritime security in the Indian Ocean. When India began reforming in 1991, external merchandise trade accounted for less than 18 per cent of the Gross Domestic Product (GDP). By 2014 that proportion had risen to 49.3 per cent, and well over 80 per cent of that was carried by sea.2 This indicates the importance of the Indian Ocean to India’s security and well-being. Fortunately, the security situation in the Indian Ocean is not as acute as it is in the seas near China with their territorial and maritime disputes, or in the western Pacific where a real struggle for naval mastery and dominance is unfolding. The Indian Ocean’s issues arise mainly from troubles on land, particularly around its seven choke points, and the resulting piracy and instability that threaten the security and safety of critical sea lanes. Around 50 per cent of the world’s trade passes though crucial Indian Ocean choke points and its sea lanes carry a large proportion of the world’s energy flows. The open geography of the Indian Ocean means that no single power can or is likely to dominate it. But this does not prevent great powers from trying, and their contention is growing.

  Internal security and ICT: The most significant security threats to India today are internal. They arise from a loss of social cohesion due to the very rapid growth and change that has been experienced in the last few decades, and external attempts to exploit those from Pakistan and West Asia. They also arise from the effects of new technologies, particularly Information and Communication Technology (ICT) which empower small groups and individuals, irrespective of whether they intend harm or benefit. ICT has breathed new life into older insurgencies, terrorist groups and rebellions (like the Naxalites in India or ethnic insurgencies in Myanmar). ICT also creates new opportunities for criminals. In 2012, for instance, threats and malicious rumours spread on the social media drove almost 80,000 people from northeast India to return to their homes from Bangalore and Mumbai. They were soon back at work and the government put in place systems to prevent such misuse of social media in the future, but that was an early example of the power of ICT to spread social panic.

  Of course, ICT is a welfare enabler as well. ICT has helped to deliver benefits from the government directly to the most needy, through the unique biometric identity number, Aadhaar. ICT has also greatly enhanced the country’s ability to manage disasters and respond to extreme weather events, and accelerated financial inclusion. The list of benefits is long and far outweighs the dangers. And these economic benefits and platforms also have security advantages, vastly increasing the state’s reach and capacity. But the long list also makes it all the more important to treat cyber security with the seriousness that it deserves. Cyberspace is one domain that recognizes no national boundaries or man-made sovereignties. Cooperation across boundaries is essential if there is to be success in managing cyber security.

  ICT also has a broader political effect. It helps to create and spread expectations and aspirations among the young, uprooted and mobile population of all our countries. History (and Alexis de Tocqueville) has shown that revolutions are produced by improved conditions and rising expectations, not by mass immiseration. This is exactly what globalization has given—a world where everything is amazing and nobody is happy; where life is better than ever before for most people but anger and dissatisfaction are high. This is especially true in case of India, which has just undergone its fastest economic growth spurt in history, thus accentuating inequalities just when ICT spread knowledge of what is possible and available elsewhere and thus raised expectations. Traditional elites and establishments are under attack everywhere. The resulting pressure on governments to deliver security and growth is, therefore, at unprecedented levels.

  Personal security: It is also probably true in several countries that individuals no longer feel as secure in their persons as they used to. Statistics and polls, when available, bear this out. Crimes against the person and violence against women are increasing in all our societies. Some of this is the result of the uprooting that comes with massive urbanization and migration. As women join the workforce and social norms change, personal security and policing face new challenges. Traditional policing no longer suffices.

  Fortunately today, India and the world have the means to tackle these problems, if there is politic
al will to work together.

  Next Steps

  What should India and the region do about the security issues that have been mentioned above?

  There is certainly much more that the region could do against multinational threats such as terrorism, and against state sponsors of terrorists. Information sharing and joint actions against cross-border terrorism, its financing and support come to mind as immediately feasible.

  The time is also probably ripe to make much more use of the extended ASEAN Maritime Forum (AMF) to work together on maritime security. A start should also be made in capacity building and in cooperation on border and coastal security and policing that require collaboration across boundaries.

  Sharing of best practices of community policing and finding effective ways of cooperating against internal security threats and the new crimes that an interconnected globalized world makes possible to enhance cyber security and personal security.

  New legal instruments or multilateral initiatives are more difficult. Experience shows that they are unlikely to be effective in practice without the necessary political will among all the states involved. Instead, coalitions of those affected who share the same approach may be the best way forward on issues like radicalization and maritime security.

  Conclusion

  India is at a moment when the threats that she faces have evolved and changed. Most of these demand more, not less, engagement by India with her neighbours in southern and southeast Asia, and a new approach to managing her big power relationships. Fortunately, the international context, though complicated, also makes clear to several powers their common interest in working together to limit uncertainty and deal with security issues in the region. Besides, capabilities and awareness of these security issues have improved considerably throughout the region. It now remains for these countries to display the political will to tackle these security issues in order to continue the Asian march to prosperity that has already changed so many lives in the Asia–Pacific.

  II

  India in a Globalized World:1 Maximizing Benefits and Minimizing Costs

  Duvvuri Subbarao

  The year 1991 was a watershed in India’s economic history when it made a decisive break from the past and shifted from a dirigiste regime of heavy protection, extensive controls and tight regulation to a more open, liberalized and market-oriented regime of economic management.

  Motivation for the 1991 Reforms

  The trigger for this radical shift, at any rate in popular perception, was the external payments crisis consequent on the first Gulf War, but that was just the proximate cause. The more substantive motivation for embracing wide-ranging structural reforms, going beyond merely stabilizing the external sector, was the realization that the economic philosophy that had guided India since Independence—self-sufficiency, protection and public sector dominance—had run its course. India needed to institute sweeping reforms in order to accelerate growth and reduce poverty.

  According to the government’s discussion paper on economic reforms2 published in July 1993, the objective of the reforms was:

  . . . to bring about rapid and sustained improvement in the quality of life of the people of India. Central to this goal is the rapid growth in incomes and productive employment . . . The only durable solution to the curse of poverty is sustained growth of incomes and employment . . . Such growth requires investment: in farms, in roads, in irrigation, in industry, in power and, above all, in people. And this investment must be productive. Successful and sustained development depends on continuing increases in the productivity of our capital, our land and our labour.

  Within a generation, the countries of East Asia have transformed themselves. China, Indonesia, Korea, Thailand and Malaysia today have living standards much above ours . . . What they have achieved, we must strive for.

  Reforms in the Nineties

  The early big-bang reforms straddled a wide canvas. Industrial licencing was dismantled, save for a few exceptions; it was accompanied by a government policy for reducing the ‘commanding heights’ role of the public sector. Import restrictions were largely removed and tariff and non-tariff barriers were sharply scaled down. Following the steep two-step devaluation of the rupee, heavy management of the exchange rate gradually yielded to a market-determined exchange rate while the foreign investment regime was substantially eased.

  Recognizing that it was the fiscal profligacy of the eighties that was at the heart of the external payments crisis, the government vowed to adhere to fiscal responsibility by reducing the fiscal deficit by two percentage points of GDP and laying out a road map for further consolidation. The fiscal reforms catalysed monetary reforms, including the dismantling of the administered interest rate and credit allocation system towards a market-based system. These were accompanied by financial sector reforms aimed at the development of deep, wide and vibrant financial markets. Significantly, the banking sector was opened up to new private sector players to enhance competition.

  Post 1991, those early reforms were widened and deepened, to give a market orientation to most sectors and dimensions of economic activity, substantially relieving India from the tag of ‘the most closed and heavily controlled economy in the world’. Over the years, the agenda shifted gradually, if also logically, from first generation reforms, having to do mostly with product markets, which are largely within the control of the Central government, to second generation reforms centred in factor markets, where progress depends on the active cooperation, if also explicit involvement, of states, as exemplified most recently by the implementation of the Goods and Services Tax (GST).

  Reforms—Unique Indian Context

  Implementing economic reforms is politically difficult, always and everywhere. India was no exception. Its reforms were criticized for being hesitant, cautious and slow. That may well have been the case. But they were also arguably unique inasmuch as they were negotiated through a vigorous, if also noisy, democracy, and through the complex labyrinth of India’s federal structure where narrow regional interests clashed with collective economic virtue, and short-term political compulsions often militated against the national optimal. This may have slowed the process but it ensured that the reforms were robust and that the benefits were widely disbursed. That, at any rate, was the hope and expectation.

  Democracy, in this sense, was, and remains, both India’s strength and weakness as far as reforms are concerned. The democratic process ensured that a plurality of opinion informed the content and process of reforms even if it meant contentious, and even vexatious, debates and difficult compromises. Some people hold that India reformed by stealth. This is far from the truth. Except for market-sensitive reforms like devaluation of the currency, all other reforms were implemented in the best traditions of the sunshine law.

  Globalization at the Heart of India’s Reforms

  One consequence, admittedly intended, of the economic reforms, even those centred in domestic sectors, was to integrate India with the global economy. For example, industrial delicensing or de-reservation of products for the small industry sector, even though domestic in content, was aimed at enabling the Indian industry to compete in the world. With the forces of globalization blowing hard and strong through the eighties, India surmised that staying out of globalization was no longer an option; on the other hand, the dazzling experience of the East Asian tigers (Hong Kong, Korea, Singapore and Taiwan) showed the rewards of global integration. The early successes of China, which opened up over a decade ahead of us, eroded India’s export pessimism by demonstrating that even a large, continental-size economy can be nimble enough to compete in the world if it gets its act together.

  Globalization—Emerging Market Experience

  Globalization comes with costs and benefits as indeed evidenced by the experience of virtually all emerging market economies across space and time. The Latin American countries were the first to break out of the low income trap and dependency syndrome by liberalizing their external sectors. But thro
wing caution to the wind cost them heavily in the form of several episodes of the Tequila crisis.3 The East Asian Miracle, riding on exporting value-added goods to the world to overcome the limitations of small home markets is a spectacular example of the positive side of globalization. On the other hand, the Asian financial crisis of the late nineties and the devastating toll it took on growth and welfare is a telling reminder of the pitfalls of misguided liberalization.

  China’s astonishing success over the last two decades in turning itself into the ‘factory of the world’, which helped it accelerate growth and lift hundreds of millions out of poverty, is truly unprecedented. It is also a striking demonstration of the benefits of globalization. On the other hand, the growing stress in China in recent years arising from its efforts to rebalance the economy from external to internal demand, from investment to consumption, the rapid debt build-up and depletion of foreign exchange reserves are evidence of the challenges of coping with the vagaries of globalization.

  India’s experience with globalization over the last twenty-five years is consistent with that of our peer emerging market economies. India experienced unprecedented growth acceleration in the first decade of the 2000s and clocked real output growth of nine plus per cent on average in the five-year period—2003–08.4 The India growth story was so persuasive that the country was on the verge of being christened the next miracle economy. There were many reasons for this remarkable performance—enhanced productivity, growing entrepreneurial spirit, rising domestic savings rate and improving financial intermediation. But underlying all of these factors was India’s deepening integration into the global economy manifesting the positives of globalization.