Think Again: India’s Rise

"India Will Be the World’s Next Great Power."

Not so fast. The dramatic opening of India’s hidebound economy, substantial improvements in India-U.S. relations, and rapid, sustained economic growth for well over a decade have led most analysts and policymakers to conclude that India will easily emerge as one of the world’s great powers in the 21st century. In 2010 while visiting India, U.S. President Barack Obama said, "India is not just a rising power; India has already risen." And just a few weeks ago, Defense Secretary Leon Panetta called India a "linchpin" in the U.S. "pivot" to Asia, while Secretary of State Hillary Clinton described the U.S.-India tie as a "critical bilateral relationship."

Certainly, there has been reason for such optimism. Until the recent global economic downturn, the Indian economy was the second-fastest-growing in the world, reaching a rate of 9.8 percent in October 2009. Poverty dropped 5 percentage points between 2004 and 2009, according to the widely accepted Indian National Sample Survey. Meanwhile, Indian firms have been going global. In 2006, Indian steel magnate Lakshmi Mittal purchased the French company Arcelor, creating the world’s largest mining and steel firm. In 2008, the Indian conglomerate Tata purchased the iconic British Jaguar and Land Rover brands from Ford. And, despite some uncertainty now hovering over India’s investment climate, key global firms continue to bet on India. In late June, Coca-Cola, which had left India in the early 1970s, decided to invest $5 billion by 2020. Similarly, Swedish furniture retailer Ikea announced that it would invest almost $2 billion in the next few years.

On foreign policy, India has shown growing global aspirations — and capabilities. It is the fifth-largest player in the reconstruction of war-ravaged Afghanistan, and its reach extends well beyond its neighborhood. At the recent G-20 summit in Los Cabos, Mexico, Prime Minister Manmohan Singh pledged $20 billion to an endowment designed to shore up the IMF’s lending capacity.

Unfortunately, the fascination with India’s growing economic clout and foreign-policy overtures has glossed over its institutional limits, the many quirks of its political culture, and the significant economic and social challenges it faces. To cite but one example, at least 30 percent of Indian agricultural produce spoils because the country has failed to develop a viable supply chain. Foreign investors could alleviate, if not solve, that problem. But thanks to the intransigence of a small number of political parties and organized interest groups, India has refused to open its markets to outsiders. Until India can meet basic challenges like this, its greatness will remain a matter of rhetoric, not fact.

"India’s Growth Is Inevitable."

No. When India began to liberalize its economy after the 1991 financial crisis, many analysts concluded that the country was on a glide path to growth. The sheer size of India’s market, its wealth of entrepreneurial talent, and its functioning legal system all seemed to herald economic success.

Sadly, these sunny assessments overlooked key hurdles. Many Indian politicians remained wedded to an anachronistic model of state-led growth. Powerful groups with vested interests in the existing economic order — from well-subsidized farmers to well-entrenched industrial labor unions — opposed reform. And the rise of coalition politics, with all their uncertainties, threatened coherent government action. These factors have now come together to create a perfect storm for India.

In the last quarter, India’s economy grew at a mere 5.3 percent — its worst performance in nearly a decade. In April, industrial growth was a paltry 0.1 percent. Many Indian policymakers are attributing this downturn to the European fiscal crisis and the global economic slowdown. But the real problems confronting the Indian economy are indigenous.

Indian politicians of all ideologies have supported unsustainable spending in an effort to placate the country’s increasingly politically mobilized population. Farmers in significant parts of India pay little or nothing for electricity, but officials refuse to challenge their subsidies. Politicians fret about raising gasoline prices for fear that the middle class will revolt. And to avoid student unrest, they have allowed the university system to reach a breaking point, because the fee structure cannot meet even a fraction of operating costs. The result of all this pandering has been a fiscal deficit of about 6 percent of GDP.

India’s leadership has also failed to reform the country’s behemoth public sector. For example, the state-owned Air India requires routine infusions of cash, but the government refuses to privatize the company lest it anger organized labor. On the flip side, entrepreneurs are hobbled by antiquated legal regimes and idiosyncratic rule-making. Outdated land-acquisition laws have stopped a range of industrial projects, and quirky policy shifts have undermined growing fields like telecommunications.

What’s more, some analysts are now arguing that the absence of transparent regulatory and legal frameworks has opened new vistas of corruption. Indeed, the lack of a clearly defined legal regime led to an ad hoc auction of the 2G spectrum in 2008. The flawed auction may have cost the treasury as much as $40 billion, according to an independent government watchdog. A new scandal is brewing which suggests that in 2004 state-owned coal seams were sold at well-below-market prices. Unsurprisingly, the specter of legal uncertainty combined with rampant corruption has had a chilling effect on foreign investment. All this makes India’s future growth seem far from assured.

"India Can Help Contain China."

Hardly. Because of its longstanding disputes with Beijing, U.S. policymakers have hoped that New Delhi would join Washington in balancing against China. But though India has had significant quarrels with China, it remains extremely skeptical of the U.S. "pivot" to Asia and of playing any part in an American strategy of containment. Many Indian elites fear that joining the U.S. effort would simply provoke China’s wrath, and their obsessive concern with policy independence, deeply rooted in India’s political culture of nonalignment, reinforces the unwillingness to make common cause with the United States.

But it was India’s reluctance to throw in its lot with the West that left it virtually defenseless when China attacked in 1962. A border dispute had erupted several years earlier over Chinese claims on what India deemed to be its territory. Nevertheless, Prime Minister Jawaharlal Nehru had limited defense spending because he believed it would divert critical resources from economic development and belie his staunch commitment to nonalignment. When the battle-hardened People’s Liberation Army attacked, the Indian military was grossly unprepared. Soldiers without appropriate clothing, weapons, or training were rushed to the front, and large numbers died from frostbite and high-altitude ailments before they even had a chance to fight. The border dispute has never been resolved. In fact, over the past couple of years, China has actually expanded its territorial claims to include the entire Indian northeastern state of Arunachal Pradesh.

Sino-Indian differences extend into a number of other arenas as well. Beijing categorically refuses to accept the legitimacy of India’s nuclear weapons program (which was begun in response to China’s), and it tried to scuttle the 2008 U.S.-India civilian nuclear agreement. Furthermore, beyond its longstanding alliance with Pakistan, China is now developing relationships with the smaller South Asian countries and subtly encouraging anti-Indian sentiment in them. For example, as India has failed to resolve a series of ongoing differences with Bangladesh, China has quickly stepped in to improve Bangladesh’s infrastructure.

Globally, China and India have begun to compete for long-term oil and natural gas contracts — and India has been losing. Several years ago, the Angolan government rescinded an agreement with India to develop some offshore oil blocks after China offered it a $200 million line of credit. More recently, China sternly warned the overseas arm of India’s Oil and Natural Gas Corp. against prospecting for hydrocarbons off the coast of Vietnam. None of these tensions is likely to abate anytime soon, especially because India remains acutely dependent on external energy sources.

Despite these significant conflicts, Indian officials have resisted a closer partnership with the United States. In addition to concerns about losing their freedom of action, Indian policymakers fear that U.S. policy will change with every election. The United States may be pivoting to Asia now, but if it changes its mind in the future and tries to accommodate Beijing, it will leave India in the lurch, subject to Chinese intimidation. So, for now, India is hedging its bets.

"Tensions With Pakistan Have Eased."

Not really. In recent months, there has been a minor thaw in India-Pakistan relations, but the two countries remain far apart on the critical question that has bedeviled their relations since independence: the disputed status of the state of Jammu and Kashmir. That rivalry will only intensify as the United States and the NATO-led International Security Assistance Force withdraw from Afghanistan. The Pakistani military establishment’s obsession with "strategic depth" against India has not abated, nor has its commitment to install a pliant regime in Afghanistan post-2014. India’s political leadership, which has made significant economic, strategic, and diplomatic investments in Afghanistan, is equally unlikely to cede ground for fear that a neo-Taliban regime will emerge.

Consequently, relations are likely to cool markedly in the near future. And a return to the periodic crises that dogged India-Pakistan relations in the 1980s and 1990s will be distracting and expensive. India’s military mobilization against Pakistan in the wake of the December 2001 terrorist attack on the Indian Parliament cost the country approximately $1 billion. Until tensions abate, India will have to remain vigilant along its western border, increase its military spending, and focus its diplomatic energies on keeping the peace. It will remain tied to its neighbor, and its aspirations to transcend regional politics will remain unfulfilled.

"India Will Be a Good Global Citizen."

Perhaps. Some scholars argue that states are more likely to accept global standards of behavior as they become more powerful and gain a stake in world affairs. The evidence, however, is distinctly mixed, and India is likely to march to the beat of its own drummer. In some arenas it will play a helpful role; in others it will remain as recalcitrant as ever.

For example, it will be reasonably forthcoming on nonproliferation issues now that it is, for all practical purposes, a nuclear weapons state. If China and Pakistan are willing to accept limits on production of plutonium and highly enriched uranium, India might well support a Fissile Material Cutoff Treaty. By contrast, it would be foolish to count on India in global climate change discussions. India’s policymakers assert, with some justification, that the advanced industrial world is responsible for the bulk of anthropogenic climate change. Simultaneously, they contend that India can’t afford to subordinate economic growth to carbon reduction. As then-Environment Minister Jairam Ramesh, said in 2009, "In the United States and the developed world, emissions are lifestyle emissions. For [India], emissions are developmental emissions." Furthermore, India argues that its per capita emissions will remain well below those of advanced industrialized states for decades to come. That argument may well be flawed, but it has a lot of political traction in India.

Nor will India yield much ground on global trade negotiations unless its concerns about agricultural subsidies in the advanced industrial world and trade in services industries are met. Given its size, India wields much clout in this arena, and Indian negotiators can be unyielding. Even if India achieves the international status it seeks, it may not always act in concert with Western powers.

"India Will Have Serious Power Projection Capability."

Not quite. There is little question that India is dramatically expanding its naval reach and airlift capabilities. And contrary to popular belief, these expansive plans are not a significant financial burden because, according to recent World Bank estimates, India’s military expenditures are less than 3 percent of its GDP. Even with slower economic growth over the next few years, India should be able to arm itself more than adequately.

The problem, however, lies in its cumbrous, slothful, and, until recently, corruption-ridden weapons acquisitions process. Ironically, the effort to clean up this process has resulted in complex bureaucratic and legal procedures, further slowing what was already a glacial pace. For example, the decision to replace India’s aging fighters with a new multirole combat aircraft has been ongoing for the better part of a decade, even though the new plane has already been chosen. The extraordinary complexity and sluggishness of the process do not bode well for India’s ability to swiftly acquire and deploy the military capabilities it will need if it hopes to project power throughout the region.

Nor have indigenous efforts to build up military capabilities been successful. For example, faced with the increasing obsolescence of its MiG-21 fleet, India finally began work on a light combat aircraft in 1990 after much deliberation. The first prototype flew in 2001, but it was 10 years before the initial steps to raise a single squadron for the Indian Air Force finally went into effect. What’s more, the aircraft’s engine is American, its radar systems were built with Israeli assistance, and some of its munitions are of Russian origin. If India really wants to be a regional military power, it will have to either strengthen its indigenous efforts or radically streamline its foreign military acquisitions process.

"Hindu-Muslim Tensions Are History."

Unfortunately, no. After the defeat of the Bharatiya Janata Party (BJP) in 2004, many secular Indian intellectuals celebrated. They genuinely believed that the dark shadow of ethnic nationalism was receding and that the country could renew its civic and plural traditions. Such optimism, while understandable, was premature.

The Hindu right, which was ascendant in the 1990s, is now rudderless and leaderless. But it has yet to abandon its supremacist ideology, its membership is holding steady, and some within the Hindu-chauvinist BJP see Narendra Modi, a highly divisive figure known for his anti-Muslim sentiments, as a potential prime minister. India’s electorate might well find him too contentious, but the mere fact that his party sees him as a possible contender for the country’s highest elected post suggests that his pernicious ideology is alive and well.

What’s more, small numbers of Muslims have also become increasingly radicalized — by the intransigence of the Hindu right and the siren call of Islamism from the Middle East. Some of these radicals have links to global and Pakistan-based Islamist organizations, and some have even been connected to acts of violence on Indian soil. Unfortunately, beyond sounding the tocsin about the dangers of domestic militancy, India’s policymakers have not taken serious steps to stem its rise. Their inaction in the face of this very real danger, in turn, feeds the BJP’s charge that the secular political parties in India are guilty of pandering to minority extremism.

Obviously, the long-term consequences of this kind of religious and ethnic conflict could be extremely toxic. Continued and persistent outbreaks of Hindu-Muslim violence will have a chilling effect on foreign investment, they will sap the energies of India’s political leadership, and they will damage India’s global image as a secular, democratic state.

"India Can Be America’s Most Useful Ally."

Probably not. Both U.S. President Bill Clinton and Indian Prime Minister Atal Bihari Vajpayee claimed that India and the United States were "natural allies." For Clinton, this characterization was a deft tactic to paper over important differences. He recognized India’s status anxiety and saw that friendly rhetoric might yield quick dividends. Vajpayee’s use of the term was equally instrumental. From his standpoint, aligning with the United States could help isolate Pakistan. And there were genuine reasons for cooperation: common democratic values, a shared fight against Islamist terrorism, and common concern about Chinese revanchism.

However, a significant segment of the Indian public insists that the country retain full independence in foreign affairs, and India’s policymakers rarely lose an opportunity to underscore this concern. As Prime Minister Singh said in a major address to India’s armed forces, "We must therefore consolidate our own strategic autonomy and independence of thought and action." That attitude is a significant barrier to cooperation. Consequently, despite a convergence of interests, it may prove exceedingly difficult to forge an institutional partnership with the United States.

Given the values and concerns it shares with the United States, India’s resistance to closer collaboration is bizarre. After all, during a significant part of the Cold War, despite profound ideological differences and a professed commitment to nonalignment, India was for all practical purposes a Soviet ally — a relationship codified in the Indo-Soviet Treaty of Peace, Friendship, and Cooperation. But, today, two decades after the Cold War’s end, Indian elites have again inexplicably taken refuge in the idea of nonalignment, under the guise of "strategic autonomy." In considerable part, the intellectual establishment’s lack of imagination stems from its paucity of trained international affairs specialists. Shocking though it may seem, in a country of over a billion people, perhaps only a dozen or so political analysts are of truly global stature.

Other factors are also likely to constrain partnership with the United States. India’s political order has become increasingly federalized, and despite the existence of at least two national parties, it is unlikely that either will be able to form a national government of its own in the foreseeable future. That means India’s ruling party will be forced to pursue a compromise foreign policy. Thanks to the exigencies of coalition politics, for example, the United Progressive Alliance government in New Delhi has been forced to shelve a decision to allow investment from foreign multibrand retail stores like Wal-Mart. Similarly, a carefully negotiated water-sharing agreement with Bangladesh also fell prey to the demands of a fractious coalition partner.

Finally, the United States and India cannot paper over some fundamental differences of interest. The two countries remain at odds over how best to deal with Iran’s apparent quest for nuclear weapons. Even though most Indian policymakers view Iran’s nuclear pursuit with concern, they will not endorse unilateral military action against the country. India remains dependent on Iranian oil and natural gas, it has a substantial Shiite population, and, above all, it is extremely uncomfortable with the unilateral exercise of U.S. military power against recalcitrant regimes.

In fact, India becomes particularly concerned when regimes are forcibly ousted because of their human rights records, as in NATO’s action against Libya. In considerable part, this fear stems from India’s own domestic infirmities and its uneven record in suppressing domestic insurgencies. Admittedly, the notion that any country would militarily target India over its human rights record seems far-fetched, but the concern nevertheless animates Indian thinking about the subject.

Undoubtedly, the India of today is a far cry from the poverty-stricken, militarily weak, socially fractured, and diplomatically isolated country of the Cold War. Nevertheless, unless its leadership can tackle problems from corruption to bureaucratic stagnation to political dysfunction, its hope for global standing in the 21st century will remain just a hope.