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The world wakes up to India
Its economy is attracting global attention, but can the subcontinent deliver? Adrian Michaels and Dean Nelson report.
Nicolas Sarkozy with Carla Bruni and Sufi Muslim priests during a visit to Fatehpur Sikri yesterday
If you were having a romantic getaway at the Oberoi Amarvilas hotel in Agra this weekend (rooms from £550 a night, each with a view of the gleaming Taj Mahal down the road), your style might have been cramped by the arrival of the Nicolas and Carla roadshow.
The French president, his glamorous wife and their entourage were taking in the sights prior to some high Indian summitry this week, including a meeting with Manmohan Singh , the prime minister, last night.
Mr Singh could probably afford himself a smile at this point. Mr Sarkozy is just one of an astonishing line of supplicants to pitch up on the subcontinent in the latter half of this year. Between the end of July, when David Cameron arrived, and the end of December when Dmitry Medvedev, the Russian president, turns up, India will have received all five heads of the permanent members of the United Nations Security Council (the others being Wen Jiabao of China and Barack Obama of the United States). Mr Singh is meanwhile attending a summit with the European Union next month and will stop off to see Angela Merkel, the German chancellor.
His packed diary is the most potent sign yet that the rest of the world has woken up to Indias growth and new geopolitical role. While acres of real and virtual newsprint have been expended on the rise of China, the Indian story has been largely unscrutinised from outside. When India has been discussed it has often been about global security, its unstable northern neighbour Pakistan and, latterly, the disastrous organisational blunders of the Commonwealth Games that contrasted so starkly with the Beijing Olympics.
But as Mr Singh put it last month: The rise of India is the rise of a nation of over a billion people fighting poverty, ignorance and disease, battling social prejudices, living with inadequate infrastructure, dealing with corruption and misgovernance. It is one of the great adventures of our times.
World leaders are being drawn to that adventure because there are pots of money to be made. Indias growth in the middle of the worst global recession for 80 years was 7.9 per cent in 2009, will be 8.5 per cent this year and is heading for 9-10 per cent in 2011. Unlike China, which geared up mostly for an explosion of exports and then had to deal with buyers who had run out of money, the Indian story is mostly about internal consumption. The government has made clear that it wants and thinks it can sustain double-digit growth for the next two decades as its people spend and spend.
Gordon Brown, on a speaking engagement in New Delhi recently, said that in 30 years, the middle class of India would be 50 per cent of the population from 5 per cent now. What does that mean in practice? Ask Vodafone and Indias Essar, which run a joint mobile phone venture in the country. They had 20 million subscribers three years ago; now they have 120 million of the countrys 600 million mobile phone accounts.
India, Mr Brown pointed out, is also the largest consumer of Scotch whisky in the world. (Although malts such as Isle of Jura and Dalmore have been in the hands of a conglomerate from Bangalore since 2007.)
It is not only internal consumption that interests other countries. Indian companies are flexing their might internationally. Tata, the Indian company best known for its cars, is Britains largest manufacturer by dint of its takeovers of the Corus steel group and Jaguar Land Rover. Mr Cameron thanked the Indians for preserving 47,000 jobs in Britain. Essar, which apart from its partnership with Vodafone is mostly a power company, kept the London Stock Exchange in business this year with an initial public offering that raised £1.3 billion, the biggest in three years.
Being nice to India means a dose of realpolitik, too. Mr Obama offered his strong support, though no timeline, for India to gain a permanent seat at the UN Security Council. The new courting and positioning of India has been causing flutters in Pakistan. Sherry Rehman, a Pakistan MP and former minister, wrote in The Times of India last month: India is now part of a larger economic bandwidth able to buy influence around the globe. As Americas businesses seek access to Indias 1.2 billion-strong consumer market as the driver of a broadening commercial relationship between the two countries, no one should be surprised.
By 2030 India could have the third largest gross domestic product in the world after the United States and China. Montek Singh Ahluwalia, an influential policymaker and deputy chairman of Indias planning commission, says: [The] lifting of a billion people out of low incomes to middle income levels represents an explosion of global demand, creating a new market that has huge importance to the rest of the world.
But can India deliver? The problems it faces are in some cases polar opposites of those in China, its rival for superpower status. The Middle Kingdom has astonished the world with its devotion to building infrastructure. When a decision is taken to build a road, people in the way are moved, and the road appears. China has been building ports around the Pacific, and is thinking about rail networks connecting it to Europe.
In India, development has been hugely uneven. The Sarkozys, one imagines, were set to fly the 140 miles from Agra to Delhi. If they had tried to drive, the journey would have taken more than five hours. India lacks roads, rail, ports and power. Some 400 million people do not have electricity. Over 40 per cent of food rots on its way to market because there is no way to keep it cool.
A recent report by McKinsey, the consultants, said that double the number of Indians would be living in cities in 2030 compared with 2001, adding: India has barely engaged in a national discussion about how to handle this seismic shift in the make-up of the nation.
Kamal Nath, the minister for roads and a businessman, is trying to build 7,500 miles of road a year but is coming up short. We have a huge deficit in infrastructure; we are catching up with the past, he says.
Nevertheless, India approved contracts to build only 450 miles of road in 2008 and the rate is now multiples better than that. Pranab Mukherjee, the vastly experienced finance minister, says India will double its investment on infrastructure in the five years from 2012 to a trillion dollars (£650 billion).
The growing economic might of Indian workers is, however, starting to affect the countrys attractiveness as a low-cost centre. Research released last month by IHS Global Insight, a corporate information group, said that manufacturing labour costs in India had risen nearly 20 per cent this year and were set to eclipse those in China. Indian workers have seen their wages increase sharply over the last year on the back of high inflation and a recovery in domestic demand For multinational companies, understanding the labour costs is a key issue when making investment decisions, IHS said. Floods in Pakistan and other factors have also sent cotton prices soaring, adding to the difficulties faced by textile companies working in India.
None the less, the gold rush is still clearly on. As far as Britain is concerned, our stock has risen since Mr Camerons visit but it may be some time before that goodwill translates into contracts. Prashant Ruia, group chief executive of Essar, explains that Indias immediate opportunities are in frontline projects such as roads and power plants, as well as in the sale of cars and televisions. But Britain has no rivals to LG or Samsung in electronics and lags behind construction firms such as Spains Isolux Corsan and Abertis.
Britains edge in financial services, supermarkets, education and logistics will not reap rewards in India until the government liberalises those areas for foreign investment. According to Mr Ruia, Britain must either wait for liberalisation and a surge in demand or get in at the front end and dirty your hands.
Most of the British companies are more at the services end or at the consumer end. Thats the later part of the development right now the big opportunity is at the basic end, providing the infrastructure, and at that end I dont see too many British companies really investing.
While many business people have lounged on Goas tropical beaches or taken elephant rides through the tiger reserves, few realise what they could achieve in India, he says. Following its London share offer, Essar is organising its own British-based programme of investor education. It sounds as though it ought to be playing to packed houses.
The world wakes up to India - Telegraph
