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BY A foreign researcher |
Summary
India
dreams of becoming a regional and possibly a world power during the first
decade of the new millenium. In
this decade, it is entirely possible that the US economy may experience a
period of decline accompanied by an increasingly isolationist and
protectionist stance.
This will create the opportunity in Eurasia for other powers to
establish themselves as regional powers or alternatives to the US.
China, Russia and Japan would appear to be the likely contenders. The
likely scenario for at least the first part of the decade seems to be that
Russia will have to devote most of its effort to pulling itself together
and China will have to focus on keeping itself from coming apart.
Japan, if it can make the systemic changes in its economy that are
required, would seem well positioned to increase its influence in the
region and the world. India
must solve the problem of Kashmir before it does anything else.
Even with that, it lacks the resources and internal strength to
become even a regional power in this decade.
For India, the dream must wait. The
Concept of Power
India
has a dream.
It aspires to become a regional power on a par with Russia and
China and even to become a world power. Power,
in the international context, is projected in three ways: economically,
politically, and militarily.
The three legs of power are usually, but not necessarily,
inter-related.
Political power is required to forge economic ties.
Military power is required to protect political and economic
interest.
If one or more pieces of the power equation are missing, they need
to be compensated for in some other manner.
The United States projects power around the world in all three
areas.
Japan projects global economic power and regional military power.
The Soviet Union, before its demise, projected global military and
political power.
It is still a military power.
Its demise was linked to its inability to develop the economic leg
of the equation. To
examine the plausibility of the Indian dream, one must look at how India
might address the power equation during this decade.
To accomplish this, we must, in turn, include a projection of the
direction of, and relationships between, China, Russia, Japan, Pakistan
and the United States.
The
United States
America
has been on a roll.
It has enjoyed at least a decade of rapidly expanding economy and
has become the unipolar super-power of the world.
The big question is, of course, can the US continue this type of
economic growth and how will other countries and regions react if the US
political and economic climate changes? All
of the factors for continued, long term growth appear to be present with
the USA.
It is blessed with a low population density so it has land area on
which to grow.
It is blessed with abundant resources.
Its military might can provide expeditionary force in multiple
theaters as well as preclude any thought of invasion.
Its economic might is felt around the world. The
USA has led wave after wave of change, cultural, political, and economic.
America was at the forefront of mass production, it was at
the forefront of the technology revolution, it has led the computer
revolution and appears well set to lead the knowledge revolution.
Through all this, worker productivity continues to increase. America
has a culture that not only lends itself to quantum change but also seems
to thrive on it. Nothing,
however, continues uninterrupted forever.
At the moment, the metrics of growth still seem positive.
Capital formation continues.
Productivity continues to increase.
Interest rates and inflation rates appear to be contained.
Some pessimists argue that the stock market boom is fueled by an
irrational market in dotcom issues.
These same people argue that this is very similar to the irrational
rise in real estate values in Tokyo in the 1980s.
But is it?
Real estate is unchanging.
It has useful but non-technical utility.
The emerging knowledge wave has touched and transformed every facet
of society, culture, politics, and economics.
Investors are anticipating a change in the essence of the economic
model, in the underpinning of the economy.
The valuation of knowledge based technology is new and evolving.
It can be reasonably argued that revenue will, at some point,
follow.
As recent perturbations in the market might forewarn, there will
doubtless be corrections and shakeouts.
Companies will flare to brilliance only to consume their fuel and
die.
As long as there is money from a growing economy and growing
capital formation to pump into the markets, it is not difficult to see
continued growth. America,
however, has an interesting demographic approaching that one must be aware
of.
Somewhere about the mid-point of this decade the baby boomers, the
1945-1950 babies, will reach retirement age.
They, for the most part have done, and are doing, well.
They are pumping large amounts of money into the market through
401k and retirement plans.
The market is supported by a large and patient corpus.
This has helped to restrain interest rates during a period of rapid
expansion.
These same boomers, however, are looking forward to enjoying the
fruits of their labors in retirement and at some point will cease to
provide input to the capital market and start to withdraw.
As the boomers retire and sell their houses and take money out of
the market, the impact has to be negative.
When large negative forces appear, market investors tend to
liquidate vulnerable assets and lock in value.
This seems to be to be very ominous for the second half of the
decade. When
the market and the economy enter periods of possibly very steep decline,
the impact ripples outward to many other areas of society.
As we begin to look at what might change between America and the
rest of the world, let us look at the political dimensions of a steep
retreat of the economy in the US. American
politics tend to follow some repetitive patterns.
One of those patterns is that when times are good, people are
relatively unconcerned with politics and political issues.
In this year’s fall elections there are few, if any, core level
issues that have caught much voter interest.
The election is shaping up as more of a contest between
personalities.
State and local primaries earlier this year drew record low
turnouts in many places across the country.
Conversely, when the economy is not in good shape, interest in
politics and political issues is high and voters are willing to consider
alternatives.
If
we look back only a few decades we can see a pattern of “precursor”
candidates.
Pat Buchanan has no chance of winning in 2000 and Barry Goldwater
had no chance of winning in 1964.
Goldwater, however, issued the first public challenge to the
established Kennedy liberalism.
He represented a foretaste of the Reagan conservatism.
Pat Buchanan is a voice for anti-free trade in an entrenched free
trade polity.
Times are good right now but we have seen in the past that when the
US economy goes into decline, calls for protectionism raise to crescendo
levels. In
2008, when it seems entirely possible that the economy will be in worse
shape than it is today, protectionism will have a much more receptive
audience.
It happened in the late 1980s.
It would seem entirely possible that in the latter part of this
decade the US may move toward a much more protectionist/isolationist
position.
This will have many ramifications globally. If
the US were to withdraw from its current economically dominant position in
Europe and Asia, some destabilization would have to follow.
This would provide an opportunity for other great powers to attempt
to challenge the US’s position.
When major powers compete amongst themselves and with the US, a
very fluid and unstable situation is created.
It is hard to imagine that the US economy would suffer serious or
long lasting damage but, for some period of time, a dangerous environment
may well exist. The
decade forecast for the US, then, is for continued expansion and political
stability for several more years with the potential for relative economic
contraction and more volatile politics in the latter part of the decade.
This may well be manifest in a more protectionist posture which
will provide opportunity for other powers to attempt to establish their
positions, particularly in Eurasia.
This will, in turn, create an unstable and potentially dangerous
environment.
The
list of combatants in the potential regional and global tug of war later
in this decade certainly includes Russia, China, and Japan. China
At
the present time it is very difficult to discern what the state of the
Chinese economy really is.
In such a vast country collecting economic data would be difficult
even if it was a priority.
I suspect it is not.
Communist countries, of which China is certainly still one, measure
economic activity based upon output instead of profit.
Since profit isn’t an objective it is difficult to compare their
economic metrics with those of profit based economies.
As was seen during the Asia economic crisis, Asian economic
statistics and economic reporting are, at best, suspect.
It certainly seems, however, that the Chinese economy is not doing
well. China,
in reality, is the home of two very different interests.
Coastal China has, for many years, looked to the outside world for
trade and is disposed to a merchant based economic system.
Interior China, on the other hand, is an inwardly focused
isolationist peasant based economy.
The leadership of the country has periodically swung between these
two positions.
In the peasant based scenario, the country is poor, pure, and the
leaders secure.
In the merchant economy scenario, some are rich, some are poor, and
the leaders insecure.
China, under Mao, was peasant based.
Deng has been a proponent of the merchant based model. Many
knowledgeable observers see a tumultuous decade ahead in China with large
scale domestic strife and volatile swings in foreign relations. Japan
With
China likely to be in turmoil for much of the decade, it would seem that
the most likely candidate to assume the leading role in Asia is Japan.
The current generation of leaders in Japan does not seem convinced
that Japan can follow a purely economic road to greatness as it has in the
recent past. Japan’s
new generation leaders seem to believe that recovery means much more than
simply re-establishing a high level of export to the US.
They know they must export but must also develop an Asian market.
To do this, they must develop political muscle.
If Japan attempts to assert political muscle in Asia, it risks the
security protection of the US and thus may reconsider some of its military
options.
Japan has a defense budget larger than Russia and China, the
largest Asian navy, and a significant army.
It would appear plausible that Japan may
begin a transition from a great economic power to a great power
period.
This will, in turn, lead to friction with the US. The
1997-98 economic collapse is by no means over.
Needed systemic changes in the banking and real estate markets have
been very slow in implementation.
Corporate structures are still very rigid.
Many observers seem to feel that it will be several years before
the Japanese economy is really back on track.
When it is, however, it has the capability of re-establishing
itself as a major force in the world. The
decade forecast for Japan is a continuing effort to assert both economic
and political power in Eurasia and elsewhere in the world.
This may well be accompanied by a rethink in its military posture. All
of this will lead to increasing tensions with Russia, China, and the US. Russia
Russia
is an economic disaster area.
Economic liberalism has failed miserably.
This, however, does not mean that Russia will not be a major player
in global geo-political considerations. In
the late 1980s, Mikhail Gorbachev attempted to modernize communism through
the twin policies of glasnost (openness) and perestroika (restructuring).
This resulted in huge turmoil and the breakup of the USSR.
Since that time, Russia has struggled to implement a democratic
political system and a market economy.
Contradictory policies and regulations, compounded by the Asian
crisis, have all but destroyed the experiment and cause a virtual
cessation of capital inflow. Vladimir
Putin is in the process of putting in place a definable policy framework
that involves using nationalism as a glue to bring the nation together,
brutal military force to signal its former states that the West cannot
protect them, and open approaches to China to signal the West that it has
both the means and the will to change the global balance of power.
This then becomes a potent bargaining position to convince the West
to resume financial flows to Russia. The
difficulty for Putin and his policy is that he will have trouble being a
Russian nationalist and wooing the West at the same time.
Putin, for example, must not only crush the Chechens but also
establish Russian influence in places such as US backed Georgia.
Tough to do without promoting confrontation with the US. To
re-establish at least a sphere of influence over the former Soviet Union,
Russia must somehow hold the US at bay.
China could be the card that Russia needs. Interesting,
isn’t it, that China needs to play the Russian card to draw western
investment to China and Russia needs to play the China card to draw
western investment to itself? Historically,
when Russia and China are stable and ally with each other, such as in the
1950’s, they create a huge block around which much of Europe and Asia
revolve.
When they are united but hostile to each other, they neutralize
each other as in the 1970’s and 1980’s. The
First Decade of the Millenium
In
the decade ahead, as the US becomes increasingly isolationist, Russia
asserts its sphere of influence to the borders of the former Soviet Union,
friction increases with the US and with China.
As Japan tries to build its place as the central Asian power in
terms of both trade and political influence, it will increase friction
with the other wannabes, China and Russia. The
first decade of the new millenium, then, is likely to see the US as the
still dominant force in the world with Russia trying to rebuild itself,
China trying to keep itself from blowing apart, and Japan assuming a major
role in Asia as an alternative to the US.
Friction between the US and all three as well as friction between
the three would seem a good bet to steadily increase as areas of interest
overlap. Viability
of the Indian Dream
Against
this potentially tumultuous backdrop, where and how does India pursue its
dream?
India
wants to become a regional economic, political, and military power.
Toward this end, politically, India is again pursuing what it calls
its “Look East” policy.
This is not a new concept, having been developed in the early 1990s
when “Non-aligned” India found itself aligned with a suddenly
collapsed Russia. Under
the “Look East” policy, India is seeking to establish closer relations
with such countries as Vietnam, Cambodia, Thailand, Indonesia, Singapore,
and Myanmar.
Leaders of Singapore, Indonesia, and Cambodia have recently visited
Delhi.
India has offered aid to Vietnam and Cambodia. Economically,
India is trying to leverage its $6 billion global presence in the IT
industry along with a few other export industries such as gems and
pharmaceuticals into regional economic power.
India has also been exploring ways to increase economic cooperation
with Singapore and Thailand.
The idea is to present a regional alternative to the US, China and
Russia. Militarily,
India is expanding its navy and attempting to increase the navy’s
operational area as well as continuing development of its airforce and
land and sea based missile delivery systems.
There
are, however, some major stumbling blocks along India’s route to
becoming a regional power.
Foremost among these are: the on-going conflict with Pakistan over
Kashmir, insurrection in Assam, an economy that is crawling forward at
best, a fiscal deficit that there seems to be no political will to
contain, it’s own internal problems with poverty and illiteracy, rampant
corruption and the latent political threat of the inwardly focused RSS
agenda of Hindutva and Swadeshi. The
situation in Kashmir is very bleak.
On the one hand, Pakistan seems to be putting itself in a solid
no-win situation.
Its economy is in tatters, the military rule the country, and
Musharraf seems unable to control Islamic extremism, drug trafficking, and
corruption.
His governmental structure is heading toward dysfunction.
The officer corps of the army is Punjabi and Musharraf is not which
means he is on thin ice with his only support base.
The army’s only reason for existence, as the officer corps views
it, is to fight for their country.
They seem to be looking for a fight and it is questionable whether
Musharraf can contain them. On
the other side, India has increased its defense budget by $3 billion,
roughly what Pakistan’s entire defense budget is.
This is hardly an indication that India sees peace on the horizon.
The Indian army has strengthened its positions and has been
stepping up counter insurgency operations.
It has also been equipping itself for fighting in the desert
terrain of Rajasthan. Pakistan,
in response, has been reported to have made large purchases of high
altitude fighting gear and snowmobiles.
Additional troops have been posted in several sectors of the LoC
including the Kutch area which may signal a threat to the industrial west
coast of India from Gujarat to Bombay.
Pakistan’s ISI is accused on a rather regular basis of attempting
to destabilize India’s economy by smuggling in counterfeit currency
notes and the number of insurgents infiltrated into Kashmir is reportedly
increasing dramatically. With
tensions running at very high levels, some analysts have gone so far as to
suggest that India might even provoke Pakistan into a war. In
addition to the increasing tensions with Pakistan, the Indian navy has
recently announced that it will be conducting exercises in the South China
Sea.
China claims this as its territorial area.
If India expands its operational area, as it appears it intends to,
it will, no doubt, cause a shift in the balance of naval power in the
region. Relations with China, already strained over their support of
Pakistan and a couple territorial issues, will further deteriorate.
Along with the expanded operational area, India is expanding its
naval force as well.
There are reports of plans to supplement India’s only aircraft
carrier, the INS Viraat, with a re-fitted Russian carrier and to build a
carrier of its own.
The Indian Navy recently launched a new guided missile frigate.
It is also reported that India is nearing the launch of a
Kilo-class submarine with ballistic missile capability.
If India does put three carriers into operation, it will put India
on a par with the UK in carrier force capability.
Together with support resources, this would make India capable of
extended force projection. The
potential presence of an Indian carrier force and missile capable
submarines off its coast might well cause China to reconsider the level of
support it provides to Pakistan, thus ratcheting the India-Pakistan
tensions up a notch or two.
China might also consider increasing its own naval capabilities.
This would further increase India-China tensions.
Because much of the Indian military equipment will come from
Russia, Russia-China relations may also deteriorate. At
some point, this escalation becomes unsupportable by the Indian economy.
If China can cause India to focus its attention on Pakistan, it
will divert its attention from naval expansion.
From China’s perspective this may appear advantageous but it also
increases the probability of open conflict and brings to question the
degree to which Pakistan and India might escalate that conflict. Quite
aside from the strain on the economy that military spending is likely to
impose, the NDA government seems unwilling and unable to contain the huge
fiscal deficit.
This will cause the economy to grow more slowly that it otherwise
might.
At all levels and in all areas of spending little is being done.
The size of the government is approaching its all time high despite
claims of downsizing.
The new Budget 2000 announced cuts in subsidies but these were
minimal and even those proposed are being
restored under political pressure.
The sale of Public Sector Units is announced every year and, every
year, very little actually happens.
It appears that will be the case again this year.
Both Central and State governments have demonstrated that they
cannot handle natural disaster time and again despite the outflow of a lot
of money.
Last fall’s cyclone in Orissa cost many millions of dollars.
The current drought will cost more.
The prospect of a below average monsoon will exacerbate a
deteriorating fiscal picture. The
lack of infrastructure in India is regularly cited as a major problem and
a major hindrance to progress and growth.
The country is chronically short of electrical power and very
little new generating capacity is in sight.
Nearly 50% of the power that is generated “disappears” (the
polite word is, of course, transmission loss) thereby further reducing
money available to increase capacity.
Much of what is not lost is given away (a form of subsidy) for
little apparent gain.
The country is also critically short of water.
The current drought merely highlights how little has been done in
50 years to develop and manage a vital resource.
Roads are poor to non-existent in many areas and there is no
national highway system. Even
in one of the few bright spots of the economy, the IT industry, there
appears to be lack of vision and management.
IT is a fast pace, rapidly changing business.
India has done little to support this industry aside from passing
some accommodating tax laws.
Two years ago an IT task force identified 108 areas where
government action was required to support and develop the industry.
Two years later, 56 have been implemented.
Many more have been identified and should, no doubt, be added to
the list.
Some of the unaddressed action areas are critical such as high
speed, high bandwidth data transmission facilities and high quality
internet access other than the government owned VSNL.
The IT industry has grown so far because of exports.
India itself must grow into the IT age or it will be left further
behind by faster developing nations. India
is highly dependant on foreign direct investment but is really doing
little to make itself an attractive destination when compared to other
potential destinations.
In a recent financial survey, it slipped from 10th to 11th
place as a favored destination for investment.
Trade barriers and tariffs, the slow pace of reforms, slow and
erratic bureaucratic processing, corruption, and lack of infrastructure
are all negative factors for investment. As
if this weren’t enough, there is a potent force lurking in the
background of the political scene. This is the Rashtriya Swayamsevak Sangh,
the RSS.
In February, I wrote a fairly detailed exposition of what the RSS
is, its relationship to the current government and the path it proposes
for India.
Without covering that issue again,
suffice it to say that this organization would have India focus
inwardly politically and economically and create a Hindu state to the
exclusion of all others.
Since I wrote that piece, the RSS has moved steadily toward the
forefront.
If the economy does not improve rapidly and if education is not
improved and progress made in the alleviation of poverty, India may well
find itself changing course considerably on issues of globalization. A
month ago, the President of the United States visited India with a
thousand or so associates.
The Indian media proclaimed the visit a huge success.
There can be no doubt that President Clinton turned on the charm
and struck a responsive chord in the Indian government and public.
The press proclaimed a grand new era of Indian – US relations. In
the cold light of day, however, little really happened.
Before the visit the US viewed India as a developing nation, albeit
a large one.
One would suspect that the US also viewed India as a potentially
useful counter when dealing with China.
Prior to the visit, the US’s major concerns were nuclear
non-proliferation and the Kashmir conflict.
When the President left, the perceptions and concerns remained
unchanged. Other
than a vague promise of future goodwill and a small amount of already
agreed to business, very little occurred. The
first few years of this decade will be extremely testing for India.
The key to India’s future is not the IT business or any other
economic issue.
It is finding and implementing a solution to Kashmir.
Until this is resolved, India and Pakistan will remain locked in an
increasingly dangerous confrontation. US
concerns with Pakistan before the President’s trip were nuclear
non-proliferation, curbing the export of terrorism and democratic and
economic reforms.
As with India, these remained the same after he left. Pakistan
is bankrupt.
Its sources of foreign funding have all but dried up.
It will become increasingly difficult to equip and maintain an army
in the field.
China will, in all likelihood, provide continuing aid to Pakistan
in order to keep India focused on Kashmir and Assam, buying time for it to
consolidate its position and possibly strengthen its navy.
The US may be forced to supply some aid to prevent Pakistan from
reaching a critical point at which war is the lesser of evils.
No one can afford to let Pakistan become isolated and desperate.
It
seems entirely likely that the ongoing fighting will flare up
periodically.
India must resist the urge to attempt to “conquer” Pakistan.
If it does that, it might force Pakistan to use their weapon of
last resort which would be to no one’s advantage. The
only solution is to reach some long term accommodation on Kashmir.
This will require serious and committed diplomacy and some give by
both sides.
So far, both sides have demonstrated only intransigence. If
the Kashmir dispute is not settled quickly, the ongoing war with Pakistan
will continue to drain India’s resources and divert its attention from
other very pressing issues.
I
cannot see India sustaining naval development to the degree necessary to
extend and maintain its operational area.
Continuing delays and cost over runs added to the Kashmir drain
will scuttle plans for becoming a regional military power for some time.
The frigate India recently launched was five years late and very
much over budget.
Even with the delays, it is still missing several weapons systems
whose development is even further behind schedule.
India has no carrier capable planes or pilots.
Given India’s performance on the frigate and nuclear submarine
programs, an indigenous carrier is at least a decade away.
The Arjun tank program is suffering from operational and production
problems.
Despite its desire to produce military equipment indigenously,
India lacks the essential technical and production expertise. The
government, given the best opportunity in some years to present and
implement a reform oriented budget that will address critical areas of the
country’s financial situation, has failed miserably.
Worse, it is backtracking on the few positive aspects of what it
did present. I see no major improvement in the economy for some time to
come. The
political situation is deteriorating.
The NDA’s allies are becoming increasingly contentious with the
BJP.
The RSS seems well positioned to move ahead with the Ram temple
construction, which will cause major internal strife and political
fallout.
Congress party is self-destructing and has ceased to be an
effective party in opposition.
If the government does fall, it is not beyond imagination that RSS
inspired BJP candidates may be able to achieve a majority or at least
major influence.
In that case, the cause of reform and globalization will be set
back immeasurably. Corruption
in business and government continues nearly unabated.
The few cases that do enter the judicial system join a backlog of
38 million cases and will likely never be heard.
The cyclone disaster in Orissa demonstrated that corruption is so
malevolent that it will even attack humanitarian aid.
Of the millions of dollars sent for disaster relief, very little
actually reached those in need.
Even the procurement of relief supplies has apparently provided an
opportunity for skimming and scamming.
The deposed Chief Minister of Bihar runs the state from a jail cell
(actually from the warden’s office).
It is a convenient place because a fairly significant number of his
cabinet ministers are incarcerated with him. It
is my opinion that this decade will not see India fulfill its dream of
becoming a regional power.
India will remain engaged in internal struggles and the Kashmir
problem and fall further behind more rapidly developing nations.
There is even a possibility that its shining star, its IT industry,
will begin to whither from neglect as other countries, China and central
Europe for example, begin to provide heavy competition. By
the second half of the decade, I think Japan will begin to emerge as the
Eurasian alternative to the US and will establish economic and, possibly,
military leadership in the region.
China is in for a difficult decade and will maintain a posture
similar to its current one.
The wild card for China is the Taiwan situation.
If Putin succeeds in bringing Russia together, Russia could quickly
begin expanding its political and military influence into the void left by
increasing US protectionism. So
where are we left with the three legs of power for India?
Politically, India must get its own house in order.
A nation cannot project political influence without a coherent and
consistent domestic and foreign policy.
Economically, India will continue to struggle for its own survival.
Japan and China have economies three and four times the size of
India’s with imports and exports eight times as great.
In a bidding war for economic influence, India has little to offer.
Militarily, India must resolve Kashmir before even thinking about
expanding its influence.
Its track record in coordinated command, technology upgrade and
project completion does not augur well for sustainable military expansion. For India, I am afraid, the struggle will be more about survival than about becoming a power. |