Asia's Other Giant

__"Taking India Seriously" by James Manor and Gerald Segal, in Survival (Summer 1998), International Institute for Strategic Studies, 23 Tavistock St., London WC2E 7NQ England.__

Foreign investors rushing to take advantage of economic opportunity in China in recent years have barely paused to notice Asiaâ??s other population giant, India. That neglect is not likely to last, contend Manor, a Professorial Fellow at the Institute of Development Studies, University of Sussex, Brighton, and Segal, director of studies at the International Institute for Strategic Studies, London.

With a population (900 million) three-fourths the size of China's, India has an economy that is still only a little more than half as large: $225 billion in gross domestic product in 1993, compared with China's $425 billion. In 1996, India received slightly more than $2 billion in foreign direct investment--while China raked in $38 billion. Eighty-five percent of the money poured into China from abroad comes from ethnic Chinese, and India has no equivalent diaspora.

However, India's foreign investment total is roughly what China's was in the early-tomid-1980s. After China launched its economic reforms in 1979, the authors point out, it took five to seven years of sustained economic growth before the outside world saw "that China was serious about reforming its domestic economy and opening to the rest of the world." Much the same, they say, may prove true of India, which "after decades of socialism and of shunning foreign trade and investment" embarked in 1991, under then-prime minister P. V. Narasimha Rao, on a path of economic reform.

Liberalization has not gone as far as freemarket enthusiasts would like, the authors say, but their modesty has made the reforms politically sustainable. "Major progress has been made in industrial deregulation, in removing impediments to domestic and foreign private investment, in liberalizing trade, in reforming the exchange-rate system, in raising energy prices, and in promoting partnerships between private firms (Indian and foreign) and Indian stateowned enterprises in certain key sectors." Over the last three years, India's economy has grown about seven percent annually.

"When the West views India in proper perspective," Manor and Segal write, "it will focus on a wider range of reasons for the country's long-term success." Unlike China, India "already has a working democracy and a federal system for governing the decentralized system necessary in large market economies. India has a well-established system of law--not least commercial and contract law--and (albeit slow-moving) judicial institutions." When McDonald's in Beijing ran into problems with local authorities in 1996, it had no recourse to a court of law; but when Kentucky Fried Chicken had similar difficulties in Bangalore that year, it eventually was able to get legal satisfaction. If India can keep up the economic reform and manage the political fallout, conclude the authors, the world before long will be beating a path to its door.