At Large

Pain in the India Partnership

A great country not doing as well as we had hoped.

By 3.7.14

UPI
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Of late, the news from India has been dismaying. Economic growth according to the International Monetary Fund has declined to 4.6 per cent for fiscal 2014, nowhere near the high single digits achieved in recent years that delivered tens of millions out of poverty. Inflation estimated at almost 10 percent for 2013 is a major challenge for the Reserve Bank of India, the nation’s central bank. Aggressive deregulation of massive government bureaucracy which had come to be known as License Raj has stalled, as has privatization of state-owned enterprises with the decline of the Rupee and investor confidence. Foreign direct investment has also been a disappointment, reflecting unease about tax policies, political risk, and governance. Agriculture, which employs over half the work force but represents only 17 percent of GDP, has not received the emphasis of the Green Revolution which started in the late 1960s.

There also appears a sense of drift of the Congress Party which has controlled the current coalition in the Lok Sabha, the lower house of parliament, and has basically governed India most of the years since independence from Britain in 1947. Its principal opposition, the conservative and Hindu nationalist Bharatia Janata Party (BJP) and its standard bearer Narendra Modi, chief minister of the state of Gujarat, are expected by many observers to win, appealing to a dispirited electorate weary of scandals.

Relations with the United States, which represents a strategic economic and military partnership, are strained. Due mainly to India’s Nuclear Liability Act, U.S. companies have made little progress since the celebrated U.S.-India nuclear deal signed in 2008. The arrest of the Indian deputy consul general in New York in December on charges of misrepresentations to U.S. immigration officials resulted in shocking retaliation, including removal of security barriers surrounding the U.S. embassy in New Delhi. Prime Minister Manmohan Singh reportedly described the situation as “deplorable.” Further, in late January the Federal Aviation Administration downgraded India for lack of compliance with aviation safety norms, affecting Air India and another carrier. Adding heat to U.S.-India relations are the Food and Drug Administration’s findings of unsafe and adulterated drug practices on the part of Indian pharmaceutical companies that export generic and over-the-counter drugs to the U.S.

In a high visibility controversy, Penguin Books India very recently agreed to an out of court settlement to withdraw and pulp a book ofUniversity of Chicago scholar and widely recognized India expert, Wendy Doniger, allegedly for being offensive to Hindus. This action has shocked the Indian intelligentsia and establishment, calling into question the liberal, secular values of the republic.

Moreover, the Indian national conscience has been badly stressed by highly publicized gang rapes, as well as by a recent alleged order in the state of Bihar by a village government body known as a khap panchayat that a woman be raped by thirteen men as a form of punishment. The Supreme Court has called khap panchayats kangaroo courts and has declared them to be illegal. Heinous crimes against women have put women’s rights on the national agenda in a way not seen before. Adding to a national sense of doubt, Indian athletes were not initially allowed to compete at Sochi under the Indian flag because of an International Olympic Committee ruling that some of India’s Olympic officials had a history of corruption.

This is not the India of robust economic growth, shining industrial parks, corporate IT campuses as in Silicon Valley, and a highly professional military. It does not seem to be the same country whose leading multinational, Tata, owns Jaguar and Land Rover — or the nation whose talented students gravitate toward investment banking, consulting, and medicine in the United States. As an aspiring regional and world power, India needs to integrate further with the West.

As India’s leading sponsor, the United States is right to be disappointed and to expect more from a partner that professes the rule of law and practices parliamentary democracy — where by some estimates, about 125 million people speak English.

As we contemplate recent events there, we would be wise to recognize the long term strategic value of that country to the U.S. and the alignment of interests, as I have written in these pages earlier. First, India can in some part counter the naval influence of China. This means that given China and India’s reliance on imported oil, most of it from the Middle East, both countries view the sea lanes of the Indian Ocean as their natural sphere of influence — from the Strait of Malacca to the Persian Gulf. Chinese naval assets drawn to those waters dilute China’s presence in the South China Sea, Strait of Taiwan, and western Pacific.

Second, with over 160 million Muslims and a secular country since its foundation in 1947, India has an ingrained fear of Islamist jihad, having been the target of numerous terrorist attacks, particularly the highly visible assault on Mumbai in November of 2008. Focusing on strategic depth in Afghanistan, where India has some historical affinity, it can assist in the efforts to modernize that country after the U.S. and NATO withdraw in 2014.

Third, with over 1.2 billion people and the world’s fourth largest economy, India is a potentially large market for U.S. companies, although weak corporate and public sector governance will continue to impede trade and direct investment.

Finally, and while symbolic, as the world’s largest democracy having remarkable diversity, the country is an example of impressive political achievement among developing nations.

India is a civilization with over 5,000 years of history. It has seen many travails and triumphs. The U.S. needs to exercise what moral authority it can, vigorously assert its commercial and diplomatic interests, prepare for a possible change of government, and demonstrate patience as our Indian partner tries to get the governance right. Differences should be addressed through private channels. In the meantime, there is pain in the partnership.

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About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago where he is a lecturer.