Reimagining India: Unlocking the Potential of Asia’s Next Superpower (15 page)

Changing democratic politics.
The competition between states cannot generate lasting benefits unless voters reward good governance. Until recently, India’s political system was characterized by anti-incumbency, with identity politics trumping other criteria for choosing a candidate. As a result, politicians had little incentive to deliver essential services and enact lasting reforms. Recently, though, Indian voters have reelected many incumbents who improved economic outcomes; meanwhile, some poor performers—as exemplified by the Communist Party in West Bengal—have been ousted.

Democracies and crises.
In India there is a strong consensus for weak reforms, as Planning Commission deputy chairman Montek Singh Ahluwalia has wryly observed. But to be fair, the enactment of strong reforms in the absence of crisis is rare in almost any country. Indeed, the recent experience of the United States and Europe, as well as other major democracies, suggests that crises are the unavoidable, even necessary, midwives of reforms. India is hardly unique in this regard. After the global crisis of 2008, India’s growth appeared to be cruising at about 8 percent, so the government did not feel obliged to undertake growth-enhancing reforms. Nor was there any serious attempt to squeeze double-digit inflation out of the system—for fear that growth, which voters had come to take for granted, would suffer.

But when growth recently began to fall below 5 to 6 percent and, critically, when this deceleration began to seem more permanent, panic galvanized policy makers into action. Strengthening their resolve was the threat of downgrading by the rating agencies, which would have further undermined investor confidence and growth. In other words, India fulfills the minimal requirement, common to most democracies, of reforming
to avert crises. The difference is that in the West crises are characterized by zero or negative growth, while in India that threshold now is about 5 percent. From collective acquiescence at the “Hindu growth rate” of 3 percent to restiveness even at 5 percent is a measure of how far India has come.

At the end of the day, for all the positive developments noted above, there are at least as many dispiriting ones. The writ of the Indian state, for example, covers only about 80 percent of the country, with the tribal belt essentially contested by Maoist insurgents. The Indian state is increasingly unable to provide a range of basic services—health, education, physical security, rule of law, water, sanitation—which disproportionately affects the poor. This is captured in the deep despair of a girl in the slums of Mumbai described in Katherine Boo’s recent book,
Behind the Beautiful Forevers
: “We try so many things, but the world doesn’t seem to move in our favor.” The private sector can overcome some of these deficiencies but never completely, and because it cannot, the outcome can be chaotic, unregulated growth.

Moreover, talent is fleeing the public sector, reflected in the dramatic increase in unfilled vacancies in India’s police, military, administrative services, and even the elite institutes of higher education. In the long run, growth is determined by effective state capacity—and that is India’s weakness compared with China.

India’s democratic politics has provided the space to minimize the risks from some of the country’s numerous social cleavages such as language and caste, but others—such as religion, region, and skill levels—may be less easy to manage. And then, in addition to rampant corruption, are the other growth-sapping features of the political system: coalition politics that favors the status quo and stymies change, deterioration in the quality of politics and politicians, and the obliteration of boundaries between private and public interests. There is a race between rot and regeneration of public institutions, and perhaps neither will triumph but just coexist as India muddles along.

A decade or two from now, a simple metric may be sufficient to assess
whether India will have risen to the economic challenge: economic growth of no less than 8 percent per year. That pace will be necessary to provide employment opportunities to the massive additions to the labor force and to meet the rising aspirations of ordinary Indians. And there is another reason to use that metric: China—India’s partner, neighbor, model, competitor, and sometimes aggressor—posted 10
¹
/
₂
percent growth for thirty years.

Can India make it? Is India not at least three-quarters as efficient and capable as China? Because India is attempting a historically unique experiment—the Precocious Development Model—the statistical odds are against it. The objective analyst that I aspire to be would have to say the odds India will make it are no better than forty in favor and sixty against. But the visceral nationalist in me nudges the odds up to, in the comedian Keshto Mukherjee’s memorable and stock phrase, “phipty-phipty.”

Victor Mallet

Victor Mallet is the South Asia bureau chief for the
Financial Times.

You don’t have to visit India to understand that the world’s population, already exceeding seven billion, continues to grow at an alarming rate. But it certainly helps. Better still, come to the banks of the River Ganges during a Kumbh Mela—a Hindu religious festival that takes place every three years and last occurred in early 2013—and watch the crowds surging into the holy if somewhat polluted waters to wash away their sins.

A precise head count is impossible, but Indian police and officials say eighty to one hundred million pilgrims came to Allahabad during the two months of the 2013 Mela, a particularly auspicious celebration of a religious cycle completed once every 144 years. They estimate that twenty to thirty million people bathed in the Ganges on February 10 alone. Managing such enormous crowds on the river’s sandy banks is an extraordinary challenge (rule #1: Keep them moving). Despite authorities’ best efforts, thirty-six people died that day in a stampede at the Allahabad railway station.

The millions of Indians gathered in the shallows and in the Kumbh Mela’s collection of tents and temporary temples—described by Harvard researchers as a “pop-up megacity”—are believed to have constituted the largest gathering of humans on earth.

India is crowded at the best of times. It was in Delhi that Paul Ehrlich, the neo-Malthusian author of
The Population Bomb
, experienced his hellish epiphany about overpopulation: “People eating, people washing, people sleeping. People visiting, arguing, and screaming. People thrusting
their hands through the taxi window, begging. People defecating and urinating. People clinging to buses. People herding animals. People, people, people, people.”

And that was forty-five years ago, when India’s population of just over 500 million was less than half what it is today. With more than 1.2 billion inhabitants, India is on track to overtake China as the world’s most populous nation by 2025. At its likely peak four decades from now, India’s population will exceed 1.7 billion.

Such projections sound fantastical, but among population experts, they are not in dispute. Such is the ineluctable arithmetic of “demographic momentum.” Even when a fast-growing country’s fertility rate falls toward replacement levels, the population keeps increasing for decades because of the large cohorts of young women reaching childbearing age.

What is in dispute is whether the increase in the number of inhabitants—bearing in mind that India will add some five hundred million people, equivalent to the entire population of the European Union—will help or harm India’s economy and society, and whether the country’s institutions will be able to cope. A review of India’s record to date of investment in the “soft” and “hard” infrastructure vital for development—education and health care, as well as school buildings, hospitals, roads, and power stations—is hardly reassuring.

Indian politicians and international economists are easily seduced by the notion of a “demographic dividend”; many speak as if any nation with a rising population can count on a great boon, automatically conferred by providence. Optimistic about the commercial prospects for emerging markets, these “population boosters” note that a greater number of inhabitants results in a higher gross domestic product and a bigger workforce, while a fast-growing population produces a period when the dependency ratio falls—that is, when there are more workers relative to children and old people and therefore higher savings and investment to increase per capita income.

An easy prop for such arguments is to mock the famously incorrect predictions of Thomas Malthus, the snobbish economist who foresaw
famine and disaster in his 1798 treatise,
An Essay on the Principle of Population
, because he failed to predict improved farm productivity as a result of mechanization and other scientific advances. Malthus, however, was right about many things, and population size has in fact been cited at least as a contributory factor in various famines, including the eighteenth-century Irish potato famine and the Ethiopian disaster of 1984. He was right about population pressures being a cause of war, particularly when aggressive pastoralists attack settled farmers: Think Darfur in Sudan. Intriguingly, he also predicted two hundred years before the event that densely populated China would become a powerful exporter of manufactured goods.

Attacking Malthus, however, is easy because he was wrong—at the time, at least—in his central prediction. But the mistakes of Malthus two centuries ago should not excuse the loose talk by everyone from the Indian politician and cabinet minister Kamal Nath to the UBS economist Andrew Cates about the supposedly beneficial economic consequences of population growth. A shrinking population, or declining population growth, is almost always defined in speeches and investment bank research papers as “unfavorable,” while a fast-growing population is inevitably “positive.” The “losers” in this fantasy world are Japan, Russia, and Europe. The “winners” are Bangladesh, Pakistan, Egypt, Mexico, Nigeria—and India.

Yet no one who knows Pakistan or Bangladesh, say, would conclude that these are future winners in anything other than a strictly demographic sense, or that they need more people of working age to boost their economies.

Indian policy makers, because their country is adding so many people in absolute terms to its population, would be wise to ignore blithe assurances that they have only to sit back, relax, and wait for their demographic dividend to roll in. Instead, they should be frantically scrambling to defuse a potential demographic time bomb.

There are several flaws in the arguments of the anti-Malthusian population
boosters. First, although the absolute size of the economy, like the absolute size of the population, may provide a measure of global influence, it does not confer happiness on a country’s inhabitants. Look at Australia or Norway or Costa Rica. For prosperity, at least, what matters is income growth per capita. Pakistan’s economy has been growing, but only a little faster than its population, which is why Pakistanis on average are not becoming much richer.

Second, in an era of globalization and digital hyperconnectivity, nations can no longer accept on faith the old anti-Malthusian promise that a low dependency ratio (that is, a large number of working-age people relative to children and elderly dependents) outweighs the perils of rapid population growth. In the industrial age, nations with low dependent-to-worker ratios enjoyed obvious economic advantages. China, for example, owes much of its industrial success to the millions of young migrants who have poured into factories in the nation’s coastal cities.

But the world is changing. One of India’s largest carmakers recently boasted that it was selling more vehicles than ever, especially to China, and that it was hiring an extra eight hundred workers for its factory. But the plant employing those workers belongs to the Jaguar Land Rover subsidiary of Tata Motors and is in the English Midlands, not in job-hungry India. It is true that the lack of manufacturing jobs is in one way a particularly Indian problem and could therefore be reversed by a change of policy; the difficulty of acquiring land, restrictive labor laws, and bureaucratic obstacles have long discouraged both local and foreign investors and pushed them to invest in capital equipment rather than labor. Only about ten million Indians are currently employed in private sector companies with ten or more workers, although an estimated twelve million young people are joining the labor force every year.

The shortage of well-paid manufacturing jobs, however, is not a peculiarly Indian problem but an incipient global phenomenon. In the six months before this essay was written, U.S. manufacturing added no net new jobs, but productivity and output rose sharply. U.S. employers are paying for new robots, not new workers. That has disturbing implications
for the American middle class and the potential middle class of India. Indian investors, too, are automating their factories.

That leaves the service sector, long hailed as the potential savior of the Indian economy. Unfortunately, employers in information technology and business process outsourcing face intense international competition and regularly complain about India’s generally poor standards of education. There simply are not enough jobs for India’s low-skilled workers, and not enough high-skilled Indians for the few million new jobs that might be available in high-end services. This is not a new conundrum (Rajat Nag, the managing director general of the Asian Development Bank, warned three years ago that “the demographic dividend can easily become a demographic curse” and foment social unrest if people are not properly provided with skills), but Indian policy makers have been slow to grasp its significance.

The third and final flaw in the case of the population boosters is that their position is framed in the wrong terms. These anti-Malthusians ask whether it is feasible for the world, and for countries such as India, to host a much larger population, and they then come up with a positive answer. They dismiss Ehrlich as a prophet of doom who did not foresee the green revolution in agriculture that saved hundreds of millions from starvation, any more than Malthus himself foresaw earlier advances in agriculture. But this is the wrong question. They should be asking not whether it is possible but whether it is desirable for the world greatly to increase its population beyond the level of nine to ten billion or so it is already almost certain to reach. The answer is no, for all the obvious reasons arising from overuse of natural resources, environmental damage, and the unpleasant consequences of overcrowding.