India’s other man of steel

Date: 22/06/06

Softly-spoken, but with a steely determination to defend his giant country's expanding global interests, P. Chidambaram, India's finance minister, made his first official visit to Brussels last week.

He was trying to drum up yet more foreign investment to underpin India's rapid growth. He was also seeking to intensify top-level contacts following a 2004 agreement with the EU that India should become the Union's sixth 'strategic partner', putting it on the same footing as Canada, China, Japan, Russia and the US.

Predictably, he insisted that the most useful co-operative effort the EU and India could accomplish would be "to work together to bring the Doha trade round to a successful conclusion". India, the world's eleventh largest economy and, with 1.2 billion inhabitants, its biggest democracy, is the EU's tenth-largest trading partner. The EU is India's biggest partner, with 21% of all its external trade amounting to some _40 billion, _19bn of which is Indian exports to the EU.

After meeting Joaqu�n Almunia, the European commissioner for economic and monetary affairs, Chidambaram hit out at oil-producing countries. It was, he said, the "virtual monopoly power" of the OPEC cartel that was keeping the oil price at "outrageous" levels, $15-$30 a barrel above a fair market price, and threatening growth in developing countries like India.

Chidambaram is one of a group of top level Indian political leaders who returned to government in 2004 determined to press ahead with reforms to liberalise the economy. He and Prime Minister Manmohan Singh and M.S. Ahluwalia, the deputy chairman of the Planning Commission, were the architects of the liberalising policies which opened up the protected Indian economy after the economic crisis in 1991.

The successes of the reform effort can be seen partly in the acceleration of India's growth from the so called Hindu rate of around 3.5% for the 30 years after independence in 1947. This rose to 6% by the 1990s and has been close to 8% since the turn of the century, second only to China.

The past decade has also seen India emerge as one of the world's leaders in information and computer technology, with software accounting for around one quarter of its $100 billion exports. Indian IT and engineering firms are now expanding globally, partly through overseas acquisitions. But its rapid IT expansion at home has helped to trigger the EU's outsourcing phobia, as European firms shift operations there. It has also alerted Chidambaram to the need to diversify India's economic base or risk what he calls "jobless growth".

Since Prime Minister Manmohan Singh took office in 2004, his group of Indian policymakers has been trying to strip away the labyrinthine layers of bureaucracy which, according to the World Bank, still make India one of the more difficult countries in the world in which to do business. They have also been trying to redress the decades of underinvestment in infrastructure such as roads and railways which are an increasingly serious constraint on economic development.

They have taken note of the way China's economy has prospered through heavy infrastructure investment and from the staggering inflows of some $50 billion a year foreign direct investment (FDI) over the past decade, ten times the level of FDI in India.

Chidambaram vigorously rejected the claim that red tape, the so-called licence raj, still hampered FDI and argued that FDI in India was much higher, compared to China, than the raw statistics suggest.

India has estimated its FDI needs in the coming years at $150bn, he said. This could offer rich potential for EU companies. "I think we have the capacity to absorb about $10bn a year of FDI," he said, a target which could even be met this year.

Chidambaram said that the Indian government was welcoming foreign investment in infrastructure projects and using public private partnerships (PPP) to finance them. "70% of our roads are being built on the PPP model," he added.

He was anxious to highlight differences between the emerging Indian development model and China's. "China's economy is export-led," he said. It was suppressing domestic demand to achieve growth. India, in contrast, as a democracy, was focusing on raising the living standards of the tens of millions of its citizens in abject poverty. Despite the acceleration of growth in the past decade, statistics showed that the gap between the poorest and the emerging middle class had widened.

Chidambaram said the government was pushing investment in rural roads, sanitation and education and especially in vital irrigation projects aimed at reducing the country's worrying dependence on the annual monsoon.

Brussels observers, noting this focus on agriculture, a sector which is holding back economic development, are wondering whether the country is also looking further ahead. Does it see agriculture as a potential growth industry and is it eventually seeking to join the ranks of the farm produce exporting developing countries like Brazil? Such a stance could alter its strategy if there was a global trade round after Doha. They also wonder whether, just as the US and the EU are politically constrained from moving on agricultural trade, the Indian government is worried about the way a new trade agreement might expose its nascent manufacturing sector to what its critics see as unwelcome competition.

Chidambaram insisted with an impressive fervour that, with a July deadline for progress approaching if the current Doha development trade round was to succeed, America and the EU must move first. They had to put on the table generous offers to open up their markets to agricultural products to break the current deadlock, rather than wait for poor countries like India to move.

Chidambaram said that he would not be drawn into discussing what might happen if the talks failed. Trade experts in Brussels believe that a decision to open talks with India on a bilateral free trade agreement is still some way off.

But the EU-India summit in Helsinki on 13 October might see some veiled hints that the next stage of the EU's intensifying relationship with India will be closer bilateral trade links.

Article reports on the first official visit to Brussels of P. Chidambaram, India's Finance Minister, in June 2006.

EEAS: Countries: India http://www.eeas.europa.eu/india/index_en.htm

---