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India Risk Analysis

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Dr. Suman Modwel

A few years back Edmond Lisle and Ping Huang-Lisle titled their paper in the Bulletin de l'Association ......(Nov 2001, No. 27), "La Chine: la plus ancienne civilisation... etc?". Given the unrelenting pace of growth exceeding10% p.a ever since, this question is largely rhetorical - few would answer it in the negative. In fact, as if China was not enough in causing considerable commotion in the world of business and investment (challenging the long held belief that the world will always remain divided between the developed prosperous North and the developing poor South), the question could now well be applied to the lumbering Indian elephant that seems to be chasing the Chinese dragon at some speed, with both projected to overtake most of the G6 countries by the time the new generation born today grow up and enter the work force. The chart below from a Goldman Sachs study of the BRIC (Brazil, Russia, India and China) economies, based on certain assumptions having regard to the present trends, graphically illustrates how the "catch-up" game is projected to unfold in the first half of this century:

According to this study, "India has the potential to show the fastest growth over the next 30 and 50 years. Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050 if development proceeds successfully".

No account of the Indian economy can be credible without soberly addressing the "if" in the above statement. The recent spurt in the growth rate following the economic reforms of 1991, after decades of the "Hindu rate of growth" (2.5/3%), seems like a small miracle when juxtaposed with the innumerable challenges posed by the heterogeneity of the social and cultural structure of the people in this sub-continent. and, as we shall see, the "joker" effect of a hyperactive and pluralistic form of democracy that has taken firm roots. Very often the latter is cited as a stumbling block to growth when compared with the comparatively monolithic decision making (and taking) structure in China in the business and investment context. Equally, those who look at the future more optimistically based on recent evidence and with a belief in the enduring character of democratic traditions that ensure sustainable growth evoke the metaphor of the race between the tortoise and the hare.

Historical Background:

To understand, or at least try to understand what seems to be working for India, or not working, we need to have a short look at the India of the past, and the various influences that acted upon its peoples; the Aryans who came from Central Asia through the Khyber pass in the Hindukush range of the Himalayan mountains, confronting the existing Harappa and Mohenjedaro civilisations of the Indus (Sindhu) valley; its Vedic scriptures; its caste system; the birth of Buddhism and Jainism; the advent of the Arabs and Muslims; the arrival of the British and colonial rule; the role of Gandhi, his unique and successful approach of non-violence to win independence; the superimposition of strong democratic foundations and notions of liberty and equality over the Indian society in its constitution; the choice of the economic model of growth for the post-colonial construction of India. Five thousand years of history then in five minutes!

Amongst the noteworthy points (from the perspective of trying to understand its present day economic "drivers") in attempting this rapid motion historical survey could be included:

1. Those that came to India absorbed or were absorbed by the civilisations that they confronted, with the exception of the British. The intermingling between the Aryans and the Dravidians in the third and second millennium B.C. is well acknowledged. What is perhaps less known or understood is the amicable coexistence between the Muslims and the Hindus during the medieval ages when the Moghul emperors ruled most of the subcontinent - with few exceptions, the communities lived harmoniously with each other and participated in the rituals surrounding births marriages and deaths in each others' homes. One did not witness the Hindu-Muslim tensions of modern times. Then where did these tensions spring from? The policy of the British in India to "divide and rule", the short term interests of Indian politicians to exploit caste and communal issues to win votes?

2. As for the Vedas, their essence contained in the Upanishads is captured by the central statement "Aham brahmasmi", proclaiming the identity between one's soul and the cosmic Being, or simply put; God is to be found within myself, is myself. This made the quest for the first cause, "Who created god, and who created the creator of God?"... And so on, redundant. Rather the quest was to realise this identity through constant effort, birth and rebirth, playing out ones karmas, till the transcendental moment of realisation ("nirvana" for Gautama Buddha, who drew his first inspiration from these Upanishads) when further rebirth was unnecessary. Would this explain in very general terms the interpretation of social scientists like Hofstede and Hall of the modern Indian as "long term, very future oriented, culture/history very important, willing to take risks and new challenges"?

3. Being basically a hierarchical society, Manu, an ancient sage, created his code where he ordained in a caste system that should do what according to ones mental and physical disposition (anticipating the logical frame of the classical school of management of Fayol and Taylor - a place for everyone and everyone in his place!). The Brahmans would be the spiritual class interpreting the scriptures, the high priests of the temples; the Ksatriyas the warrior types to defend their territory; the Vaishyas for commercial and agricultural pursuits; and the humble Shudras for the menial tasks. Small surprise then that this well intentioned class division went horribly wrong over the centuries, human nature collectively and individually being what it is, and the Brahmins arrogated to themselves the "highest" status and the Shudras, because they also lifted the "night soil", came to be called the "untouchables", shunned by the other castes. The British were content to let this be, but the Indian Constitution expressly made discrimination on the basis of caste a punishable offence. However, penal codes cannot remedy such social aberrations existing since centuries instantly, and so the caste factor continues to play a significant role in Indian



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