Washington Report on Middle East Affairs, August 2006, pages 36-37

The Subcontinent

India’s Booming Economy Poses Challenges as Well as Opportunities

By M.M. Ali

An egg vendor pushes a bicycle laden with fresh eggs down a street of Hyderabad, India. Despite the country’s booming economy, one-quarter of its over one billion people live below the poverty line (AFP Photo/STR).

EVER SINCE THE early 1990s, when India abandoned its past policies and opened up to foreign investments, privatization and globalization, the country’s economy has been on an upward surge. While prospects for growth are promising, however, huge challenges exist as well. Despite its progress, India must contend with many of the same problems faced by most developing countries. While struggling to enter the 21st century, the majority of its 1.1 billion people are held back by widespread poverty and illiteracy, reinforced by custom and tradition. Over one-third of the population is illiterate, and there is an enormous economic gap between the country’s urban and rural sectors. Travel two miles out of any city center and one is thrown back more than 20 years in time.

Despite the fact that automation is the order of the day and India’s manufacturing industry the assured route to sustained growth, labor-intensive economic ventures are essential in order to absorb millions of poorly trained and uneducated citizens.

Although the road to prosperity is a long one, with many hurdles along the way, Delhi has embarked on the journey. And help is available—the U.S. and UK, along with other EU countries, Japan and Russia, are willing to assist. Each has its own motivation, of course, but the primary one appears to be the emergence of China as a superpower, to which India is to be installed as the counterbalance on the Asian continent. As long as this assures accelerated development, Delhi is willing to play along.

In a 14-page special report on India, the London Economist of June 3 laid out the pros and cons of current trends in India. There is an impressive list of foreign investments in India, especially in the information technology (IT) sector, which is graduating from the service component to the establishment of hardware IT industries as well. The Economist cited a report by the consulting firm McKinsey stating that last year alone “business process outsourcing” (BPO) generated $36 billion, nearly 5 percent of GDP. “Signs of a boom are everywhere,” the London weekly noted. “Some five million mobile phones are added each month to meet the soaring demand....Almost every city is seeing frantic construction activity. Some 450 malls are being built across the country....IBM, Microsoft, Intel and Cisco have announced large-scale investments in India....IBM staff in India now constitutes 38,500 employees...”

Responding to the growing demand from abroad, a Cognizant academic campus is being established in the city of Chennai with facilities to hold simultaneous classes for 2,000 prospective employees. The IT industry is somewhat nervous, however, about the government’s decision to withdraw the tax breaks it currently enjoys and instead pay greater attention to traditional industry and the agricultural sector.

Furthermore, questionable colleges and universities produce thousands of graduates who lack sufficient skills but enter the job market nevertheless. Each year India produces 441,000 technical graduates, nearly 2.3 million graduates in other subjects, and more than 300,000 postgraduates. According to a national study, these include “one-fifth that are world class, one-fifth passable and three-fifths lamentable.”

Nor is India’s decaying infrastructure keeping pace with the boom in urban and rural development. Roads are in disrepair, many villages still do not have electricity, and clean drinking water is scarce. Hospitals, schools and standard housing are unavailable in most places.

Since foreign investors are interested in making a profit, it is incumbent upon the government to work its way out of India’s ancient caste and class traditions, seek ways out of the quagmire of laws that restrict the free flow of funds, and resolve conflicts between bureaucrat and businessman. Even with all these hurdles, however, investors are flocking to India now more than ever.

A Growing Demand for Energy

It is self-evident that India cannot depend on its conventional energy sources to keep up with the pace of current development, much less future growth. Alternate sources are needed—and soon. An obvious direction is to tap and expand India’s nuclear program, a strategy to which President George W. Bush has offered a fillip. The agreement signed between Bush and Prime Minister ManmohanSingh in June of last year must be approved by the U.S. Congress, however, and some members of Congress have expressed serious reservations on certain aspects of the agreement. They are concerned that India—which, along with Pakistan and Israel, has not signed the Nuclear Non-Proliferation Treaty (NPT)—will continue with its nuclear weapons program, and be rewarded with expansion of its civilian component. For its part, Delhi fears that the agreement could lead to U.S. oversight of its military as well as civilian program.

A delay in congressional ratification may even kill the agreement—a prospect that does not seem to overly concern countries that want to protect the NPT treaty. Writing in the June 14 Washington Post, Mohammed El Baradei, director general of the International Atomic Energy Agency (IAEA), took a middle ground on the proposed agreement, indicating that with proper safeguards it could be approved. Baradei also asked for new strategies to “enlist Pakistan and Israel” as “partners” in the nuclear arms control effort. In an article in the Indian Defense Review, J.K. Sinha, former additional secretary in the Indian Intelligence Bureau (RAW), stated that if the Bush-Singh agreement is ratified India will be able to “produce at least 50 nuclear weapons” a year. That assertion is not likely to sit well with Congress at the moment.

On the international stage, Delhi has decided to field a candidate to succeed Kofi Annan as U.N. secretary-general, and has nominated Shashi Tharoor, currently U.N. under secretary-general for communication and public information. Pakistan also has shown interest in the secretary-general’s post. India, of course, already is in the running for a permanent seat on an expanded U.N. Security Council whenever that takes place.

Unending Strife in Pakistan

Pakistan’s problems in the Waziristan region bordering Afghanistan and in the tribal areas of Baluchistan have taken on a more serious turn of late. Pakistani troops not only have faced resistance in North Wazirastan but also have sustained heavy losses at the hands of pro-Taliban groups entrenched in the area. This northwestern border area has long been under the control of tribal chiefs, and Islamabad has only a “political agent” to look after the interests of the central government. As long as there was peace, the arrangement worked. But with the rise of the Taliban and al-Qaeda, and the turmoil inside neighboring Afghanistan, Waziristan literally has become a battleground. Nor does an end appear to be in sight.

Similarly, trouble in the tribal areas of Pakistan’s southwestern Baluchistan province continues. Tribal leaders such as the chiefs of the Bughti, Mengal and Marri tribes continue to defy the central government’s authority. Despite the fact that Islamabad pays the tribes royalties for gas from the pipeline that traverses their territory, the pipeline frequently is blown up, disrupting supply to the country”˜s interior regions. Even a port being constructed with Chinese assistance in Gawadar is being opposed by Baluch tribal chiefs.

President Pervez Musharraf, who has indicated he plans to run for re-election next year, finds pressure mounting to begin preparations for fair and transparent elections.

Inside Afghanistan

Press reports indicate a resurgence of Taliban forces in various parts of Afghanistan, particularly in the southern areas of Uruzgan, Helmand, Zabol and Kandahar. The authority of the central government led by Hamid Karzai basically is restricted to the capital city of Kabul. With the transfer of military command from the U.S.-led coalition forces to NATO control, the Taliban are trying to retake the country. The London Economist reported “Anxious times in under-manned Western forces” in Afghanistan.

The U.S. military is still very much present, however. A headline in the June 18 Washington Post read: “U.S. airstrikes rise in Afghanistan—Attacks are double of those in Iraq.” Earlier press accounts revealed that the U.S.-led coalition had mobilized “more than 11,000 troops” to attack Taliban strongholds in southern Afghanistan. According to a Congressional Research Service report, operations in Afghanistan have cost about $89 billion.

Such reports reveal that Washington is cognizant of the seriousness of the continuing problem in Afghanistan and determined to fully back the coalition effort until peace is established in the country. Unlike following the defeat of Soviet forces in Afghanistan, Washington is reassuring the people of that war-torn nation that, this time, it will not abandon them. 


Prof. M.M. Ali is a specialist on South Asia based in the Washington, DC metropolitan area.

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