Double talk on double-digit

India doesn’t need to buy peace from its neighbours to sustain economic growth

At a talk I gave recently, one person asked if the numerous crises in India’s immediate neighbourhood limit India’s growth. This was some time after Prime Minister Manmohan Singh, at a press conference in May, asserted that “India would be unable to realise its full economic potential if it couldn’t reduce tensions with its neighbours, especially Pakistan”.

“Not at the moment, and not for the foreseeable future” I replied, “because the biggest bottlenecks to sustainable economic growth are domestic.” Only after the most important reforms—creating a national common market, unshackling agriculture, liberalising labour laws and fixing the education system—run their course might the situation in the neighbourhood begin to matter.

In a recent paper demographics and India’s labour force, Tushar Poddar and Pragyan Deb of Goldman Sachs estimate that they see the Indian economy growing at a base rate of 8% per annum. With the required reforms, the growth rate will increase to 9%. With wrong policies, there is a risk that the growth rate will fall to 6.5%. [See recent articles by Niranjan Rajadhyaksha & V Anantha Nageswaran for a discussion on sustaining high growth rates].

The neighbourhood doesn’t register much in these assessments. In fact, Dr Singh himself concedes as much. “A number of inherent strengths in the country’s economy,” he said this month “can contribute to rapid growth in the future and they should be harnessed to push up economic growth to double digits.” In other words, Dr Singh the economist contradicts Dr Singh the geopolitical strategist.

The prime minister’s concession underlines the simple fact the most brazen of Pakistan’s skulduggeries are but a pimple on the posterior of the India economy. You don’t need to have grand “composite dialogues” with Pakistan’s impotent politicians to sustain India’s economic growth.

On the contrary, the question for India’s neighbours is whether or not they want to benefit from India’s growth process? It’s their decision. Sri Lanka and now Bangladesh appear to have embarked on trajectories that make the most out of opportunities provided by both India and China. Pakistan—perhaps because its unaccountable elite are buttressed by liberal Western aid—is unconcerned with improving the lot of its own people. That is its own problem. This does not mean it is not in India’s interests to improve trade with its crisis-ridden neighbour. It only means that it won’t hurt the Indian economy much if it doesn’t happen.

Once the Indian economy exhausts all the potential from the necessary next wave of reforms the condition of the neighbourhood might begin to impose constraints on its further growth. That point is at least two decades away. And it is by no means certain that it’ll matter even then, for it is possible that the neighbourhood will matter even less.

The Sonia Gandhi-led Congress Party is equivocal (okay, very unwilling) on using its political capital to carry out the reforms that are necessary for sustainable double-digit growth. Dr Singh is committed to losing his political capital on pursuing talks with Pakistan that are unnecessary for that purpose. Don’t be fooled.

From the archives: The Reagan Parallel, June 2004

7 thoughts on “Double talk on double-digit”

  1. I think it flatters the Pakistani elite to think it can hinder India’s economic growth. The ISI’s constant attempts at economic warfare (counterfeit rupees, attacks on India’s financial hub) shows that the elite have no interest, or maybe confidence, in trying to rehabilate Pakistan’s economy. How should we feel about that, I wonder?

    Any thoughts on Pakistan’s economy, Nitin?

  2. Given that Terrorism is Pakistan’s only agent of external influence, we can take it for granted that more terror attacks in India are on the Anvil. Pakistani Army has already started ramping up terrorism in J&K, as is readily evident.

    Kiyani and The Pakistani Army (that controls the ISI) are probably at the drawing board planning the next terrorist attack on India as we speak.

    Pakistani terrorism in India will reduce not because of a change in Pakistani mentality towards India, but because the Pakistani Army may have too much trouble internally to spare too much resources to commit terror in India or elsewhere.

  3. “Any thoughts on Pakistan’s economy, Nitin?”

    Pakistan achieved all it’s goals the day it became an Islamic nation. To be fair to their leaders, they never promised roti-kapda-makaan to the Pakistanis. Islam was the promise and it has been fulfilled. Whaddya want an economy for?

  4. How long will the Americans continue to pump in the tens of billions of dollars in Pakistan … ?

    As long as that continues, the Kayanis of the Pakistani Army will not change their ways ……

    India has no choice, I guess …. !

  5. MMS is an old f**t who wants to have breakfast in Delhi, lunch in Lahore and dinner in.. ahem.. Kabul. Basically he lives in LaLa Land..

    These ancient fossil Punjabis like MMS are the most annoying people that i find – they have no self respect or sense of dignity-otherwise they would not be begging for normalizing relations with a people who killed/raped/drove them out like dogs once Partition was finalized…its downright pathetic… no wonder he appointed an equally limpwristed, pathetic idiot like SM Krishna who stood mutely impotent before his Paki counterpart who was busy comparing a terrorist like Hafiz Saeed with Interior minister,GK Pillai.

    MMS is an a** clown who does not have power within his own party let alone his cabinet – he should be treated with the contempt that he deserves instead of trying to analyze his moronic statements.

  6. Thats what I was thinking. If Indian economy can grow at 9% with all the turmoil in Pakistan then it is truly ‘neighbour trouble-proof’. USA is next to Mexico but that hasn’t affected its economy has it.

    Pakistanis in 20 years wont know what hit them!

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