- The Washington Times - Thursday, March 22, 2007

The name of the game in U.S. Asian foreign policy these days is not geopolitics but economics. And India is the key to the strategy.

Everyone who is anyone in Delhi is an economist. Prime Minister Manmohan Singh and the impressive finance minister, P. Chidambaram, are of course economists. Even American Ambassador David Mulford has an Oxford Ph.D. in economics. No wonder. India is in the throes of a three-year boom with forecasters seeing more growth on the horizon. The country has just added 14 new billionaires to the Forbes list of world’s wealthiest men. A middle class with rising incomes constitutes 200 million to 250 million people. India’s economic power is the obvious counter to China’s hegemony in the region.

India’s heavily regulated economy has achieved growth in gross domestic product (GDP) of around 81/2 percent, which is expected to continue through 2020. Analysts say a GDP growth level of 10 percent is attainable.

With success not just attributable to demand for cheap software services in the global marketplace, India has enjoyed resurgence in its industrial sectors as well — trade, electricity, transport and construction.

In India, it is said, things are never as good or as bad as they seem. The economic expansion has not been inclusive. With a population of 1.1 billion, its per capita income is a paltry $460 with close to a fourth of the population living on less than $1 a day. Its level of health care and sanitation is abysmal; its literacy rate is 70.2 percent among males and 48.3 percent among females, amongst the lowest rates in South Asia. Roughly 25 percent of its people live below the poverty line.

Pure drinking water is high on the social agenda. And the soaring inflation of around 61/2 percent must be curtailed. The government, which has in the past cautioned that “outlays don’t necessarily mean outcomes,” has just unveiled a controversial budget allocating substantial funds to financially starved sectors such as agriculture, health and education. Critics ridicule the budget, claiming that “never before in the field of human endeavor have so many poor people been subjected to so much technology with so much aspiration in such a chaotic way.”

Migration to the cities from the rural areas, where 60 percent of the populace is employed, has not provided the answer. Millions in Mumbai and the ultramodern city of Bangalore, the country’s Silicon Valley, live in unspeakably dilapidated slums that blight the skylines.

The outlook is not necessarily rosy for the new billionaire techies of Bangalore either. Their business could be seriously impaired by such factors as international terrorism, devaluation of the dollar, overdependence on imported energy, environmental constraints, inflationary pressures or protectionist measures in the United States, the major consumer of India’s outsourcing services.

Then there is education. Although the Indian educational system churns out 500,000 engineers a year, and still more are educated in the United States, there is a sense there is not enough literate, educated manpower. Accordingly, companies have been recruiting engineers at American and U.K. universities.

Most engineering graduates gravitate toward the information-technology sector, where they vie for entry level positions paying around $7,000 per year. The government’s “reservation” or affirmative action program, which guarantees 27 percent of all public sector jobs, as well as those at government-funded universities, go to those who belong to a state-created agglomeration of lower-caste groups. That could also affect costs dramatically if extended to the private sector.

India has the largest standing army in the world, its military budget amounting to some 21/2 percent of GDP. It lives in a rough neighborhood. In a 1962 border dispute, China attacked from the north and cleaned the clock of the unprepared Indian army. As a result of the brief conflict, China occupies 14,670 square miles of Indian territory in Kashmir. The area is strategically unimportant, but China has yet to give it back. In 2002, India went to the brink of nuclear conflict with Pakistan before U.S. intervention saved the region from disaster.

History accounts for India’s aspiration to be a nuclear player. It regards China as more of a potential adversary than Pakistan. And while India has halted testing for the time being, it reserves the right to test further should China develop a new generation of nuclear weapons.

The United States clearly views India as the recipe to manage a surging China. President Bush’s March 2006 visit to India underscored the importance of India to the United States. During that visit, Messrs. Bush and Singh jointly announced agreement on a plan to facilitate civil nuclear cooperation by separating India’s civil and military nuclear facilities. The separation will be done in phases and completed in 2014. The accord has been hailed as a diplomatic coup and likened to Richard Nixon’s opening of the door to China in 1972.

But it would be wrong to view India as a U.S. client. Independence is imbedded in India’s DNA. While it dislikes having another nuclear player in the neighborhood, India has established important trading ties with Iran for its energy supplies and with China for consumer goods. It is even discussing rapprochement with the Pakistanis. Recently, its seasoned Foreign Minister Pranab Mukherjee, heedless of President Kennedy’s admonition that “in the past, those who foolishly sought power by riding the back of the tiger ended up inside,” met with his counterparts from Russia and China whom he embraced with gusto to photographers’ delight.

The Indian political system is muddled. In 2004, the Hindu Nationalist BJP party was confident of re-election. It had brought India economic growth, the stock market was soaring, its programs were working and its strong security measures seemed the needed antidote to terrorism. But BJP was the party of the Brahmins and appeared to have turned its back on Muslims and lower castes who happen to vote in large numbers. Moreover, it ran a complacent campaign and went down to defeat.

So Sonia Gandhi’s Congress Party, which had forged an uneasy but necessary alliance with the communists, came to power. The government has not enjoyed clear sailing. To carry out the reforms it advocates to make India’s growth inclusive, it needs the support of the five communist parties, which oppose a market economy. But in India, coalitions, and even unholy alliances, seem to work.

BJP, now out of power, is trying to change its elitist stance to appeal to those not participating in the current boom — what it calls the “common man in India.” Though Congress lost ground in recent local elections, the government would seem firmly at the helm. Lacking a strong leader, all BJP can do is watch and wait for a Congress misstep. If the government finds difficulty in getting reforms because of opposition from its partners on the left, BJP’s program may have some appeal.

The Indian people, who vote in large numbers, like to change horses. With political winds showing signs of change, some predict a BJP victory in 2009. Unlike ours, India’s voting system is fully electronic with balloting tabulated by computer.

It is said India is like a drunken man. It will eventually get home with a lot of stops on the way. Meanwhile, the United States has hitched its wagon to India’s rising star.

James D. Zirin is a New York lawyer who recently returned from India, where he met with leading government and business leaders. He is a member of the Council on Foreign Relations.

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