A Note by the Director (Ditchley 2004/03)
13-15 February 2004
Over the weekend of 13-15 February, we looked at India’s prospects in the coming century. Notwithstanding the fact that our discussions started on a Friday the thirteenth, the timing was propitious. National elections had been called in India for April and on the day after the conference ended the first round of the Indo/Pakistan composite talks were due to begin. We were fortunate to have around the table, participants with deep experience of the subcontinent from the political economic and strategic security points of view.
Before looking at particular aspects of India’s future we considered some of the general trends in its recent development. Many of our comments were directed at the role of central Government. Perhaps one of the greatest challenges facing the country would be to build institutions which were effective in delivering policy and setting the framework for future economic and political development, instead of a means of bureaucratic control. Another view was that Government should be an enabler rather than a provider or an employer. Reference was made to recent advances and the metaphor of Shining India. But we noted that there was still a risk of two Indias developing, with the gap increasing between the growing wealth of the rich and the large number of poor who were mainly dependent on the Government. It was suggested that the Government had made progress by taking forward economic reform and not by concentrating on “hindutva”. Some thought the electorate as a whole were calling for further reform and that if the Government delivered, as it was now doing, for example with its road-building programme, it would be rewarded by the electorate at the forthcoming elections. This would, in turn link the interests of politicians with the process of reform. One participant thought that there might be a trade off between liberty and economic growth. For the “other India” good governance was more important. Transparency was essential together with freedom of information instead of a culture of secrecy. The concept of the proper role of Government in India needed to be rethought, and a radical change made to the way the country was administered. The Government should do a few things well and not many things badly.
Against that background we looked at domestic political, economic and foreign and security policy options for India in the years ahead.
The first question we asked ourselves was about political stability. Given India’s size, population and diversity, would the centre hold or were there real risks of fragmentation. A general consensus emerged that the Centre would indeed cohere. There was a strengthened sense of national identity to which the economic reforms and liberalisation of the 1990’s had contributed. We thought that there was a strong impetus for India to maintain itself as a “nation-state”. Among the main risks we identified was the possibility that a dominant national party might emerge which could provoke the fissipairous pressures which had arisen in 1980’s. We acknowledged that there was a growing desire for greater power and autonomy by regional states. And the widening economic disparity between states committed to reform like Andra Pradesh, Gujarat and Karnataka and others like Bihar or Uttar Pradesh, could eventually lead to systemic instability, particularly if rates of economic growth in “successful” states increased even more rapidly.
We also asked ourselves if India’s political arrangements would deliver economic change. Our general conclusion was that the political establishment had supported economic reforms. This had been triggered by the foreign exchange crises in 1991 and followed by a new species of entrepreneurial business which had given rise to multinationals based in India like the Reliance and Tata groups and more recently by successful IT and life sciences firms. It seemed that the statist ideas of the Nehruvian period had given ground to a new model of globalisation and that the balance of internal political forces had shifted in favour of reform. With the telecommunications and IT revolution, India was a much more open society and increasingly open to the global market. Membership of the WTO would also cause further change. One participant questioned whether there might not be more resentment than was apparent about the new wealth and western life-styles. Another thought there had been a sea change in the attitudes of the poorest where resentment had been overtaken by a desire for improvement. Castes, like the Dalits, were now wooed by political parties. It was becoming increasingly common for caste based parties to emerge and succeed as alternatives to more established political parties and examples, like the election of Mayawati, a Dalit, showed that political advancement was possible. We were warned, however, that if reform had the effect of excluding poorly educated, lower middle-class Indians like small shop-keepers and others, there could well be a backlash. As far as globalisation was concerned, an experienced observer commented that most states now wanted to attract multinationals and that, for example, the Punjab had made English a compulsory subject in its schools.
Some of our sharpest exchanges came in discussion of inequality, sectarianism and caste. Historically, we acknowledged that India had had a good record of conflict resolution. There had been serious lapses, Gujarat was the most recent But, it was argued, when compared with the magnitude of the existential problems India had overcome while maintaining constitutional liberty we should be confident that India would cope in the future. There had not been any riots in the two years since Gujarat. It seemed that violence could flare up rapidly and die down equally quickly. Communalism appeared not to be ingrained in India. Nevertheless, it was pointed out, at a time when Islam was in danger of demonisation in the rest of the world, there was a possibility that this view might take a hold in India, connecting an external, to an internal, threat. The problem could be compounded if there was a movement away from secularism towards a view of India’s “glorious Hindu past”. It was, however, noted that no Muslims from India had, as yet, been involved in the troubles in Kashmir. We were also concerned about the possibility of mass migration from the country to the cities. Unlike China, India had no internal passports. One participant concluded it appeared undeniable that India’s political systems were delivering India’s goals (except, perhaps at the local level in urban and rural areas, commented another). It appeared, contrary to some predictions and academic analysis, that democracy was not only compatible with rapid economic development but also with conflict resolution. In the short term we wondered how wide was the basis of support for reform in the BJP. If Vajpayee went would reform falter? A key question to be answered by the results of the elections and the period thereafter, was the reply.
In looking at India’s economic prospects we looked first of all at some of the big figures. India had a population of over 1 bn and an anticipated addition of 600 million in the decades ahead. 26% of the present population were below the official poverty line and, on one estimate, up to 45% were living on $2 a day. India was now the thirteenth largest economy in the world and fourth in terms of purchasing power but it still produced less than 1% of world exports. Nevertheless the economy was currently growing at about 8% a year and there were clear signs of increasing affluence in the large middle and upper income classes. We also looked at intangible factors. It was claimed that in the past year there has been a change in mindset. There was now a consensus among politicians, businessmen and consumers in favour of reform. The consumer was becoming king. The Indian diaspora was now welcomed. If reform was established investors would benefit and there would be a trickle-down effect throughout the economy. Others still thought that bureaucracy was a heavy burden in India. The control Raj had been replaced by a licence Raj which gave ample opportunity for corruption, also identified as a major inefficiency and cost in doing business in India. The time taken to make an investment in China was contrasted favourably with that in India. One participant thought that, with India’s integration into the world economy, China would become the world’s workshop and India its knowledge capital. But, commented another, knowledge was not necessarily good for employment. Overall, however, the general view of the prospects for the Indian economy was strongly upbeat.
In a more detailed look at certain aspects, the hope was expressed that not only would there be a trickle-down but also a trickle-across effect between the Indian states. The example of those who were in the lead on economic reform would, some thought, be followed by others, pushed by electors who wanted both reform and delivery from their politicians. The forthcoming election might be fought on performance in this area. We identified infrastructure limitations as a major constraint on growth. The energy sector was a serious weakness where attempts to increase capacity had been set back by bureaucracy, inconsistent policies and corruption. If an efficient power supply could be achieved, it could, thought one participant, add 1% growth in the economy. Concern was also expressed that the Finance Commission should be moderate in its fiscal transfers from successful reforming states to states who had failed to reform. There should not be a penalty on success. Finally, while there was acknowledgement that the Central Government’s deficit had been reduced, if taken together with the States’, a double digit figure emerged which should come down. Tax collection needed to improve.
We thought that it would be in India’s interests to liberalise and modernise the banking and insurance sectors. The recent move in permitted foreign ownership of banks to 49% was positive but restricting foreign participation in the insurance sector to 26% was, we thought, too low and was inhibiting the creation of a vibrant capital market in India although, it was pointed out, $7½bn had been invested in Indian stock-market last year. We discussed why relatively little Foreign Direct Investment had gone into India with some claiming this was a sign of the strength of economy and others arguing it should be taken as a warning that foreign investors found India unattractive. It also meant that India was not receiving the management and other expertise which normally came with FDI. It was claimed that return on investment in India was as good or better than that in other Asian economies. We concluded with the thought that one of the greatest challenges was how to achieve economic growth and cut unemployment. Growth with jobs, and not just growth, was the aim. A participant speculated about the signs we should be looking for after the elections, to indicate that politicians had really drawn the conclusion that delivering on economic reform was in their political interests. Tackling not just the central but also the state governments collective fiscal deficit, doing something about the infrastructure, in particular power, and above all delivering on promises made in the run up to the elections, were all considered useful benchmarks.
As a framework for political and economic development we considered the foreign and security challenges which now confronted India. We began by looking backward and concluded that India had managed the post-1989 transition well. Pragmatism had been the hall-mark of India’s foreign policy, together with a clear appreciation of its national interests. India now had good relations with a wide range of countries including Iran and Israel. India had adjusted to a unipolar world, although commented an experienced practitioner, it was not entirely clear how pleased India had been about this. Nevertheless we did not question the centrality of the relationship with the US which included tolerance of a US presence in some of India’s neighbours. India and the US had engaged in joint exercises and elements were in place for an Indo/US strategic partnership. India’s external and internal security was, we thought, linked. The relationship with Pakistan was obviously of the first importance and Kashmir was the central issue in the dialogue with Pakistan. It was suggested that India was the big power in the region. It could move with a big heart or seek hegemony; it could, alternatively, adapt to modern conditions and deal with the fears of its neighbours. We were given an explanation of India’s naval interests in the Straits of Malacca and Hormuz through which passed much of India’s energy requirements.
We saw some signs of improvement in relations with China where economic links were growing and there might be a possibility of working together on some strategic issues. But differences persisted over territorial claims and nuclear weapons. One participant warned that India could face great strains in its relationship with the USA if US relations with China or Pakistan were to deteriorate sharply. But the bulk of our discussions were on the relationship with Pakistan and within that, the future of Kashmir. We welcomed the forthcoming discussions as part of the consolidated dialogue. This, we thought, was a real process and just a cynical election ploy. Both Vajpayee and Musharraf had a genuine interest in their success, although some of us speculated that they might be ahead of their bureaucracies. There was no expectation that rapid progress would be possible and this underlined the need to manage public expectations. We were reminded that Kashmir itself formed only 10% of the former princely state of Jammu and Kashmir. Some argued that the views of the Kashmiris themselves had been overlooked. Their views appeared to have changed and they now supported non-violence. But, overall, optimism was expressed. The current process had perhaps been facilitated by the US and the UK, but the content and the procedures had been agreed bilaterally which gave them greater durability. We anticipated that there would be future shocks but hoped that the current process could withstand them. We also hoped that an eventual solution on Kashmir would be simple and easily explicable.
In the Indo/Pakistan relationship as a whole, we asked whether agreement could be reached in any of the strands of the dialogue before there was overall agreement, and thought it important some incremental steps should be taken to demonstrate that progress was being made in some areas which could retain public support. One participant urged an increase in trade between the two countries as a way of helping to alleviate security concerns. We were discouraged from speculating about solutions and while facilitation had been welcomed, outsiders were urged to keep quiet. One participant thought that the ability of the two parties to implement any final agreement would be in doubt until there had been internal reform in Pakistan which would give the Government there greater stability. This was disputed. If the onus of taking matters forward was placed solely on Pakistan the result would be to put the brakes on. It was important, in one participant’s view, that even if there was no substantive progress for some time both parties should stick to the dialogue and not move to alternative policies.
The nuclear factor was discussed and some thought that this underlay the concerns felt by the military on both sides that the events of 2002 had been too dangerous to allow a repetition. The Lahore MOU was thought worth reviving whether or not the composite dialogue made any progress. The CBM’s in the MOU would help to deal with what one participant referred to as a “primitive” attitude to such questions. Anti-Ballistic Missiles were mentioned and the view expressed that if India went down that route, however understandable, it would drive Pakistan up the classic ladder of insecurity. It appeared that the current US administration had not tackled the issue of how to accommodate India and Pakistan (and Israel) into the Non-Proliferation Treaty. India’s relative reticence on the revelations about Dr A Q Khan had been noted and appreciated in Islamabad. In an aside on Afghanistan, the hope was expressed that both India and Pakistan would resist the temptation to make it into a playground for Indo/Pakistan rivalry. One participant went further and suggested that Afghanistan might even provide an arena where India and Pakistan could work together towards a common goal.
In an attempt to sum up the ground we had covered, it was claimed that Shining India was not just a slogan but a reality. By embracing a more market-based philosophy standards had been raised generally and, on a structural not just a cylclical, basis. There had been real gains in productivity. Problems, however, remained. There appeared to be no consensus on how to tackle poverty or job creation which faced the huge challenge of 9 million new workers entering the market each year. There were questions about the depth and breadth of the political commitment to reform and whether the coming elections would show that reform brought reward at the polls. However, it seemed that fears of the BJP had been largely dispelled although caste and communalism were still sensitive issues. While an open economy had undoubtedly benefited India, more needed to be done to build civil society and raise the standards of governance in particular for women, commented a participant. Investment in primary and secondary education, although long term, would, we thought, pay great dividends. In the security sphere, India had shown itself to be nimble-footed as a balance of power player with global ambitions and a growing reach. Kashmir remained a sword of Damocles over the future of Indo/Pakistan relations which might not prove to be as shock-proofed as we had hoped. But there was real hope that local tensions could be eased through the evolving political and economic situation. It was a period of great opportunity for India with a prospect of peace with Pakistan, acceptance as a power on the world stage, with reform and growth at home and a government acting more as an enabler than an employer. In case this forecast might appear too optimistic some caution was urged. India’s problems had not dematerialised. They still existed and required careful analysis and handling. And, in a final comment, the question was raised whether an Indian national strategy existed at the level outlined at our conference.
I am grateful to those who came to Ditchley, some from a considerable distance, and for the fresh and encouraging insights they provided on the future of this important country. A particular word of thanks goes to our chairman for bringing his experience of India over many years and in a number of capacities, to guide our discussions.
This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.
Chairman : Ambassador Thomas Pickering
Senior Vice President International Relations, The Boeing Company; Formerly: Under Secretary of State for Political Affairs, State Department; Ambassador to India (1992-93)CANADA
Professor Wendy Dobson
Professor and Director, Centre for International Business, University of Toronto; President, C D Howe Institute (1981-87)
Mr James A Fox
Director General, South and Southeast Asia Bureau, Department of Foreign Affairs and International Trade (1976-)
Mr Rick French
Vice President, Leadership Center, Bombardier Transportation; formerly: Founding CEO and Managing Director, Tata Communications (1995-99)
The Hon Roy MacLaren PC
High Commissioner to United Kingdom (1996-2000); Director: Standard Life (UK); formerly: Member of Parliament (1979-84 and 1988-96)
Dr Christian Wagner
Senior Research associate, SWP
Mr Rishabh Bhandari
Solicitor, Clifford Chance, London (September 2004-); former: BA Jurisprudence, University College, Oxford (2001-03)
Mr Karan Bilimoria
Chief Executive, Cobra Beer Limited
HE Salman Haidar
Formerly High Commissioner to the United Kingdom; Foreign Secretary to the Indian Government
Lieutenant General Jack F R Jacob
Formerly: Commander in Chief Eastern Army; Governor of Goa; Governor of Punjab
Dr Chandrika Kaul
Lecturer, Modern History, University of St Andrews; Writer, Modern Indian History and Politics
Professor Sunil Khilnani
Director, South Asia Studies, John Hopkins University; formerly: Professor of Politics, University of London’s Birkbeck College
Mr Ravi Narayanan
Mr M K Narayanan
Member, Government Counter-Terrorist Task Force; formerly: Director, Intelligence Bureau (1987-92); Chairman, Government Joint Intelligence Committee and Secretary, National Security Council; member, National Security Advisory Board (1998-2001)
Mr Rahul Roy-Chaudhury
Research Fellow for South Asia, International Institute for Strategic Studies (2003-); Deputy Secretary, National Security Council Secretariat, Prime Minister’s Office, Delhi (2000-02)
HE Mr Ranendra Sen
Indian High Commissioner, London (2002-); Ambassador in Russia (1992-98); Ambassador in Mexico (1991-92); Adviser to Prime Minister of India (1986-91)
Mr Biranchi Upadhyaya
OXFAM (India) TrustJAPAN
Mr Wataru Nishigahiro
Deputy Chief of Mission, Japanese Embassy, New Delhi; formerly: Deputy Director General for Economic Co-operation, Ministry of Foreign Affairs, TokyoPAKISTAN
Ms Nasim Zehra
Visiting Fellow Harvard University, Center for Asian Studies; Writer and Broadcaster
Sir Michael Arthur KCMG
British High Commissioner, New Delhi, India (October 2003-); formerly: Director General, EU and International Economic Issues, FCO
Dr Arnab Banerji
Senior Policy Adviser, Prime Minister’s Policy Unit
Mr Peter David
Foreign Editor, The Economist
Mr Alexander Evans
Foreign and Commonwealth Office, London
Mr Barry Gardiner MP
Member of Parliament (Labour) for Brent North (1997-); Parliamentary Private Secretary to Beverley Hughes MP
Sir David Goodall GCMG
Chairman, Leonard Cheshire Foundation (1995-2000); British High Commissioner to India (1987-91)
Sir Tim Lankester KCB
President, Corpus Christi College, University of Oxford (2001-); Deputy Chairman, The British Council (1999-)
Mr Nicolas Maclean CMG
Chief Executive, MWM Consultancy (1999-); Member, UNICE, Asia Working Group and Rapporteur for India
Dr Maria Misra
Lecturer in Modern History, Oxford University; Fellow, Keble College
Ms Elizabeth Padmore
Global Director, Policy and Corporate Affairs, Accenture (1995-); Partner, Accenture; Fellow, Royal Society; member of the Council, Royal Institute for International affairs
Mr Alpesh Patel
Founder, TraderMind Derivatives; Barrister; Visiting Fellow, Corpus Christi College, Oxford
Mr Tom Phillips CMG
Director South Asia/UK Special Rep for Afghanistan, Foreign and Commonwealth Office
Dr Gautam Sen
Lecturer in the Politics of the World Economy, London School of Economics
Mr Stephen Smith
Head, South Asian Department, Foreign and Commonwealth Office
Sir Mark Tully OBE
Freelance Journalist and Broadcaster (1994-); formerly: BBC (1964-94)UNITED STATES OF AMERICA
Mr Steven Cohen
Senior Fellow, Foreign Policy Studies, The Brookings Institution; Member, National Academy of Sciences Committee, International Security and Arms Control
Mr Dennis Kux
Senior Policy Scholar, Woodrow Wilson International Center for Scholars, Washington; Co-Executive Director, Council on Foreign Relations-Asia Society Independent Task Force on India and South Asia
Mr Ashley Tellis
Senior associate, Global Policy Program, Carnegie Endowment for International Peace; formerly: Senior Adviser to the Ambassador, Embassy of the United States in India; Special Assistant to the President and Senior Director, Strategic Planning and South West Asia, National Security Council.