As India grows it will reshape the world around it | India's future | The Economist

 

India's future

Sep 29th 2008
From the Economist Intelligence Unit ViewsWire

As India's clout grows it will reshape the world around it

India's growing power will reshape the world as we know it. India's real GDP has surged by an annual average of nearly 9% in the past five years, and across all measures of influence—from military might to diplomatic sway to economic weight—the country's clout will continue to strengthen. India is on track to be the fastest-growing economy in the world in 2008-30, averaging annual expansion of 6.3%. It will also overtake China to become the most populous country in the early 2030s.

How will the rest of the world react? As India acquires the means to shape the global economic and geopolitical landscape, its leaders will face a familiar dilemma. Like rising powers in the past, India is keen to expand its influence in line with its increasingly global interests—but it needs to do this without provoking a backlash from currently dominant countries or being caught up in rivalry with other emerging powers.

How India manages its rise—and how the rest of the world responds—will have huge implications for the country's stability and growth prospects. One potential obstacle is geopolitical: India needs to promote regional peace and stability in order to have a strong claim to be a major world player. But South Asia is an especially tough neighbourhood. India shares borders with countries that are embroiled in civil war (Sri Lanka), have just emerged from civil war (Nepal), or are under military or military-backed rule (Myanmar and Bangladesh). Civilian rule has recently been restored in Pakistan, but the political scene there remains fragile and a destabilising Islamist insurgency is gathering steam. This leaves China as India's least volatile neighbour—but China, which is helping to build ports and quasi-military facilities in Pakistan, Myanmar and Bangladesh, is also India's chief geopolitical rival.

On this list of strategic headaches, India's decades-long stand-off with Pakistan is the most dangerous. Conflict with nuclear-armed Pakistan is hardly a far-fetched scenario—India and Pakistan have fought three wars since becoming independent in 1947. The territorial dispute over Kashmir that sparked two of those wars remains unresolved. Indeed, a fresh wave of violence in the Indian-administered part of Kashmir suggests that the situation there is growing increasingly volatile.

Another challenge is to manage the global reaction to India's growing economic power. India has so far largely avoided attracting the sort of criticism levelled against Chinese—and earlier Japanese—overseas investments. But this will almost certainly change as India becomes a bigger player in the global economy. If the government meets its goal of massively expanding the export-oriented manufacturing sector, for example, India will become another big target for developed-country protectionists. If the government is to succeed in its quest for energy security, India will find itself in sharper competition with other major powers and under attack for its investments in pariah states like Myanmar and Sudan.

These issues will come to the fore as Indian overseas investment—which surged in 2007 and 2008 amid a clutch of high-profile, high-value acquisitions of foreign firms—increases dramatically. More major companies will join the ranks of Corus, an Anglo-Dutch steel company purchased by an Indian firm, Tata Steel. That deal, completed in 2006, symbolised corporate India's triumphant emergence on the global stage. It has been followed by a rapid succession of big-ticket Indian investments overseas, including a recently announced US$1.2bn tie-up between Reliance Big Entertainment and Steven Spielberg's DreamWorks film studio. Frictions will also emanate from trade negotiations—India was blamed, along with China, for the collapse of the latest meeting of the Doha round of world trade talks in late July this year. As India's global economic footprint grows, a marked rise in trade-related controversies in areas like labour standards, product safety and intellectual property seems all but inevitable.

To minimise the external risks to India's rise, the government's most pressing order of business is to secure its strategic periphery. First and foremost, this means forging a stable peace with Pakistan, which in turn requires a resolution of the seemingly intractable conflict in Kashmir. In July this year India cancelled bilateral talks on security co-operation, blaming Pakistan's military intelligence agency for a suicide attack on India's embassy in Afghanistan. However, the government's efforts to create negotiating momentum will continue. In September a top-level bilateral meeting produced a pledge to restart the countries'"composite dialogue" and to open two trade routes across the de facto border in Kashmir.

India's China strategy is to focus on trade while putting potentially volatile border disputes to one side. This is paying off in economic terms; trade between China and India boomed from US$3.6bn in 2001 to US$39bn in 2007, according to Chinese customs statistics. Admittedly, this phenomenal growth has occurred from a very low base. But the two countries' focus on trade has also allowed symbolic gestures of greater mutual trust, such as the reopening in 2006 of an overland trading route through Sikkim that had been closed since the 1962 Sino-Indian war.

India knows that its ambition to be a global power will depend partly on its ability to mediate and resolve the rising number of crises in neighbouring countries. However, India's ability to intervene in countries such as Sri Lanka and Nepal is limited by resentment at India's perceived paternalism towards its smaller neighbours. India will focus on aiding the democratic transition in Nepal, for example, but it will tread a fine line between preserving its influence there and pushing the new Maoist-dominated government into China's arms. Indian policymakers have noted worriedly that Prachanda, Nepal's prime minister, made China, not India, the destination of his first official international trip. That India is also fighting a home-grown Maoist insurgency has heightened its ambivalence towards Nepal's new government.

While trying to manage regional flashpoints, India has also begun to broaden its strategic horizons. India's expanding ties with the US, including the civilian-nuclear deal now facing its final hurdle in the US Congress, are a major part of this effort. Security analysts have noted a marked shift in India's acquisitions of military hardware, from conventional land-based systems to means of power projection such as airborne refuelling systems and long-range missiles. India is also mounting a concerted effort to gain a greater say in global institutions, for example by campaigning for a permanent seat on the UN Security Council.

A fraught relationship with Pakistan will not prevent India's rise. But tensions with Pakistan will remain a major foreign-policy distraction, and another war with Pakistan would be a serious setback for India's global ambitions. At present there are few hopeful signs that the bilateral relationship will improve markedly. The optimism generated by Pakistan's return to civilian rule in February has evaporated quickly. Any future agreement over Kashmir would probably focus on the conversion of the current de facto border into an international border, with India granting Kashmir some kind of special status. The danger is that any such an agreement, even if achievable, would fail to appease Islamic militants while angering Hindu nationalists.

The prospects for maintaining cordial relations with China look brighter. To be sure, India and China (along with Japan) are natural rivals for regional supremacy, and this will result in many areas of bilateral friction. The foreign policies of both countries are increasingly being driven by a competitive quest for energy security. China's growing ties with India's neighbours, notably Bangladesh, Nepal, Myanmar and Pakistan, will spur India's military modernisation.

At the same time, though, expanding economic links between India and China will provide valuable opportunities for co-operation and confidence-building. China has already overtaken the US as India's most important trading partner, and economic interdependence will create common cause in trade negotiations with advanced economies. Also, while India and China both claim major swathes of territory controlled by the other, neither of the sparsely populated border regions they dispute is a flashpoint like Kashmir. Indeed, the eventual outcome of the disputes—namely, official bilateral recognition of the current territorial status quo—is already more or less clear.

If India successfully manages its relationships with Pakistan and China, will the country's rise to global prominence trigger serious anxieties elsewhere in the world? India's rising economic and political power will certainly prompt some insecurity. However, the threat that rising powers pose to the existing world order depends on perceptions of their intentions as well as of their capabilities. As a result, India's democratic political system will go a long way towards calming the apprehensions of established powers. India's vibrantly free press, independent judiciary and messy electoral politics may sometimes hamper economic development, but they also make the prospect of an Indian superpower seem far less threatening than that of a resurgent China or Russia.

As India grows it will reshape the world around it | India's future | The Economist