July 2002 (updated Apr 2003)
Perspectives on International Relations and Economic Policy
As in most other developing nations, Indian policy makers have rarely been able to match the sophistication and craft of their Western and Japanese counterparts. Whereas policy makers in Japan and the West have been quick to seize on any weakness on the Indian side to press their advantage, Indians have instead gone out of their way to be understanding of the other side's difficulties rather than use them to rectify inequities and asymmetries in India's relations with them. Whereas international experts in Japan and the West routinely oversell their virtues and downplay their many defects, Indian negotiators have not only discounted their historic strengths and frittered away their natural advantages, they have also been extremely reluctant to articulate even serious defects or inconsistencies in the propaganda and arguments of the other side.
Partly this has come about because Indian policy makers have been too fearful of failure, and too eager to make a deal. This has contributed to poor negotiating skills, since hard bargaining requires not only patience and perseverance, but also the willingness to walk away from a bad deal. On the other hand, Western and Japanese negotiators are not only better at hiding their true intent, they are more willing to bluff their way through, confident that on most occasions their bluffs will not be called, and when they are - they will prepare themselves to live with the consequences, or find a way to counter such failures.
But hard-bargaining is not a magical trait that some nations are genetically predisposed to possessing. Prior to colonization, in the political and economic encounters between Europeans and Indians - it was the Europeans who had to weasel their way into India, often having to put up with rejections and disappointments. But the tables were turned when they became more familiar with India's rulers and their faults and frailties, and began finding ways of using them to their own advantage. Whereas the early European visitors were awed and overwhelmed by India, later visitors were cunning and shrewd, rarely letting on that they were too impressed by anything Indian.
But too many Indian analysts (even some of those who are bandied around as "experts"), appear to have a rather naive and insular view of the world. Their approach is too readily transparent, and they are easily swayed by superficial impressions and shallow analysis. There is a reluctance to invest in the kind of reading and research that could not only lead to greater self-awareness and confidence in one's proven strengths and abilities, but also create a more perspicacious assessment of one's adversary. In this respect it is important to note how the Western world and Japan have not only expended great effort in studying their own past so as to develop pride and confidence in their heritage, they have also critically examined the cultures of nations they have wished to combat, control or conquer.
This is not to say that Indians ought to emulate the former colonial powers in their racist or chauvinist attitudes about themselves or others, but that there is need for greater knowledge and a more objective understanding of ourselves, and of others.
One of the weaknesses of the Indian intelligentsia is how there is a strong tendency to denigrate all things Indian, and to admire imported things (whether material or cultural) with an enthusiasm that often borders on sheer cravenness. Even as some of India's intellectuals battle over what are sometimes mere inanities, many have time and again, dutifully accepted false or inapplicable imported ideological constructs, or tolerated incorrect, even insulting descriptions of Indian history and contemporary reality from those they have tried to project as India's "friends" or potential "allies". This is not to say that one should not seek foreign friends or allies, or even that one should be needlessly suspicious of any criticism from an external source. But in the Indian case, the tendency to bend over backwards to put up with unhelpful advice, or even accommodate hostile tendencies has simply gone too far.
Take the tendency of foreign reporters to repeatedly emphasize how India is a predominantly "Hindu" nation. How often are Indian intellectuals able to come back with how the US, Britain, Australia or New Zealand - are overwhelmingly "Christian" nations, or that France and Italy are "Catholic" nations, that Israel is a "Zionist" nation, or that Egypt is a mainly "Islamic" nation. India's secularism or lack of it is always under scrutiny - but other nations where there is institutionalized discrimination against religious minorities - such as Saudi Arabia or Pakistan generally escape censure.
In the recent crisis with Pakistan, it is particularly ironic how those who made such a fuss over India's nuclear tests maintained a mystifying silence when senior officials in Pakistan's military administration repeatedly spoke of using nuclear weapons against India. Why was it that so few in the Indian political establishment ("left" or "right") were able to seize on this - and expose the utter duplicity and hypocrisy of the Western and Japanese diplomatic establishment? Although statements criticizing Pakistan's leadership for issuing such irresponsible statements did emanate from Indian officials, no official went so far as to criticize the US and Western media, or the Pentagon and CIA officials, who either justified such nuclear brinkmanship or failed to distinguish between India's no-first use policy and Pakistan's nuclear blackmail. Indian and Pakistani (and international) peace activists have also been negligent in not countering the propaganda that equated India and Pakistan even though all the threats to use nuclear weapons first had been made by the Pakistani military and diplomatic establishment.
Neither did the fans of the Chinese government in India (or abroad) notice
how China's supposedly neutral position was in effect - a backhanded way
of tolerating (or ignoring) Pakistan's nuclear blackmail and instigation of
terrorist acts against India. For instance, if Pakistan has a right to demand
Kashmir only because it has a large Muslim population, couldn't India - with
it's deep cultural and philosophical affinities with Tibet equally then demand
that Tibet be merged with India? Unlike in Jammu and Kashmir, where outsiders
are prevented from buying land and settling in the Indian state, there are
no such restrictions in Pakistan-occupied Kashmir (POK) or even Tibet. Punjabis
from Pakistan have been systematically changing the demographics of POK,
just as the Chinese government has encouraged the settling of Han Chinese
migrants in Tibet. Yet, it is ironic how the very Indians who idolize all
things Chinese, and unconditionally accept the merger of Tibet with China,
(without ever mentioning self-determination or autonomy for Tibet) are all
too willing to legitimize Islamic chauvinists and fundamentalists masquerading
as "freedom fighters".
But the tendency to brush aside even legitimate national rights is all pervasive in India. While some scholars from the "left" have gone out of their way to de-emphasize India's national security concerns, downplay (or cover up for) sectarian terrorism in Kashmir, or decry even some positive and progressive examples of cultural resurgence, analysts on the "right" have indulged in considerable illusion mongering concerning the US, and devalued concerns pertaining to economic and political sovereignty.
Take, for instance, some of the economic perceptions and predilections of the Indian right. Amongst many such Indian economists, there is now, virtually an infatuation for economic liberalism - even when the evidence, when concrete material data might caution otherwise.
Consider the obsession with FDI (foreign direct investment). In all the discussions on this subject, there is rarely any balanced discussion on the pros and cons. The imperative of attracting FDI is treated as a given - the potential costs (such as to national priorities, or sovereign concerns) are studiously ignored. But even if one were to accept that attracting FDI were important and essential for the advancement and well-being of the Indian people, the manner in which the Indian elite has gone about the process reveals a pathetic ignorance of the real world. Most of the focus has been on the US when it should be apparent to any economist worth his/her name that the US is a net importer of capital, not a net exporter of it. According to Mexican economist, Hugo Salinas Price, the annual trade deficit (estimated at over 400 billion $) in the US economy is funded by capital inflows from the rest of the world - predominantly Japan and Germany, with even China and the rest of the developing world making contributions. (See: What really killed Argentina?)
In fact, the US is the biggest sink of finance capital, as opposed to being it's biggest creator. Thus rather than the US being a potential provider of FDI, it is in fact India's biggest competitor in this regard. If India's industrial capitalists were truly interested in attracting FDI, they ought to be wooing Germany or Japan or the capital surplus kingdoms of the Persian Gulf. But there is a problem even with that.
Unlike Korea's industrial clans who have been much more willing to enter risky markets, and take a somewhat longer term view to generating profits, Japanese investors have been extremely risk averse and have rarely engaged in any market development or market expansion strategies. To the extent that Indian capitalists cannot demonstrate sufficient local buying power, Japanese conglomerates will prefer to export from their already established bases in South East Asia rather than manufacture in India. And they will continue to demand more and more onerous political and economic concessions before they are willing to invest in India.
This puts India in a catch-22 type situation with trying to attract FDI from Japan. If the government does all the things the Japanese capitalist class wants out of India - the Indian domestic market will not grow, or only grow very slowly. Given the deeply conservative nature of Japan's industrial class, (who only like to enter booming markets) this means that even after India liberalizes to the extent Japan demands, little investment will actually materialize.
Comparisons with China or the ASEAN block are meaningless because Japanese conglomerates initially invested in Korea, Taiwan, Thailand, Malaysia and China more because they needed to off-load labor-intensive low margin manufacturing. Japan needed these off-shore bases to reduce it's costs so it could be more competitive when it exported to the US or Canada. Japan didn't invest in these countries because it anticipated a large domestic demand for it's products - it did so because it had either already broken into the US and European markets, or wished to do so and needed to keep it's cost structures in line. Once it began investing, it led to a certain spurt in domestic demand in China and the ASEAN block, and this kept the cycle of Japanese investment in these countries going. However, it now appears that even this formula for growth is eluding at least some of the ASEAN economies, so the odds of India participating in such a growth cycle are fairly dim. Besides, there are geographical and other factors (such as the cost of land, poor infrastructure, and cultural factors) that greatly inhibit Japanese investments in India.
Mexico is now Japan's preferred venue for new export-oriented investments that target the North American market (as Peru might be for the South American market). Similarly, Ireland, Portugal and Eastern Europe, (or Morocco, Tunisia and Egypt) provide more suitable investment options for the EU markets. For serving the Japanese domestic market, India cannot compete with coastal China or the ASEAN ports on account of their greater proximity to Japan (both in terms of geography and culture).
There are similar impediments to attracting FDI from Germany (or other EU nations) in any quantity. However cheap Indian labor might be - it is not cheap enough to outweigh the logistical and geographical conveniences of investing closer to ones main markets. This should be rather obvious to India's business class, because after all - their own investment patterns reflect similar tendencies. Even though Orissa, Jharkhand, Eastern Madhya Pradesh and Chhatisgarh offer cheaper land, greater access to industrial raw materials and a cheaper workforce, India's industrialists have long preferred Gujarat, Maharashtra, Greater Delhi (or the Bangalore and Chennai industrial belts).
If India's own industrialists aren't willing to expand their investment horizons to uncharted territories within India, why should they expect anything better from the equally (or more) conservative industrialists of Japan or Germany? No matter how much these Indian industrialists may wish to imitate the so-called Asian Dragons, geography and time are not on their side. Even history is not on their side. Consider that in 1947, (when India became free from direct colonial rule) Korea and Thailand, both had much higher literacy rates (50% or higher versus India's 13%) and better urban infrastructure. Even pre-revolutionary China was better off than India in terms of it's social indices and urban development. But the Chinese revolution helped even more by paying particular attention to improving social conditions and investing heavily in rural and urban infrastructure. Not only do China and the ASEAN nations provide closer and more convenient access, they also provide a relatively better educated and better trained industrial workforce.
There are also other factors to consider. China has been able to spend more on the purchase of consumer goods partly because it has had to spend a much smaller proportion of it's export earnings on energy imports. Factor out the differences in India and China's energy import bills, and the differences between India and China's foreign currency reserves will not be significant. This advantage has naturally allowed China to liberalize faster and spend more on urban renewal, improvements in infrastructure, and tourism development without worrying about it's trade deficits growing unmanageably large. In addition, China's better-educated and mostly one-child families have had more money left over for discretionary purchases - for buying consumer goods.
But one of the most important factors facilitating Chinese FDI has been the enormously wealthy Chinese Diaspora - in the US, in Taiwan and Singapore, in Indonesia, Malaysia, Thailand and the Philippines, - who have now shifted their investment focus to mainland China. Compared to the Indian non-resident community, the Chinese business Diaspora has become much more capital-rich, and it remains the largest contributor of FDI in the Chinese economy. China's reunion with capital-surplus Hong Kong has also come as a boon.
For those wishing to copy China - it is important not to ignore such real differences. If India's industrialists were more prescient, they would understand these realities, and instead campaign for greater state-intervention in expanding the social, cultural, intellectual, scientific and material infrastructure in the country.
It is important to note how Japanese and Korean conglomerates have demanded that the state intervene and help out in several ways. First, in the universalization of quality schooling. Second, in the funding of basic scientific research and in developing key industrial technologies for future use (such as robotics, advanced electronics, cutting-edge industrial materials, such as composite fibers and alloys, precision tools and instruments, etc). Third, in the funding of road, transportation and communication links. Fourth in market protection and expansion activities.
It should be noted that in spite of US needling, the Japanese economy remains one of the most impenetrable economies in the world, and even the Korean economy was only recently liberalized, and that too under great duress. Not only have Korea and Japan utilized legal means to protect their domestic manufacturers, they have also used cultural pride (and in Japan's case, a high degree of cultural xenophobia) to keep their domestic markets virtually out of bounds for foreign goods and services. Korean and Japanese industrialists have especially encouraged and supported investments in preserving their respective cultural heritage - there has been little or no opposition to state-funding of museums, art-galleries, heritage books and CD-ROMs. The preservation and maintenance of heritage sites has also received greater attention - the intelligentsia realizing fully well that not only do such efforts create national cohesion, they also create national loyalties towards domestic producers.
Of course, there is a down-side to excessive protectionism - it can lead to cultural insularity and social conservatism. In spite of Japan's "developed" economy - Japanese society remains highly regimented and hierarchical with most workers putting in very long hours on the job, and women relegated to secondary positions in spite of achieving educational parity with men. These are not the aspects of Japanese society that India needs to emulate. But if India's industrialists dream about becoming another "Asian Dragon", they at least need to know what may have gone into the mix.
If they were to fully understand that, they would have to arrive at the inescapable conclusion that even as India might pick up pointers from other nations, it must inevitably discover and develop it's own formula for success. Whether it is India's industrial class or India's intellectuals seeking more radical and egalitarian solutions to India's ills - both need to do much more in finding Indian solutions to uniquely Indian problems - to encourage and promote domestic insights and abilities whenever appropriate. They also need to develop a keen sense of discrimination and an appreciation for the finest of intellectual and cultural talents - without the Eurocentric (or East-Asian) biases of the past. But to do that will not be easy. As long as different sections of the Indian elite remain wedded to false isms - whether they be caste or gender chauvinism, ageism, nepotism, or religious obscurantism, they will not be able to encourage those who can promote Indian national interests more effectively. As long as India's intellectual elites continue to favor incompetent and sycophantic individuals over sharp critics, the best Indian minds will continue to languish in obscurity.
It must also be noted that national aspirations cannot be promoted by pop demagogues. India's greatness does not lie in recitations of the "Gayatri" mantra, in Saraswati Vandana, or faith in astrology as some revivalists argue. India's greatness lies in the precocious advances Indian civilization made in articulating the process of rational and scientific investigation - in the sophisticated logic and epistemology of the Nyaya Sutras (or some of the thoughtful constructs of the Syadvada school). The spirit of inquiry - the awareness of nature and the interconnectedness of worldly phenomenon, the ability to observe and abstract the essence of things, the concern of the early Buddhists in overcoming human suffering (in this world, not the other world), the love of color and beauty in art and music, - these and other such aspects are what ought to be studied and distilled from the Indian past.
And if they did, India's intellectuals would realize that India's richly pluralistic traditions are not to be scoffed at, or lightly dismissed. At the same time, they would note how all through Indian history - successful Indians have responded to manage India's somewhat unique geographical environment. Since India's rainfall is mainly concentrated in three or four months of the year, water-management has always been of primary concern. Whether that be to control monsoon flooding, or dry season drought. The intense precipitation received during the monsoon months has also been the impetus for using more stable and lasting building materials. (It is no coincidence that India's monumental architecture employed steel, stone and cement more than any other nation in the pre-industrial world). The long and intense summers also led to an interest in cooling techniques - in building plans that provided living spaces shaded from the direct rays of the sun (even as they took full advantage of natural light), and ventilation techniques that enhanced cooling air flows.
Yet, we have given insufficient importance to water conservation and harvesting. We continue to build roads in a thoroughly inefficient and inappropriate way - with materials that wash away with the annual monsoons, even as our cement industry now has the capacity to provide enough cement for all-weather roads. Neither do our city building codes require any attention to building plans or techniques that might reduce air-conditioning or artificial lighting costs. We have lost touch with the traditional knowledge of the past (or are hyper-critical of it), but we use imported knowledge without wise evaluation or intelligent adaptation to meet our unique and specific needs.
One of the biggest impediments to faster growth is India's insufficiently developed energy sector. While India cannot wish away it's poverty in terms of energy resources, it could do a lot more to minimize the problem by investing at a faster pace in developing alternative energy resources, and in bringing about greater energy efficiencies in the Indian economy. While Indian scientists and engineers have come up with many innovative and workable solutions, many languish due to obstructive tactics from various quarters of commerce and industry. Corruption and indifference in the bureaucracy, or short-sighted fiscal fundamentalism compound the problems.
Something that has often evaded the consciousness of Indian "globalizers" is how not all of India's problems can be solved simply by allowing greater access to off-the-shelf imports. Since few other nations experience exactly the same geographical and climactic conditions experienced by India, it would be futile to expect any one else to find optimal solutions to such (and other) problems. It is only up to us to solve them. This means that no matter what the temptations or ideological compulsions might be, "integrating with the global economy" ought never be the main motive or concern. The primary motive force for the Indian economy must be the resolution of India's most urgent and compelling problems and concerns. And when the private sector can't or won't take the initiative, this can and must come about through enlightened state intervention.
But since the demise of the Soviet Union, there have been few attempts to discuss or consider the relative merits of thoughtful state-intervention. This is not to say that the ideologues of the "right" - who discount or dismiss the role of the state don't have any ammunition in their favor. No one can deny that there is a great deal of parasitism and corruption in the Indian public sector. It is common knowledge that jobs can be bought and sold in the public sector, that revenues that should go to the government end up in the pockets of corrupt state officials, that public resources are routinely diverted for private use - that incompetent and parasitic individuals are hired only based on family or political connections. It has also been argued that public sector managers and employees rarely take the effort to overcome some of the stifling bureaucratic procedures that hamper the performance of public sector enterprises, or that there is the tendency to avoid improvement and innovation. That these are all very serious and real problems is unquestionable - but are these problems insurmountable? Do all public sector undertakings perform worse than the private sector or short-change the Indian public?
For instance, isn't it possible to institute mechanisms of public oversight that could rectify these ills and greatly improve the functioning of public sector enterprises? Couldn't the Indian press and media do much more in exposing the mafias that have come to control state utilities and other public service agencies? Couldn't Public Watchdog Groups, progressive political organizations, sincere social activists, Trade Unions (and other mass organizations) and NGOs - all play a decisive role in combating the negative trends that are ravaging the Public Sector?
The truth is that if there were the will to reform and rejuvenate the public sector, it could happen. But unfortunately, the nation is divided between political forces that either despise the public sector or defend it half-heartedly and unconvincingly. Some refuse to recognize that the public sector cannot be defended successfully without instituting radical new means to make it more responsive to public needs and national goals. Wherever, the public sector has become a breeding ground for rank opportunism and social parasitism - progressive forces must intervene to rectify and improve the situation.
But unfortunately, some of the forces that are opposed to the retreat of the state have not yet recognized the magnitude of the problem, nor the depth of alienation that indifferent management, absenteeism, and poor work ethic have created amongst sections of the Indian public. Unless such forces who claim to defend the state sector frankly acknowledge such negative trends, develop a comprehensive critique of the problem, and offer workable solutions to combating them - they may not be taken seriously enough by the Indian masses. Those who have always championed the role of the state in the Indian economy not only need to do more to stress it's potential advantages, they must also acknowledge where things have gone awry and offer solutions that will revive not only the Indian public sector, but the entire progressive agenda.
On the other hand, it is extremely important that all progressive forces come together to resist the agenda of right-wing demagogues such as Arun Shourie who cynically twist facts and falsify economic data to bolster their case for privatization. Not only have India's public sector companies been sold off for less than the value of their total assets under Shourie's watch, in several instances, privatized assets have been sold off soon after at huge premiums over the price received by the government. Shourie has often been particularly dishonest when he has argued against retaining loss-making public sector units, yet failed to acknowledge that in many instances, such units have lost money only because of political interference on behalf of vested sections of the private sector. Shourie has been particularly insensitive and dismissive of concerns regarding the privatizion of India's highly profitable energy companies and other such strategically important nationalized companies.
As the attempt to subjugate Iraq clearly shows - vested imperialist interests
in the US, Britain and Australia are only too eager to grab hold of vital
energy resources wherever they can. More than anything else, they wish to
take over India's oil and gas industry. They are the greatest champions of
privatization in India's energy industry.
In a globalized economy, there is a great danger that powerful commercial conglomerates will either buy up domestic ventures, or influence them unduly through various coercive means. Under such circumstances, it is only the public sector that can serve as a viable centre of national sovereignty, as the engine for social progress and advance. Only a strong public sector can provide the kind of economic stability and leverage that the private sector may need in negotiating successfully with foreign agencies and international investors. This has certainly been the case in China, and has greatly facilitated China's recent economic expansion. Genuine Indian nationalists ought to be cognizant of that.
Even as democratic forces struggle to make the state more responsive to
popular needs, in an increasingly unipolar world, the state cannot be allowed
to wither away in nations that have yet to recover from the depredations of
colonial plunder and exploitation. The state must especially defend vital
national assets from falling into the hands of predatory business interests.
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For essays in Indian History, particularly to articles pertaining to colonization, see South Asian History or Topics in Indian History
Also see: Philosophical development from Upanishadic theism to scientific realism
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