Monday 23 January 2012

India's Unsustainable Growth

Jack Barton

David Cameron is met by Indian PM Manmohan Singh on July 28, 2010 - Photo by Daniel Berehulak/Getty Images AsiaPac zimbio

On 10th January the results of a survey were released revealing that in India 42% of children are malnourished and 60% stunted. While no-one would deny the utter tragedy of this, what is most surprising is that we are not surprised.

Over the past few years, something strange has been gradually developing in terms of our relationship with, and perception of India.  Depending on the context, when we think of India one of two very different countries comes to mind: there is India, the emerging great power with enviable economic growth statistics, and there is India, of grinding poverty, slums and social injustice.

PM Manmohan Singh with Ethiopian counterpart Meles Zenawi NetIIndian
The effect of this double vision is remarkable, it allows us to accept that India is a nuclear state with the second largest military in the world and to approve of the British cabinet’s 2010 trade visit there as simply smart foreign policy – building trade and diplomatic ties with a rapidly growing power.  We can accept the results of a study by Oxford University which found more people in poverty in 8 states of India than in all of the 26 countries of sub-Saharan Africa combined, yet it seemed unremarkable that Indian Prime Minister Manmohan Singh pledged $5billion in aid to Africa last year.

The reason behind this paradox is not complicated: every move made by the Indian government in internal and foreign affairs is done to promote its international image and attract investment from governments like our own.

If you walk through a city like Bangalore, the centre of India’s IT boom, examples of this policy are abundant.  City workers cover pollution with brick-red paint while black and yellow hazard stripes on the road below fade to nothing; everyday life is disrupted by the well-publicised building of a metro, unlikely ever to be finished, while underneath the rails shelter hundreds of beggars and crippled workers, ignored by city authorities.

The supposed justification for this horrific misuse of money is that the government is playing a long game – attracting investment will eventually make life better for India’s huddled masses.  This carries the assumption that the atrocious human cost of growth is worthwhile – something which the overwhelming majority of Indian citizens patently do not agree with.  Take for example the development of large-scale agriculture and selling of the rights to enormous amounts of the country’s natural resources to external corporations.  While such measures contribute to India’s modernization and accelerated GDP, they have destroyed rural communities and misplaced tens of thousands of people.  Small-scale farms have suffered so much that is was recently estimated that a farmer commits suicide in India on average every thirty minutes.

This aspect of government policy has led to a huge growth in support for groups such as the Naxalites, a Maoist guerilla group which fights for the rights of the rural poor.  While it has existed since the 1960s, its numbers have grown enormously over the last decade with estimates ranging from 70,000 to 120,000 fighters.

Support for the current government in the mainstream of the population has been flagging for years now and it is clear that the majority of the Indian population disagrees with its misuse of their money.  Apart from the economic argument that India’s current rate of growth is unsustainable, this unrest surely puts in doubt the likelihood that the country will continue to seem a fruitful investment.  Whatever politicians believe, this is not a long game at all – it is short-term politics and egos.  It is a sobering fact though that the Indian government will continue to ignore all forms of opposition to this policy as long as it continues to garner them external investment – essentially it will ignore the problem as long as we do.

Cameron inspects the troops at the official residence of the Indian prime minister, Manmohan Singh, in Delhi. Daniel Berehulak/Getty Images Guardian

It is the job of governments like our own therefore to acknowledge the other India and in doing, force their government to do the same.  Investment must rely on stability, take the potential for further economic growth as a given and insist that their partnership relies on a real settling of their internal issues.

Perhaps it is a form of post-imperial guilt that makes us hope and therefore believe that Indian economic development is making poverty there a thing of the past, perhaps we are happy to believe in the image the Indian government has constructed for itself because we are so desperate not to be left behind by the rise of the East.  It will be governments like our own which will be condemned by history for feeding the modernisation of India and forcing the development which is leaving millions of people behind.

China: A Threat or an Opportunity?

James Horrax

Cameron and his cabinet ministers toast with China’s Premier Wen Jiabao, at the Great Hall of the People in Beijing in November 2010. Photo: Wallstreet Journal

Since the Coalition was formed in May 2010, senior Cabinet members including the Prime Minister, David Cameron and the Chancellor, George Osborne have conducted ‘trade missions’ across the developing world. 

As if to demonstrate the importance of these missions, the trip to China took place within the first six months of this Parliament – it was attended by the largest ever British delegation to Beijing in 200 years. 

Obviously countries across the world maintain and develop bilateral relationships all the time, but this delegation was significant because publicly and unashamedly, the Government was putting its trading relations with the world’s second largest and one of its fastest growing economies at the centre of its economic and foreign policy. 

At first the trade mission was scoffed at as an inflated vanity trip – in fact on his trip to China in November 2010, David Cameron was left red-faced by the fact that in the previous week, Nicolas Sarkozy, the French President, had secured €15bn worth of trade deals from the Chinese. The biggest piece of business facilitated by the Prime Minister was a deal worth £740m for Rolls Royce to supply and service engines for a Chinese airline. Although he did make plainly clear his intention to nearly double the trade conducted between the two countries within five years from a present £32bn per year to £62bn per year by 2015.

British Company Rolls Royce secured a contract with Air China Business Today 
China’s economy, as we are reminded on a near daily basis, is growing rapidly – albeit from a low base. It would be easy to provide datasets but this graph shows just how sharply China’s economy has grown, particularly over the last 10 years. It’s growth over that period of time, has been as a consequence of a booming export market – helped by the under-valuation of the yuan and historically high levels of Western consumption – and while it’s imports grew over the same period, a large portion of these were commodities, like oil, coal and metal ores to feed its manufacturing industries and its subsequent exports. 

In 2001, according to the World Bank GDP per capita was $1,042. In 2010 it was $4,428. The Chinese are getting richer, as a nation and individually. This means an expanding pool of consumers for Western products and services and Britain should take the opportunity to exploit this. This makes the British government’s decision to recalibrate the economy away from financial services important – as David Cameron said, Britain must start earning its way in the world again and targeting export markets which are growing, like China, is part of that strategy. Obviously London’s position as the world’s premier foreign exchange hub means that the UK is well positioned to take advantage of China’s currency requirements over the coming years as well. 

Chinese Yuan global importance is growing Photo: Reuters Guardian
But in other areas, Britain must step up to the plate – whether that be in IT, green and renewable energy or high-end manufacturing – these will service the growing demands of a country where fuelling growth is a key concern and where despite many advances, vast swathes of the country are still relatively impoverished. Another area the UK should be able to export in is the services sector. Despite a steady, if unspectacular growth in the service sector, this element of China’s economy remains underdeveloped and immature. British service and consumer facing brands may help to bring about a much needed kick to recalibrate China’s economy, which till now has relied on its exports, to satisfying domestic demand.

So all upside for Britain then? Not quite. In order for the UK and the West to benefit from a booming China in the areas I outline above, whether that be services, IT, high-end manufacturing or green and renewable energies, Britain and its allies needs to press China on intellectual property to ensure that a burgeoning market is not shuttered by copyright infringement and intellectual theft. While China remains a hothouse of manufacturing, it lags behind in idea generation and specialises in producing ersatz goods.

Another consequence of China’s growth over the last few years has been its increasing global ambitions and interests. In its thirst for natural resources, a desire to help create the conditions for favourable export markets and to develop international support, China’s foreign policy in Africa has encouraged the entrenchment of corrupt and in some instances despotic governance. As the call for democracy currently ringing around the Maghreb and the Muslim world intensifies, it might only be a matter of time before China’s interests diverge from that of the local people. While Sino-investment in infrastructure and industry is welcome now, it is not unimaginable that a power shift could throw this delicate quid pro quo arrangement out of kilter. The rise of a series of failed states across Africa raises the ugly prospect of Western and British security threats as much as humanitarian disaster – the UK, along with allies, needs to ensure that China is accountable for any fall-out in this sphere.

And this is before any mention of a political challenge emerging to threaten the Communist leadership in Beijing. Conventional wisdom has it that as a society enriches itself nationally and at an individual level, greater demands for property protection and political rights will occur as well. While it is difficult to know precisely just how much tension exists below the surface, instances of unrest in Xinjiang, the continuing difficulties in Tibet and reports of potential collapse of its tearaway satellite North Korea mean that China’s path from regional power to global superpower is littered with potentially destabilising events for trade and commerce. 

Britain must make sure that while it utilises the many financial opportunities China’s growth presents, it does not sacrifice its principles either.