India : Engaging the World Suman Bery Director-General

India: Engaging the WorldSuman BeryDirector-General

India: The Next DecadeChatham House

June 28, 2005

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India: Engaging the World

Presentation explores two inter-related questions (for the next decade):

• What engagement is needed to support rapid growth?

• What engagement might result from rapid growth?


• India is a poor country in a dangerous neighbourhood which badly needs to grow more quickly.

• This can only be done through active economic engagement with the outside world.

• India wasted the “liberal moment” in international economic affairs.


• Now has to make its way in a less certain, more hostile international economic climate.

• Elite, bureaucracy have only recently recognised India’s “offensive” interests in maintaining liberal international regime.

• Arenas of substantive interest include trade, energy, temporary and long-term migration. In time could include agriculture, international finance.


• As Minister’s speech yesterday indicated, India has significant economic and strategic interests in a number of regions.

• These include South Asia; East Asia; the Indian Ocean rim; the Middle East and Central Asia; Russia; Europe; and North America. Ties with Brazil and South Africa are also strengthening.


• How can/should India use international engagement to support its growth agenda?

• Past policy has been to protect, expand India’s market access, while minimising reciprocal obligations.

• Unlike China (e.g. through WTO accession), little effort made to use treaties as a “pre-commitment” or credibility device.


• Reflects shallow political consensus for reform, variety of political actors, unwillingness to take on domestic lobbies on too broad a front.

• Attitudes now changing (e.g. role in G-20, Doha Round).


• Bilateral Agreements (CECAs, FTAs), seen as a more tractable way of ‘locking in’ reform commitments, countering domestic lobbies. Also defensive against China.

• Also seen as insurance against failure of the DDR.

• Costly in terms of negotiating time, payoff, distortions, administration.


• All these are minor compared with the two CECAs that would truly matter: the U.S. and China.

• Preliminary discussions on each have taken place.

• Likely to be fiercely resisted by domestic interests, but could both protect market access and provide a roadmap for further domestic liberalisation.


• Like rest of Asia India thus far a (reluctant) multilateralist.

• Failure at Cancun, China’s assertiveness (ASEAN, ASEAN+3) have forced it to seek participation in regional discussions.

• Also will start participating in Japan-led discussions on financial integration.


What engagement would result from growth?

• Current Indian mania a little inexplicable.

• Not that much has changed since three years ago.

• But the rest of the world now seems to believe in the Indian story.


• Economic engagement with most partners still well behind diplomatic engagement. This cannot continue.

• Even though India still a minor player in world trade, size, visibility will entail reciprocity.

• Indian public opinion needs to be prepared for this.


• Differences from China include dynamic private sector, higher share of consumption in GDP, greater entrepreneurship and personal liberty.

• As already apparent, engagement is likely to be on a broad, sophisticated and diverse basis.

Class Rs. ('000) per annum

US$ ('000) per annum (approx.

@Rs.48/$)

Deprived < 90 < 2Aspirers 90-200 2 - 4Middle class 200- 1,000 4 - 21Rich > 1,000 > 21

Middle Class Households:Definition

Households with annual household income between Rs. 200,000 and Rs. 1 million: ( US$ 4000 to US$ 21,000 at 2001-02 prices and market exchange rates).

Income Groupings and Ownership(Ownership per household, 2001-02)

Source: The Great Indian Middle Class, NCAER

Annual HHD Income ('000)

Households

(Million)

Car Scooter Motorcycle Colour TV

Deprived <90 135.4 0.00 0.03 0.02 0.05Aspirers 90-200 41.3 0.04 0.20 0.15 0.40Middle Class 200-1,000 10.7 0.32 0.31 0.30 0.73Rich > 1,000 0.8 0.83 0.24 0.39 0.99

Total 188.2 0.03 0.08 0.07 0.17

Observed and Expected Size of Middle Class

Source: The Great Indian Middle Class, NCAER

Annual HHD

Income ('000) 1995-96 2001-02 2009-10 1995-96 2001-02 2009-10

Deprived <90 131.2 135.4 114.4 79.6 71.9 51.6Aspirers 90-200 28.9 41.3 75.3 17.5 21.9 33.9Middle Class 200-1,000 4.5 10.7 28.4 2.7 5.7 12.8Rich > 1,000 0.3 0.8 3.8 0.2 0.4 1.7

Total 164.9 188.2 221.9 100.0 100.0 100.0

Number of Households (Million)

Distribution of Households (Per cent)

19.6

15.4

21.5

-0.1 2.9

-0.6-3.6

8.2

3.2 6.6

9.0

15.0

10.0 12.2

13.7

21.3

-5

0

5

10

15

20

25

30

1995-98 1998-02 2002-05 2005-09

Deprived Aspirers Middle class Rich

Average annual growth rate of number of households (%)

All India

Source: Great Indian Middle Class


Summing Up:

• India needs international links that both secure market access and support domestic liberalisation.

• It is “shopping” for fora to achieve this in a way that is consistent with domestic politics.


Summing Up (contd.):

• It has a strong interest in a successful Doha Round.

• But it is taking out insurance in case the round fails.

Thank You

Documents

India : Engaging the World Suman Bery Director-General