India on the Highway to Prosperity

By Greg Sheridan

When you drive down the highway from Delhi to Jaipur you begin to feel the sheer scale of India's economic development. It's an enormous highway. It might be six lanes wide or eight - it's impossible to tell, as Indians don't drive in lanes and the lanes aren't marked.

Even on a Sunday the highway throbs with trucks, hundreds of them, giant beasts of the road. Highways are a key to India's economic growth: farm to market, factory to port, call centre to dormitory suburb.

When you leave Delhi and enter Haryana state, you pass through the satellite city of Gurgaon. Apart from the richest circles of central Delhi, near the embassies and government offices, Gurgaon is the place most people in the city want to live.

It is a vision, flawed but splendid, of the new India struggling to emerge. It's an IT hub, with many call centres, numerous corporate headquarters, kilometres of shopping malls, swanky high-rise apartments, manicured and sometimes gated suburbs, and international brand-name hotels.

It's a couple of years since I've been to Gurgaon and it seems to have exploded in the meantime. As you leave town on the Jaipur highway, Gurgaon doesn't leave you. The high-rise apartment buildings don't stop for a long time, only gradually do they give way to acres of factories.

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But lately the elephant of the Indian economy has stumbled. Economic growth has taken a dip, and this week saw the first monthly decline of industrial production since the global financial crisis. But the secular growth story seems to be on track, and it's important to keep the scale in sight. India is now nearly a $2 trillion economy. On the (admittedly contestable) purchasing power parity measure, India may already be the third largest economy in the world, after the US and China. If it's not there yet, it will be soon.

Indian economic growth has slowed from the supercharged 9-10 per cent a year range to the still express 7-8 per cent bracket. If everything goes badly it could be as low as 6 per cent next year. But China apart, no other economy of comparable size will grow anything like as fast.

For Australia, the implications are enormous. Already our two-way trade is $23 billion a year. Like China, India is seeking resources and investing in the Australian resources sector. Shrewd judges suggest that within five years India could have a total of $30bn investment in Australia, about the same as China has now.

Australia has a huge stake in India's success, not only an economic stake but a geo-strategic stake as well. There is passionate debate in India about whether the growth slowdown is caused by global travails - the euro crisis, US stagnation, Middle East instability - or by an Indian combination of fiscal laxity, high interest rates and reform paralysis in the country's coalition government.

India needs strong, orthodox economic policy. It desperately needs a new round of economic reform. But Indians are applying some non-conventional remedies to their situation.

The whole story of India's explosive economic growth defies all textbook theory and is the most distinctive economic model the world has seen. While China followed the well-established East Asian pattern of low-wage manufactures for export, India leapt straight from dreadful poverty to turbocharged IT dominance. Conventional economic development - manufacturing and infrastructure, like the Delhi-Jaipur highway - has flowed from there.

Some Indians believe IT can again make an outsize contribution to reigniting economic growth, as well as eradicating poverty. One is Sachin Pilot, the Minister of State for Communications and Information Technology, an up-and-comer in Indian politics whom you might think of as India's emerging Bill Shorten.

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Greg Sheridan is the Foreign Editor of the Australian.
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