||India loses its shine|
Exame - August 2008
Right now, with billions glued to their TV sets watching the Olympics, few would doubt that this year most of the world’s attention has been on China. Thanks to Tibet and Sudan, its international image has probably worsened but at home feelings of national pride and unity have strengthened. Overall, the Beijing Olympics have probably been positive for China’s image around the world. But what, this has made me think, might 2008 have done for the images of other emerging markets? What, in particular, has it done for India, the other one of Asia’s twin giants?
His victory in the confidence vote in parliament triggered by the governing coalition’s rupture with its communist supporters over the US-India civil nuclear pact led Dr Manmohan Singh, India’s prime minister, to declare that the vote would “send a message to the world at large that India’s head and heart is sound.” At that moment, he went on, India had shown it “was prepared to take its rightful place in the comity of nations.”
Unfortunately, it is not clear that the world has taken that message on board at all—at least if the confidence vote is taken together with other events this year. For a start, even those sympathetic with Prime Minister Singh over his desire to secure the civil-nuclear energy pact were bound to ask: what took you so long? If an alternative roster of support could be assembled for the governing coalition in that way, why wait three years since you first signed the pact with President George W. Bush to do it? Thanks to that alternative roster of support, Dr Singh’s government is now pushing through reforms to foreign-direct investment rules and pensions, among other necessary economic measures. Why, again, did he wait so long before garnering parliamentary support for such economic reforms? Dr Singh is a much-admired economist; he knows full well how important reforms are to India’s future.
The answers, of course, lie in the treacherous quicksands of Indian politics. But India’s image abroad is not fashioned through intimate knowledge of political machinations; it arises from impressions and actions. The impression from this episode and the inaction that preceded it have reinforced the common notion that India’s democracy is a dysfunctional mess, as much a hindrance to progress as it is an asset.
Then there is the deteriorating macroeconomic picture. A year ago, India looked rather impressive, with annual GDP growth exceeding 9% and with the Reserve Bank of India seeming to have been decisive and successful in putting a cap on inflation. The launch in January of the Tata Nano car, the cheapest ever produced anywhere in the world, was, to many outsiders, a more nationally significant event than any of the acquisitions of foreign brands by Indian firms, for it showed the world that India is capable of advanced design, clever engineering and low-cost manufacturing.
The new India, it seemed, was not just going to be made in Bangalore and Hyderabad but also in the factories and design studios of world-class manufacturers. Moreover, with a stable macroeconomic climate and access to global capital markets, there was a good chance that the infrastructure necessary to support those manufacturers would finally be built.
No longer as stable as it once looked
International images often lag reality, especially economic reality, so that positive view of India may still prevail. But for how long? With inflation back past 12% and the RBI looking to have been well behind the curve with its monetary tightening, the idea that India is now macroeconomically stable will not last long—especially with fuel subsidies sending the government’s budget deficit hurtling back towards 10% of GDP. Perhaps, with oil prices now falling, the deficit and inflation will both subside and growth won’t slow too much. But that is far from certain.
Finally, in this collection of concerns about India’s image abroad, what about India’s actions “in the comity of nations”, as Dr Singh put it? By that, he seems to have meant the practice of courteous respect for other nations’ laws, institutions and interests. In two cases this year, many outsiders have felt that India’s respect for others’ institutions has gone a bit too far. This concern refers to the way India bent over backwards to please China by blocking what looked to be legitimate pro-Tibet protests during the torch relay, and to the near-silence of its government over neighbouring Myanmar’s treatment of its cyclone disaster in May.
Given geographical and geopolitical realities, those policies will probably have tarnished India’s global image only slightly, if at all. The same cannot be said, however, of the position India took in the failed talks at the World Trade Organisation in Geneva at the end of July, an issue of much greater concern in Brazil. In the past, such determination to preserve trade protections would have been widely accepted when coming from a country such as India, for in trade matters international sympathy often lies with the developing world against the supposedly exploitative and rapacious West.
This case, however, was different. The victims of India’s stubbornness were not Western multinationals. They were other, generally poorer, developing countries who thereby lost a trade pact from which they stood to benefit, along with some middle-income countries such as Brazil, whose constructive stance during the WTO talks attracted a lot of positive comment to the benefit of Brazil’s global image. By contrast, for the first time, India and China stood together in a way that many will have seen as representing an uncomfortable future: the two emerging giants helping themselves and each other at the expense of the poor.
Is that fair? Unfortunately, it is. What poorer countries saw was India’s determination to protect its farmers not against surges of American imports but against food coming from Africa and Asia. Politically, with a general election looming in India by May 2009 at the latest and with Indian farmers having suffered so much economic privation in recent years, the move may have made sense. But a price has been paid in terms of India’s international image, an image that during 2008 has lost some of its shine.