'A tale of two Asias', The Hindu, 15 February, 2001.

The historian Ravi Arvind Palat has, in this very space, astutely argued the plain absurdity of speaking of an Asia without India. However, absurd though it may sound one is no more than alert to an emerging mindset when one recognises the existence of such a perception. It is that of the leadership of the continent to the east of us. A conception of Asia that excludes India appears to be shared both the Asian leadership and by the leadership of Europe and the United States. ASEAN’s refusal to extend the same status to India as they do to China, Japan and Korea is all of a piece with India’s exclusion from the annual Asia-Europe Meeting (ASEM).

No clear-headed observer of this development would be deluded by the appeal of an explanation based on ideology alone. Indeed one is able to detect far more than cultural cohesion underlying the projection of such a picture of Asia by the countries in its east and much more than plain political advantage propelling its acceptance by the West. Actually, there are powerful economic factors at work. Significantly, in a marked departure from the 1960s, China is now looming large as a potential world player, its clamour to be admitted into the World Trade Organisation a measure of its confidence in its own powers. Here the West sees both opportunities and a threat.

            However, much as China’s recent economic performance is admirable it does not match that of the other countries of the region, excluding of course Japan which has been in a league of its own for some time now. The singular stars are Korea, Singapore and Taiwan. Within about a quarter of a century these countries have transformed themselves from low-income economies to ones that boast per capita incomes higher than some regions of Western Europe. This remarkable feat has led to their being seen as `Tigers’ among the world’s economies. Other dynamic economies in South East Asia wait in the wings. It is this economic dynamism that has attracted the attention of the world. Primarily of those sections of the global economy expanding at a similar pace. Like the `selfish gene’, the rich seek out one another for the potential economic gains from trade are larger when you engage with a rich partner, even at the cost of excluding those poorer. It is this attention from the once exclusive West that gives the political leadership of countries such as Singapore, the economy with the highest per capita income in the world, to proclaim it as being in the vanguard of the "New Asia". There can be little doubt that for India the last quarter of the twentieth century, when East Asia had surged ahead in a growing world economy, was a time of lost opportunities. India missed the bus. Nothing establishes this more than the frisson generated by the reminder that come April 2001 India faces the lifting of quantitative restrictions on imports. Exactly what the quantitative impact of this will be remains to be seen, but the implications cannot be clearer. The competition is going to be largely East Asian.

            So where did India go wrong? It cannot be purely in terms of the policy of import-substituting industrialisation, for economies as diverse as Mexico and Korea had started out thus and have succeeded to a varying degree. And, in any case, at some level, this policy has seen reversal in India since 1991. For over a decade now controls binding industry have been progressively liberalised. But in one of its original homelands the tiger, it appears, refuses to spring from its now open cage! Over the nineties, there is no higher rate of growth of industrial output and exports or even of productivity, the sure quickening of which had served as the official rationale for the economic reforms. The decade of the nineties thus becomes a test bed for competing explanations of what differentiates India from East Asia in terms of economic performance. Indeed the reasons underlying the lacklustre response of the Indian economy to the reforms initiated in 1991 are very likely the ones that can account for its relative backwardness historically vis-à-vis the rest of Asia. In passing, however, I wish to point out those areas that the reformers have identified correctly. Foremost among these are the consequences of protection. A high tariff barrier has almost perversely made Indian industry weaker by cutting-off access from cheaper inputs and capital goods available to its international rivals. A lower level of exports keeps employment down and contributes to weakness of the balance of payments. Outside the arena of foreign trade, within the internal economy, licencing has kept out competition.

            While looking at ways to understand India’s poor performance relative to East Asia I would like to point to two factors absent from standard frameworks stressing `policy regimes’. The first is the marked difference in investment in human capital, crudely measured by education. While the East focussed on quality primary and secondary education India spent disproportionately on higher education the fruits of which could either not be internalised due to emigration, as with the IITs, or not be utilised due to poor quality, as with our university graduates seeking white collar jobs in the service sector. Beyond the product, so to speak, of India’s now near-defunct higher education system characterised by our universities, output growth has been hampered by the poor quality of basic education and training of its labour force, neutralising the competitive advantage offered by low wages in India. However, while the debilitating consequences of low human capital investment is at least recognised what has received less attention than it deserves is the role of the machinery of government in supporting economic activity. It is very likely the quality of the machinery of government rather than the undistorted nature of its markets that distinguishes India from East Asia. I know of few instances, other than a reference to the Inspector Raj by Mr. Yashwant Sinha in his Budget Speech of 1998, where this has been explicitly recognised. Originally devised to serve the interests of a metropolitan power governing a distant colony, the machinery of government is not just indifferent but apparently hostile to the promotion of economic development. Not only has independent India been unable to alter even a nomenclature dating back to the East India Company but, more substantially, it has not even been able to redefine the role of the District Collector.The civil administration, originally intended as the local representative of the colonial state, is not only quaintly anachronistic in a democracy but also wastes resources that are better spent in promoting economic activity. In relation to the inordinate degree of attention the civil administration receives in independent India extremely little attention goes into the procedures and processes on the interface between private activity and public authority represented by the machinery of government. The end of licencing of capacity and imports has not made the slightest difference to the very uncertain process of applying for and receiving infrastructural support in terms of municipal services and clearances for environmental protection and labour standards. It’s not clear that we can ever get away from the role of government in providing infrastructure on a large scale and administering socially derived norms impartially. In India most of these interventions have ceased to be credible, having degenerated into rent-seeking by the lower bureaucracy. We cannot expect any significant improvement in the investment climate without a radical departure from current practice in this crucial sphere of the economy.

            While we may see the hero of `The Light of Asia’ as our countryman and Jawaharlal Nehru’s may yet turn out to be a role unrivalled in the quest to forge pan-Asian political identity in world politics, the fact remains that in terms of economic progress India today is out of step with the rest of Asia. And this is not so with respect to the modernity of our ideas but in our languishing as a region of unequal opportunity for advancement through education. This has acted as a systematic drag on the pace of human capital formation. East Asia’s relative success cannot be explained away simply in terms of a history of authoritarianism or of the cultural homogeneity within its constituent countries. These economies were designed to prosper. And what has been built is literally on show. For instance, visitors in transit at Singapore’s Changi International Airport are invited to tour the island by its Tourism Authority. While to the world traveller the place looks a trifle dull, an economist cannot but marvel at what has been created materially. On the unsuspecting tourist’s itinerary are to be found several public housing projects. It takes gumption on the part of a government to showcase the housing of its poorest citizens. Recently, the Government of Kerala had in the print media advertised the State’s "Model" economy. It would be a natural follow-up to invite tourists, otherwise meretriciously pursued, to visit our public hospitals.

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