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The Great Convergence, Can India Make It?

Monday, March 03, 2014
By Dr. Rakesh Singh

Dr. Rakesh Singh is Economist and Founder, Institute of Supply chain Management, Mumbai

The world is seeing a great convergence providing opportunities for India to be able to take advantage rather than fritter it away. This remark was made by noted geopolitics expert Prof. Kishore Mahbubani. According to him, as global poverty is waning, the middle class number is growing rapidly, free market economics and multilateralism is also rapidly closing the gap between west and the east. This tectonic shift provides a great opportunity for countries like India, but its full participation in the great convergence is dependent upon a number of factor including a proactive government which understands this and has a long term plan towards achieving these objectives.

But before looking at what needs to be done, let’s talk about this great convergence and the advantage India enjoys in the global economy. As the global economy sees this convergence, the middle class in India and other Asian economies become the driving consuming class of the world economy. India along with China and other Asian giants will not just be the hub of global outsource production, but will see its own production largely catering to the domestic consumers.

This complemented by the demographic advantage India enjoys and will continue so that India enjoys, vis a vis China an investment surge in its economy. About 65 percent of the work force in India is a working population. China on other hand is exiting the demographic dividend corridor. A recent article in Business World documented the start of this trend with some businesses locating their production base to India and quite a few contemplating to shift in near future.

India according to Prof Mahbubani has a successful diaspora. This Indian diaspora represent an immense store of human capital. In the United States, it was Chinese, Jews and Indians. And now the Indian diaspora in the US leads the race with 18 percent of new technology and engineering start ups. India needs to persuade these successful people to come back home and use their success model back home to provide the right kind of impetus to the growth process that is required. China’s success to a great extent was fundamentally directed by their successful diaspora  willing to comeback and grow in their own country with its proactive state under the dynamic leadership of Deng. The Indian diaspora clearly brings out the view that there are enormous synergies between Bangalore and Silicon Valley. This diaspora keeps pressure steadily in favour of more reforms.

India’s productivity has seen a steady improvement not only because of synergy between Bangalore and Silicon Valley but also because of economic reforms and steadily opening up to the world economy. Openness has paid dividends. India is also benefiting from multilateralism. Prof Mehbubani points out that not only do our politicians and diplomats benefit from networking by understanding the threats and opportunities as well compromise that is needed to take interest of partner nations forward but, East Asia according to him has been able to understand this and hence they have minimised inter nation conflicts benefiting Asean countries. India has now understood this and is trying to become proactive in multilateral institutions and their meetings. Indian reforms are irreversible and multilateralism the desired direction.

According to another noted economist, India has a huge competitive advantage vis a vis China. The steady rise in manufacturing is leading to a rising labour demand and supply remaining stagnant due to one child policy and hence as India is behind the curve. He supplements these arguments with saying that “China is full of samizdat: it cannot have software development to a point where people can communicate freely and even dare to undermine political control.” Indian democracy provides an important advantage over China.

But all these arguments remain merely baby talk due to the nature of pork barrel politics in India, where the political parties are marred by the political sociology of cheap money and easy status. The General elections are pointing towards a very healthy trend of developmental politics. Perhaps, the new party and prime minister like Deng in 1979 should look at other countries and copy what they do the best and are hell bent on putting Indian into the map of those nation states that matter. Without the will of the ruling party, the nation state will fritter away this opportunity like the UPA government has done in last 10 years.

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