‘India is not going to be a superpower in the next 20 years’

Bad decisions, corruption and political paralysis are holding back India’s growth but things are likely to change at the 2014 parliamentary election.

That was the consensus at the Reimagining India: Unlocking the Potential of Asia’s Next Superpower UK book launch, held at Asia House this week.

The book, edited by McKinsey & Company, features 60 original essays by leading thinkers from around the world, in the arts, business and media, including Microsoft founder Bill Gates, Maximum City author Suketu Mehta and former world chess champion Viswanathan Anand.

“We started working on this book about a year ago when there was a sense that while the potential of India in the long term is still high, there is a mounting frustration that the lives of the 1.2 billion people are not improving as fast as anyone would like,” said Chairman of McKinsey India Adil Zainulbhai.

“We felt that the whole of India was growing very fast – that there was huge euphoria and then depression – and neither the euphoria nor the depression was justified, so we thought a better dialogue would give people a better understanding. We thought that rather than doing a study filled with charts, it would be better to get 60 essays from figures in business, economics and arts. This is not an ‘India Shining’ Book and nor is it an ‘India Depressing’ Book,” he said.

Themes explored in the book include  India’s general election next year, in which 30 per cent of the people that will vote have never voted before. Zainulbhai said that rather than being influenced by the past these young voters were likely to be driven by their aspirations and would use their vote to force their democracy to do something to improve their lives. Several essays in the book also look at the governance of India.

“We always think of India as one entity, but in reality the most impressive things are being done in the states and for the first time we are seeing strong governance in some states where leaders are being re-elected and states are learning from each other,” Zainulbhai added. Another theme in the book is how technology can improve primary education, malnutrition among children, and education for girls, thus enabling India to leapfrog development that previously would have taken 25 years.

Former editor of the Economist Bill Emmott joked that this was the correct time to bring such a book out since India was experiencing the biggest change in its history – the retirement of Sachin Tendulkar from cricket.  “In 2003 I wrote my book 20:21 Vision which was about all of the major powers. I did not include India,” he said. “Five years later I would have. The euphoria (during India’s fast growth) was way overdone and the real ability of a country to be able to grow and progress is never going to be a straight line,” he added.

“There is frustration and disappointment that development has not been in a straight line. Like the stock market Indians are manic depressive. One day they are entirely happy and one day they are depressed,” said Dalip Pathak, senior advisor to global private equity firm Warburg Pincus and a Trustee of Asia House. He was adamant that  currency problems and inflation were easily fixable in two to three years  but areas that needed urgent attention in India were the rule of law and he said investors had been “quite concerned” about this, citing the Vodafone billion dollar tax dispute.

“India has been very weak at the enforceability of commercial contracts. “The country will get derailed if this kind of thing continues,” he added, saying India had a quarter the number of judges that it needs.

“We can’t go on like this. Either things will change at the next election or we will hit a wall in two years’ time.”

He said that India was seeing an addition of 10 million young people joining the work force every year which equated to more than 200 million people over the next 20 years and yet India was creating just one million jobs a year.  “Sliding back to social welfare is not going to solve the problem.”

All the panellists predicted that the outcome of the 2014 general election in India would be a coalition, with Emmott predicting that BJP candidate Narendra Modi would be the next prime minister.

“India is the only country where election stories begin with the price of onions,” Emmott said referring to the fact that price rises were a major source of discontent among the Indian public and would determine how most people voted.

The new voters might vote differently compared to their parents, Zainulbhai said, adding the proportion of number of voters living in urban areas compared to rural area had increased since the last general election, which would also have an impact.

Regardless of who would win, the question was what they would do to get the country back on track and improve the conditions of the people, Zainulbhai said. “There are many decisions just stuck in Parliament,” he said, adding a chapter in the book was devoted to comparing the US to India pointing out that both were broken and unable to pass laws. “The US is a rich country so it’s ok but India needs to pass a load of laws to modernise,” he added.

“Whichever Government is in place is going to have to be in a position to challenge the dynamics of bureaucracy.  Cases are being filed against retired senior bureaucrats now. No one wants to do anything as it is perceived as too risky without sign off from the Minister,” he said.

But he said that a bureaucrat not performing in one state might perform very well in another state with a strong leader, so he was optimistic the political paralysis would end.

A one-year-old party, Aam Aadmi Party, has emerged with a single plank of no corruption, he said. It was already predicted to get 12 to 14 per cent of the vote in Delhi, signalling a shift in public attitudes towards corruption.

Corruption is a leitmotif through many essays, but Zainulbhai argued corruption was common when emerging economies grew and there was “zero chance corruption would go in India in the next 10 years.”

He said wrong decisions could have more impact on the economy of India than corruption and whilst the leader of the Communist Party of India might be a completely non-corrupt person, the impact of the decisions he might make, if he led India, could severely impact India.

The high levels of corruption in India had only emerged in the last 15 years with the emergence of the real estate and natural resources sector, he said adding real estate was a sector proven to have a nexus between politicians and businessmen.

Pathak added that the capital markets discriminated between companies and money did not gravitate towards those that indulged in corruption.

As for the social issues and poverty that India face, Zainulbhai said: “You can’t go from the levels of poverty we had 30 years ago to zero now in 30 years.” He admitted that rates of literacy and child malnutrition should be higher in India for the GDP per capita but that in some states it was high.

“The Prime Minister of India has a limited number of hours in the day and he has to spend some on Indian airlines and some on public sector hotels. Frankly there is no focus. Our urban economy has to be market economy driven. That frees you up to look at rural areas and poverty,” Pathak said. “India is not going to be a superpower in the next 20 years,” he concluded.

“I think we should be confident with the new central bank governor, Raghuram Rajan, that the scourge of inflation will be stamped out,” Emmott said. He added he did not feel India needed to be a superpower but that she should engage more with her Asian neighbours. “Things will be better in five years’ time than they are today but we will still be talking about the same problems,” he said. “I think it will be a 25 to 40 year process,” he said.

The debate finished with Zainulbhai saying there was an essay in the book which said that India only reformed in a crisis and the question was whether the crisis she was facing today was big enough to trigger change.

naomi.canton@asiahouse.co.uk