india: engaging the world suman bery director-general india: the next decade chatham house june 28,...
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India: Engaging the WorldSuman BeryDirector-General
India: The Next DecadeChatham House
June 28, 2005
About NCAER
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• Concerned with public policy and business environment; both public and private clients
• Capacity for large-scale data collection
• Large and varied data holdings
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: Engaging the World
• 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.
India: Engaging the World
• 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.
India: Engaging the World
• 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.
India: Engaging the World
• 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.
India: Engaging the World
• 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).
India: Engaging the World
• 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.
India: Engaging the World
• 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.
India: Engaging the World
• 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.
India: Engaging the World
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.
India: Engaging the World
• 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.
India: Engaging the World
• 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
India: Engaging the World
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.
India: Engaging the World
Summing Up (contd.):
• It has a strong interest in a successful Doha Round.
• But it is taking out insurance in case the round fails.