2. India – A major global power of the future
India is the largest democracy in the world and has been able to safeguard this while respecting cultural and religious diversity. India is a federal republic consisting of 28 states, 6 union territories and the national capital territory of Delhi. To understand India, it is important to acknowledge the diversity of the states with respect to language, culture, economy, potential and autonomy in relation to the central government. Introducing and maintaining a democratic form of government in a country the size of India, at its stage of development and with its extensive ethnic, social and economic diversity has been a great success. From the point of view of domestic policy, the greatest challenges facing the Government are economic reforms and problems concerning poverty. Through ’growth with a human face’ the Government is seeking to improve the standard of living of a wider section of the population.
2.1 Economy, trade and investments
India has one of the most dynamic economies in the world with annual GDP growth of 7-9 per cent. This development has resulted in a position as the 9th largest economy in the world and, measured in purchasing power, the world’s 4th largest economy. This high economic growth is primarily due to increased domestic economic liberalisation, a more liberal trade policy, and targeted efforts within high growth areas - supported by an excellent education system at third level and a competitive level of expenditure. India is expected to be the second largest world economy around 2040, surpassed only by China, and it will be the most populous country on a global level by 2030.
The reforms on which India’s swift development are based were established at the beginning of the 1990s. A sustained, high annual growth rate will, however, require more reforms which open up the Indian economy further along with increased Indian and foreign investments. The large budget deficit of approx. 10 per cent of GDP presents a great macroeconomic challenge. Interest on the public debt alone constitutes a quarter of the state’s fixed expenditures, thus limiting the Government’s domestic economic scope. To this may be added, for reasons of growth and employment, the need to develop the industrial sector in the coming years. The industrial sector comprises a mere 28 per cent of GNP while the service sector accounts for 54 per cent.
||1,454.7 billion DKK
||4,079.2 billion DKK|
|GDP growth rate
|GDP per capita
|GDP – composition by
||Agriculture: 1.6 %
||Agriculture: 17.5 %|
||Industry: 26.1 %
||Industry: 27.9 %|
||Services: 72.2 %
||Services: 54.6 %|
||804.2 billion DKK
||753.1 billion DKK|
||807.4 billion DKK
||736.2 billion DKK|
The EU is India’s largest trade partner today, with respect to both import and export, with the USA in second place. India has been slower than China opening up to foreign investments. In the last financial year (2006/2007) India attracted USD 15.7 billion in foreign investments, representing a 183 per cent increase on the previous year. But this is only a quarter of the amount that China attracted in the same period.
The Indian Government is working to make the economy more export driven and aims at doubling India’s share of world trade by 2009. This target is to be reached by creating better framework conditions for the business sector, less bureaucracy, and setting up export promotion programmes for selected sectors and growth companies, as well as the improvement of international investment conditions. In the longer term the ambition is to maintain high growth by means of further openness in the economy, investments in infrastructure and new growth areas, and reforms in the public sector and the tax system. The budget deficit is simultaneously to be continuously reduced.
2.2 Relations with the outside world
India’s growing integration in the global economy will not only change conditions for the global business sector but will also exert a significant influence on the international political agenda. India is actively taking a higher degree of co-responsibility for global and regional development. India is undisputedly the largest military power in Southeast Asia at present – with atomic weapons and the third biggest army in the
world. India’s profile in international fora has, moreover, been strengthened, and the country is seeking more influence on the formulation of international rules, inter alia in the WTO and the UN. At the same time India is increasingly playing an active part in resolving a number of international challenges such as combating terrorism, the non-proliferation of weapons of mass destructions and peacekeeping operations. In the context of foreign policy, India is an important country, and in the 21st century we will witness an India that plays an increasingly active role in international development and in international fora. It is thus important to continue to engage India positively as a co-player in the global challenges of the coming years.
India has established close cooperation with both the USA and the EU. India was one of the first countries to express unconditional support for the USA and the fight against terrorism following the terrorist actions on September 11 2001. This was the culmination of a ten-year long paradigm shift in reaction to the fall of the Berlin Wall and the break-up of the Soviet Union, which replaced the decades-long ’anti-hegemonic’ policy and pronounced scepticism vis-à-vis the American military presence in Asia.
Today India imports 70 per cent of the oil and gas it consumes and this is expected to rise to 90 per cent in 2020. For this reason great emphasis is placed on energy supply in India’s foreign policy. As a part of India’s new foreign policy and to strengthen ties to the USA, the two countries have entered a civil nuclear agreement intended to pave the way for the export of technology and reactor fuel for the civil Indian atomic programme at the same time India is required to make commitments in the field of non-proliferation. There remains, however, an agreement between India and the International Atomic Energy Agency in this regard, an important element of which will be the assessment of the meaning of the agreement for non-proliferation efforts. The USA’s strategic approach to India bears witness to India’s increased global importance.
In 2005 the EU and India adopted a joint plan of action that will be put into practice in The Strategic Partnership. In addition to political dialogue, this joint plan of action encompasses concrete cooperation on peacekeeping/crisis management, non-proliferation, the fight against terrorism, free trade, consular issues, education/research, as well as cooperation between peoples. The joint action plan is to undergo automatic review in 2008.
Relations with Pakistan have been central ever since 1947, when the two countries became independent, and have been improving in recent years. In 2003 it was decided to commence a formalised process of dialogue, ”the Composite Dialogue”, between India and Pakistan.
The Indian Government is pursuing an ambitious trade policy that aims at doubling the country’s share of world trade (less than 1 per cent as yet) by 2009. In the area of free trade, India and China are working together with ASEAN to establish a common economic market with over 3 billion people and sustained high growth of 6-8 per cent.
In 2005 China and India initiated dialogue with respect to entering a bilateral free trade agreement, and in connection with the summit between President Hu Jintao and Prime Minister Manmohan Singh in New Delhi in November 2006, it was decided to work towards doubling Chinese-Indian trade to USD 40 billion before 2010. India is simultaneously negotiating free trade agreements with a great number of other partners that include the EU, the ASEAN countries and the countries of South Asia.
Relations between India and China are marked by the fact that two of the most populous states in the world have a clear common interest in maintaining internal social and political stability, as well as continued high growth through expanded economic cooperation. China and India signed an agreement in 2005 about the development of a strategic and cooperating partnership.
India is at present phasing out bilateral development cooperation with most of the ”small” donors as it wishes to have development cooperation with a few large donors only. India received a total of DKK 6 billion in development assistance from Denmark from the 1960s to 2005, in particular in the fields of health, water supply and agriculture. At the same time India is increasing its own development assistance related involvement in a number of Asian and African developing countries. The fact that the country now has the vigour and competence to help others is an important part of the new Indian self-perception. But the assistance must also be viewed in the light of India’s strategic interests, including the area of energy supply.
To an increasing extent, India’s relations with other countries will be determined by the country’s economic interests. This dictates a higher priority on links with the USA, the EU and China. On top of this may be added consideration for future energy supplies necessitating particular attention being paid to such countries as Iran, Burma, the Central Asian republics and a number of African countries.
2.3 World-class high technology
The process of economic reform in India has primarily led to growth in the service sector rather than growth in industrial production, as in China. The service sector’s share of GDP has risen from 41 to 54 per cent in 13 years.
The two high technology sectors, Information and Communication Technology (ICT) and biotechnology, have the greatest growth potential in India. ICT is occupying an increasingly larger position in India’s economy, even though the sector by no means has a dominant place in the Indian economy. The turnover of the Indian IT industry was approximately USD 40 billion in 2006/2007, representing an increase of around 30 per cent compared to the previous year. This growth is mainly due to increased export based on rising international demand, which underlines the fact that the Indian IT industry is absolutely world class. India’s best IT universities can match the very best IT educational institutions in the US and Europe.
India is also strongly equipped for the future in the field of biotechnology and is expected to be one of the biggest actors in the global market for technology in the next 5 to 10 years. Growth in the biotech industry has been at 30-40 per cent in recent years, and analysts estimate that India’s global market share will comprise 10 per cent already by 2010.
2.4 The backlog of the future – poverty, human rights and environment
At the same time as progress is being made, India is facing enormous challenges that continue to be linked to fighting poverty, ensuring human rights for all population groups, and environmentally sustainable development. Sections of society continue to be characterised by inefficiency, corruption and too much bureaucracy. It is a precondition for continued political stability and economic progress that a number of profound political and socioeconomic reforms are implemented. The reforms should ensure that the economic and social development is benefitting the entire population.
The World Bank estimates that 35 per cent of the population, or approximately 400 million people, are living on less than one dollar a day. This means that India has just as many impoverished people as sub-Saharan Africa. Although the desire and the will are present, realising the UN’s Millennium Development Goals will constitute an immense challenge for India, especially with regard to poverty, education and gender equality.
India has made progress in the human rights field in recent years and in general human rights are safeguarded in the constitution and by legislation. However, not everyone in India has full access to these rights. With respect to the caste system, legislation has been adopted in India that guarantees formal, equal treatment of all population groups. Quotas have been introduced for lower castes in the public sector and the education system. Nonetheless, caste discrimination is still widespread, inter alia on the labour market. Assaults against indigenous peoples, women and girls and violence against civilians continue, in particular in areas marked by political instability.
In the area of environment India is experiencing great pressure on its water resources alongside and wide-ranging environmental problems caused by industry, among others, and which include waste management, hazardous waste and discharge of polluted water with the health problems derived from this.
India is, moreover, one of the most climate-vulnerable countries in the world. The UN Climate Panel, the IPCC, has calculated that a 2-degree rise in temperature towards 2100 would lead to India losing as much as 5 per cent of it’s GDP. This is twice as much as the EU and approximately one per cent more than Africa. India’s high degree of climate vulnerability is partly due to the fact that a quarter of its population live less than 50 kilometres from the coast along the approximately 7500 kilometre-long coastline, and that about 2/3 of the population are employed in agriculture. India still refuses to undertake binding targets for reducing greenhouse gas emissions on the ground that this would have an adverse effect on the potential for economic growth. India also refers to the very low per capita greenhouse gas emissions which do not immediately indicate that India should assume a particular responsibility. Climate changes can imply a greater need for disaster relief for India. Denmark has contributed to NGO-assistance in connection with earthquakes and floods in the country.
In spite of significant challenges such as poverty, infrastructure, corruption and environmental pollution, India is in a positive development spiral, where the economy allows further investments to be made in education and infrastructure, which in turn will strengthen economic development.
This page forms part of the publication 'DENMARK - INDIA. A NEW PARTNERSHIP' as chapter 2 of 3
Version 1.0. 10-03-2008
Publication may be found at the address http://www.netpublikationer.dk/um/8723/index.htm