India on the Highway to Prosperity

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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.

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.

"If you look at the numbers in the last decade," he says, "despite the slowdown in the Western world, India has done a good job in growing the size and scale and depth of our economy. There's still tremendous growth potential because there is tremendous untapped demand.

"We have two tasks: to maintain the robust growth in manufacturing, agriculture and IT, and then to make sure some of that growth gets to the poor. A lot of jobs growth will come from manufacturing. The global slowdown led to last month's decline in industrial output. But I wouldn't be too focused on one month's figures. Today the electronics industry in India is worth $45bn. In less than four years it will be worth $400bn. We don't want to be importing most of this, it will be bigger than our oil imports."

Pilot believes IT can contribute to reigniting Indian economic growth and to poverty reduction. He also thinks it can be used to tackle corruption. He reels off a list of dizzying figures. At more than 100 million, India has the third highest number of internet users, behind only the US and China. There are 900 million mobile phones in India. But there is one figure Pilot is not happy with: there are only 12 million broadband connections. So the government has a multi-billion-dollar program to hook up connectivity across the nation. Every 10 per cent increase in broadband penetration brings nearly 1.5 per cent increase in the overall size of the economy, he says.

Pilot believes IT can tackle production. His government is going to force the state governments to make records and services available digitally. This will reduce the scope for what Indians call "speed money": bribes paid to avoid the Indian disease of bureaucracy, "death by delay".

He also believes IT can tackle poverty and development. More than 40 per cent of Indians don't have bank accounts and only 5 per cent of villages have a physical bank. Hand-held devices that are digitally connected can revolutionise villagers' ability to connect with the world and carry out commerce that can transform them from subsistence to trading.

The Indian IT sector will grow by 19 per cent this year, Pilot says, a figure most countries would find impressive, but it's down from 30 per cent the year before. More than 60 per cent of India's software exports go to the US, and Pilot wants to diversify that.

Parthasarathi Shome, of the Indian Council for Research on International Economic Relations, tells me the two greatest reforms India needs are a simpler set of labour laws and more effective anti-corruption laws. These are part of what discourages foreign investment.

But there's a lot else Pilot would like to see, including a GST. For the moment, the government has retreated on its attempt to open up multi-brand retailing to foreign ownership and competition. Yet the country desperately needs a bigger and more efficient retail sector.

Naveen Jindal, the chief executive of Jindal Steel and Power, greets me at his plush New Delhi home and recounts the pleasure of doing business in Queensland and NSW. Government bureaucrats do what they say they are going to do, and don't want any special considerations in return.

Julia Gillard's decision to lift the ban on Australian uranium exports to India has removed a roadblock in the relationship, and Indian investment in Australian resources will accelerate.

Manish Tewari, an MP and spokesman for the Congress Party, is lavish in his praise for Gillard and her decision.

"Prime Minister Gillard has shown the sagacity and vision to take a hard decision," he says. "We are aware of the sensitivity of this issue in Labor Party policy. You have sent an important signal to India that you have levelled the playing field between India and China. This may be the most important single step in the past three decades in furthering India-Australia relations."

After two weeks in India, it is impossible to mistake the positive reception to the uranium decision. It is also impossible to miss the absolutely ubiquitous debate on how the country can reignite higher economic growth rates.

And perhaps that is the most encouraging out-take from India today: the overwhelming consensus that the country wants to keep pursuing high economic growth. Only economic growth, after all, can lift tens, even hundreds, of millions of Indians out of poverty.

Greg Sheridan is the Foreign Editor of the Australian.
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