The future of Indian economy: Should it play the power game or values game?

India must decide what it wants to be - a country admired for its soft power and market, or an arbitrary state that can do what it wills with both individuals and businesses - writes T N Ninan

As was noted in this column last week, India is currently in a sweet spot on the international stage. Having become the fifth-largest economy by overtaking the UK, it can realistically look forward to overtaking Germany (now only 16 per cent bigger than India) and Japan (24 per cent bigger) in well under a decade. All that the country has to do is avoid major blunders and maintain its tempo. That brings a new urgency to the question: Are the country’s other characteristics, including its institutional scaffolding, what the world’s third-largest economy should ideally possess?

For an answer, consider the following: Does it improve India’s attractiveness when the latest draft of a so-called “personal data protection” Bill has been universally panned for giving virtually untrammelled powers to the state to frame rules according to its whim? What does it do to the country’s reputation as a business destination when domestic courts are used to stymie international arbitration awards? Consider also the growing presence of business oligarchs tied to the establishment — something that typically rules out a level playing field? And does it matter that the state is prone to arbitrary action — like keeping people in jail for years together without bringing cases against them to court?

One could dismiss such questions as irrelevant since China has achieved decades of rapid growth and development as a one-party state, holding citizens as hapless captives in distant hinterlands while treating businesses shabbily. Scepticism gains traction in a world where the middle powers increasingly disregard the values of a liberal democracy as being a specific construct flowing from the European Enlightenment, and prefer instead to worship at the altar of nationalism and cultural-identity politics (and remember “Asian values”). It gains even further strength when globalisation yields to inward-looking policies in precisely those countries that once pushed hardest for open markets.

So India has to settle what it wants as the terms of the government-business relationship, and linked to that the state-citizen equation. While doing so, it must ask why thousands of wealthy Indians are emigrating in ever larger numbers to places that include Singapore and Dubai. What do they find missing in India? It can’t be just clean air, or easy access to good schools and hospitals. Could it be also the simple assurance of adherence to rules?

In making its choices, India must face up to one fact: It is not China, whose skewed investment rules and operational uncertainties were accepted by international companies as part of the costs of doing business, because the dynamism and size of China’s domestic market, combined with its unique advantages as a production base, made it impossible to stay away. In comparison, India has competitors who present themselves as investment alternatives. They may not offer the added advantage of a large domestic market, but that story is not as compelling with India as it was with China even two decades ago. India has a long way to go, and it needs to play nice more than China did.

It is of course true that the countries that held themselves up as exemplars when dealing with their own citizens did not, in international business, practise what they preached. Japanese expertise in non-tariff trade barriers is common knowledge, as is the fact that the US makes unilateral rules — like telling the rest of the world who it can or cannot trade with, and seizing Russian financial assets held overseas. Businessmen have also known that it is extraordinarily difficult in Japan for a foreigner to win a court case against a local entity; and that Europe has been as protectionist as anyone when the shoe pinches.

Such awareness of the hypocrisies of yesterday’s rule-makers contributes to India’s growing nationalist impulse. Still, at the end of the day India must decide what kind of country it wants to be — one admired as much for its soft power as for its market, or an arbitrary state that can do what it wills with both individuals and businesses because its size and dynamism give it greater immunity from international pressure. Will India play just the power game, or also the values game?