An elephant, not a tiger A special report on India December 13th 2008 INDIA2.indd 1 4/12/08 13:59:24 The Economist December 13th 2008 A special report on India 1 An elephant, not a tiger Also in this section The democracy tax is rising Indian politics is becoming ever more labyrinthine. Page 3 Storm•clouds gathering W hat the world recession will do to India’s economy. Page 5 The world is rocky But computer•services rms are in good shape to survive the nancial crisis. Page 6 Creaking, groaning Infrastructure is India’s biggest handicap. Page 8 Where invisible threads fray A litany of trouble spots. Page 10 For all its chaos, bureaucracy and occasional violence, India has had a India elsewhere remarkably successful past few years. James Astill asks how it will cope An awkward neighbour in a troublesome with an economic downturn neighbourhood. Page 12 ARLY next year, perhaps in April, India’s mains a small part of their troubles. To deal Ecoalition government will face the with those, Sonia Gandhi, Congress’s Ruled by Lakshmi judgment of 700m voters. Being mostly leader, will reissue a lot of unkept prom• T hough inequalities are widening, India’s poor, they will not be happy. Recent ises when the election campaign begins: to best prescription remains continued rapid months, moreover, have brought particu• bring everyone electricity, piped water, growth. Page 13 lar hardships: high ination, a patchy mon• schools and jobs. She will say little about soon, a slowing economy and vanishing what this government has actually done: jobs. In a worrying time, the terrorist at• there hasn’t been much. tacks in Mumbai on November 26th•29th At the same time Mrs Gandhi and her came as a particularly harsh blow. They prime minister, Mr Singh, have presided gave the world images of India that jarred over the biggest investment•led boom in with the shining message of its recent pro• India’s history. In the past ve years the gress. For three days India’s most cosmo• economy has grown at an average annual Acknowledgments politan city and aspirant international • rate of 8.8% (see chart 1, next page). Ser• In addition to those named in the text, the author would nancial centre echoed with gunre. Amid vices, which contribute more than half of like to thank all those who generously assisted in the the slaughter wrought by just ten well•or• GDP, have grown fastest, above all India’s preparation of this special report. Particular thanks are due to: Omar Abdullah, Montek Singh Ahluwalia, Chetan ganised assassins many individual Indi• computer•services companies. Infosys, Ahya, Suman Bery, Surjit Bhalla, Pramod Bhasin, Creon ans acted heroically. Yet the institutional TCS and Wipro are now world•famous Butler, Saumitra Chaudhuri, Nitin Desai, Wajahat response, as so often, was poor. Properly names. But Indian manufacturing has also Habibullah, J.J. Irani, Tony Jesudasan, Manoj Joshi, Rajiv Kumar, Som Mittal, Sudip Mozumder, John McCarthy, trained troops took over nine hours to ar• done well. Its impressive run culminated Vineet Nayar, T.N. Ninan, Sanjaya Panth, Sachin Pilot, rive at the scene. Most of the 170•plus vic• in January with the launch by Tata Motors Aditi Phadnis, Vishnu Prakash, Chandra Bhan Prasad, tims died during that time. of an ultra•cheap family car, the Nano. Jairam Ramesh, Sunali Rohra, Suhel Seth, Arun Shourie, Kapil Sibal, Manvendra Singh, N.K. Singh, Sanjay Ubale, The Congress party, which leads India’s Wilima Wadhwa, Yogendra Yadav ruling coalition and runs Maharashtra, the A world of fewer opportunities state of which Mumbai is the capital, is India is now facing harder times. Its stock• A list of sources is at likely to su er for this. To make amends, market has been sliding all year. As global www.economist.com/specialreports Congress sacked the interior minister, and credit has dried up, even Tata Motors, one Maharashtra’s chief minister. The govern• of India’s best companies, has been strug• An audio interview with the author is at ment, led by Manmohan Singh (pictured gling to lay its hand on capital. India’s www.economist.com/audiovideo above), has also raised a crythough not, economy is slowing rapidly and con• thankfully, its stsagainst Pakistan, dence is fragile. Previously soaring foreign A country brieng on India is at whence the terrorists probably came. investment in the country is expected to www.economist.com/india Yet for most poor Indians terrorism re• dip. Nobody yet knows how serious the 1 2 A special report on India The Economist December 13th 2008 number in China. Growing ambition 1 To make a serious dent in poverty, India Young and vigorous 2 India’s GDP, % increase on previous year needs to keep up economic growth of India’s population by age group, 2008, m around 8% a year. In the medium term that MALES FEMALES 12 should not be too dicult. More impres• 10 sive even than the success of India’s best 150 100 50 0 50 100 150 companies is the zest for business shown 80+ 8 by millions of Indians in dusty bazaars 70-79 6 and slum•shack factories. They are truly entrepreneurs. It is no coincidence, as is of• 60-69 4 ten noted, that Indians have prospered 50-59 2 everywhere outside India. 40-49 But India’s task remains daunting. 0 Some 65% of Indians live on agriculture, 30-39 1980 85 90 95 2000 05 08* which accounts for less than 18% of GDP. 20-29 Sources: CEIC; Government statistics *Forecast Shifting them to more productive liveli• 10-19 hoodsand so reducing povertywould 0-9 2 s lowdown will be, but in theory a reces• be hard even if the number of people of Source: US Census Bureau sion in the rich world should hurt India working age was not growing so fast. less than other emerging markets: exports Roughly 14m Indians are now being added amount to only about 22% of India’s GDP, to the labour market each year, and that surgency in eastern India, which Mr Singh against 37% of China’s. number is rising. Half of India’s people are has called the greatest internal security Diplomatically, India has also started to under 25 and 40% under 18 (see chart 2). challenge we have ever faced, is an obvi• matter more. The US•India nuclear co•op• They cannot all work for Infosys. Indeed, ous ill omen. Where it is spreading, in poor, eration agreement, which was approved because of India’s historic underinvest• agrarian and broken places, the invisible by America’s Congress in October, was the ment in education, many are not obvious• threads that bind India, in the phrase of clearest sign of this: to let India in from the ly skilled at anything. By one estimate, Nehru, its rst prime minister, are almost nuclear cold, the developed world has which may be optimistic, only 20% of job• non•existent. made an exception to the counter•prolifer• seekers have had any sort of vocational In recent years India has been creating ation regime. Mr Singh can take much cred• training. If India cannot nd employment more jobs than the gloomier scenarios sug• it for this. A courteous and scholarly for• for this lot, poverty will not be reduced gested. Between 2000 and 2005 its rate of mer nance minister who launched and India may face serious instability. employment growth doubled, to 2.6% a reforms in 1991 that unshackled India’s Its democracy will be no defence. India year. But that is still insucient, and there mixed economy, he has been an e ective is already worryingly violent. A Maoist in• are also fears about the quality of jobs be• envoy for India. ing created. To escape throttling labour At home, often stymied by his co• laws, Indian entrepreneurs tend to keep alition’s leftist allies, he has done much their operations small: 87% of manufactur• less well. But, among his few successes, he ing jobs are with companies that employ can claim that India, the world’s fourth• fewer than ten people. These tend to be biggest emitter of greenhouse gases, has both less productive than jobs in bigger started to get serious about climate change. companies and less protected by the law. It refuses to consider cutting its carbon If India is to sustain a growth rate of 8% emissions, arguing that they are still very or higher, as it aims to do, it will need to low per Indian. But guided by Mr Singh, In• manage four potential constraints. The dia’s bureaucracy has at least accepted most pressing, its rotten infrastructure and that, being hot, poor and agrarian, India the dreadful quality of its education, are, will be badly hit by climate change. alas, not new. But the government’s re• That makes India’s main priority, re• sponse has long been inadequate, and ducing poverty through rapid economic with India’s burst of high growth these growth, even more urgent. According to two problems have become more urgent the World Bank, in 2005 some 456m Indi• than ever. India’s current rulers, the ma• ans, or 42% of the population, lived below houts to an elephantine state, seem at least the poverty line. In 1981, by the same mea• to understand this. But their e orts to end sure, the numbers were 420m and 60% re• these troubles remain unconvincing. In• spectively. The government’s own esti• dia’s other big constraints, its cumbersome mates are lower.