Asia Global Institute

Rise and Shine

Tuesday, February 23, 2016

Rise and Shine

Andrew Sheng, Distinguished Fellow of Asia Global Institute, says amid all the economic gloom, India's growth story comes at the right time.

The new year has got off to such a depressing start with markets shaking at the prospects of China's slowdown, that I want to talk about some good news - India.

I spent most of December in Kerala, southern India, one of the most literate states and an important juncture of the Maritime Silk Road.

Visitors to Borobodur in Java and Angkor Wat in Cambodia would know how Hinduism and Buddhism influenced their history and culture through maritime trade. But Tamil influence in Southeast Asia was reinforced by the Cholan invasion of Southeast Asia in the 11th century under the Southern Indian Cholan conqueror Rajendra I, who at his peak conquered Sri Lanka and Srivijaya, the great Southeast Asian power based in Palembang, Sumatra.

But more recent Indian influence came when the British imported large numbers of South Indian Tamil workers to provide labor in their railways and rubber estates in Malaya. In the meantime, Indian traders, goldsmiths and moneylenders were active in all the free ports established by the British throughout Asia and Africa, including Hong Kong. Until the rise of Silicon Valley and London, Hong Kong hosted one of the richest Indian diaspora communities.

India's growth story is impeccable in terms of timing. It has already overtaken China as the fastest-growing economy with 7.3 per cent growth in 2015 and an expected 7.5 per cent in 2016. India is a major beneficiary of low oil and commodity import prices, and because exports comprise only 16.5 per cent of GDP, it is also less vulnerable to external demand slowdown.

In a world looking for new growth markets, India is looking better and better as a destination for foreign investment, mainly because of its large domestic market, cheap labor and reasonable macroeconomic policy framework.

Unlike in China and the Association of Southeast Asian Nations, the constraints to growth in India lie in its lack of high-quality infrastructure and the famous "licence raj", the complex bureaucratic regulations and legal issues that make it difficult for businesses to navigate.

On the plus side, the Indian growth story is founded on two major factors - the first is that it is benefiting from good demographics, since the median age is only 25, considerably less than that for China (37) and Japan (45). The second is a British colonial legacy - the English language, common law and British governance skills. The West sees India as the only population giant in the 21st century that can be an ally and counterweight to China.

Visitors to both China and India contrast the differences in the quality of the infrastructure. Building world-class infrastructure is now the mantra of Narendra Modi's government.

Foreign investors to India are often attracted by the large and growing middle class, increasingly willing to buy the best and latest fashions of the West. But getting permission to operate has to go through the most complex of bureaucracies, run by an elite Indian Administrative Service, but manned by officials who are very local- and bureaucratic-minded. It was famously said that the Indian revolution in IT services, which occurred under the assassinated Indian premier Rajiv Gandhi, would not have succeeded if the bureaucrats had understood technology.

Today, with the internet and information communications technology taking off through financialization and globalization, the English-educated elite are benefiting from connectivity to Silicon Valley.

There are two distinctive features of India's thrust into the 21st century. The first is a bottom-up approach, with an obsession that no development is possible without improving the villages that form the core of Indian society, although the country is also beginning to urbanize. The second is the willingness to use technology to enable India to leapfrog the conventional trajectory of other emerging markets.

When Modi assumed office in 2014, one of his first acts was to axe the planning commission, which was in the midst of designing India's 12th five-year plan (2012-2017). He replaced it with the National Institute for Transforming India, by first co-opting state governments to join the "re-imagining India" process.

But its most remarkable innovation was to rethink development as a bottom-up drive for changing India through innovation and entrepreneurship. The self-employment and talent utilization program involves the use of technology, finance, incubation and facilitation to support start-ups and self-employment business in all areas, including rural and primary industries, through the application of technology. India is already famous for "frugal innovation" - the ability to deliver products and services both cheaply and for the poor.

As described in the new Indian bestseller, Rebooting India - by former co-founder and CEO of Infosys, Nandan Nilekani and Viral Shah - India is ripe for change because it has the second-largest mobile network in the world (900 million users) and third-largest internet user base. Instead of trying to transform government conventionally, technology is able to maximize citizen convenience in the provision of government and business services.

Nilekani is also the founding chairman of the Unique Identification Authority of India, which gives each Indian a unique social identity number. Combined with the increasing use of the global legal entity identifier, India can deliver electronic services with trust, speed and scale, thus leapfrogging many of the problems of service delivery by both government and businesses in a large country.

Whatever the strengths, we also need to be realistic. India still faces huge developmental problems. India's GDP was US$2.2 trillion in 2015; China's was US$10.3 trillion, while Asean, with half the population, has a combined GDP of US$2.5 trillion.

There is no doubt in my mind that the world's fastest-growing region in the next decade will be Chindasean (China+India+Asean). The competition, as well as the potential trade and investment, within that region will define global growth.

This article first ran in the South China Morning Post on February 5 ,2016 as Amid the economic gloom, India's rise couldn't come at a better time. 

The views expressed in this article are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.


Andrew Sheng

Distinguished Fellow, Asia Global Institute

Andrew Sheng


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The University of Hong Kong
Pokfulam, Hong Kong

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