February 2012


The Leader: India Wide Open – Transforming India Now for 2040

India today is at an inflection point. Following two decades of reform and growth, the cracks in the current economic and political system have become visible. Given the country’s expected population growth, India will need to fundamentally transform itself in order to feed, clothe, educate, gainfully employ and turn into productive agents its population of 1.6 billion by 2040. To do so it will need to, among other things, create a transparent government, secure the resources required for growth and create a system of entrepreneurship to allow the private sector to take a leading position in India’s transformation. Doing all of these things will require an India Wide Open policy, bucking the regulation-and-taxation-heavy government model that is being embraced by fearful governments around the world. The cumulative effects of such a policy that successfully meets the challenges outlined above would be significant, with Indian GDP growth accelerating to over 11% through 2025 and continuing at nearly 9% through 2040. An India Wide Open in 2040 would look very different to today’s India, as the world’s second largest economy, with widely distributed economic participation and wealth creation. The following represents an initial attempt to define and quantify the implications of an India Wide Open strategy. We will follow up with more detailed analysis in due course.

For much of its existence as an independent nation, India has lived inside closed borders and pursued a socialist economic policy, which has stalled its progress and stifled development. In 1991, following a balance-of-payments crisis, India began to liberalise various sectors and initiated other free market-oriented reforms. This was the first phase. A decade later, in the next phase, India’s entrepreneurs exercised their freedoms to scale and to go global and the country’s growth accelerated significantly and India emerged as a significant contributor to the world economy and therefore a credible international investment destination. However, in 2011, much was revealed, India was shaken by corruption scandals which hit at the heart of how the country actually works, its capital market was revealed to be shallow, over-sensitive and too small to absorb the large quantities of capital required to drive India’s growth, and its leaders posed a stark contrast to what, at least for now, looks like a much better managed China. The India Story looks like it needs to be re-thought. It is time for Phase III.

The Election Manifesto of the Winning Party in the Next General Election of India

India today is the world’s second most populous country, behind China. By 2025, India’s population is expected to overtake China’s with both hosting just under 1.4 billion people each. However, by 2040, India’s population is expected to grow to 1.6 billion while China’s is expected to have peaked at 1.4 billion and declining. More importantly, India’s population will be significantly younger than China’s and it will be one of the biggest drivers of net additions to the global labour force: out of the 1.3bn net additions to the global labour force in the next four decades, more than a quarter will be in India – while the labour forces in China and Europe will begin to shrink sizeably. 1 There is widespread sentiment among investors and economists that India’s large population will be an important asset that has the potential to give the country a long-term competitive advantage. If this sentiment holds true, India would become a powerful global economic force during the second quarter of this century. However, such a large population can be a huge liability rather than an asset unless that population is well fed, educated, employed and empowered.


Source: United Nations Population Fund (www.unfpa.org)

India is already staggering under the weight of its 1.2 billion population and its government, bureaucracy, soft and hard infrastructure are strained. Given the sheer scale of India’s population increase, the country will need to see significant change to face significant challenges in maintaining social and political stability. Specifically, it will need to ensure that it can (a) gainfully employ its vast population, (b) provide the infrastructure, resources, and basic services such as education and healthcare which are essential for improving living standards, and (c) make its political system and institutions efficient and transparent such that this population feels it is being treated fairly. If the country fails to do these things, not only will India’s economic ascendance be in jeopardy, India’s leaders will need to consider whether they can rely on a docile and patient population. India is not China and cannot pursue a directive policy of top-down change. There are four open policies that can push India along the path and one that makes India truly wide-open, namely:

India will need to chart its own course. “Letting go”, as India’s spiritual teachers, have often said, is one of the most difficult of tasks. India will need to buck the regulation-and-taxation-heavy government model that is being embraced by fearful governments around the world. The way for India’s leaders to achieve what seems unachievable is to provide land at virtually no cost, set its taxes to a negligible rate, make the inward migration policies for the talented and for entrepreneurs as easy as possible, provide its people with as much education as they can muster through radical liberalization, implement dispute laws to be as rapidly enforceable as the best in the world, simplify regulations and reduce the bureaucracy to the lowest level in the world, provide co-finance for strategic projects through fixed period tax breaks in return for equity ownership, consolidate land for industrial agriculture, provide rapid and massive redevelopment for slums, en masse prepare its roads for building on and its streets for cleaning by entrepreneurs. The result will be that India will find that its problems will be solved by the smartest people in the world, both Indian and foreign. These opportunities will need to be offered to everyone in the world with the ideas, capital and energy to come to India and get rich making a difference.

For this strategy, India would abandon the plan that is creating a “narrow opening” and implement an “India Wide Open” strategy. India will need to launch a twenty-first century revolution. Will India cope with such a large influx of foreign capital and talent? Indians have seen waves of foreigners – Aryans, Persians, Greeks, Chinese, Mongols, Afghans, Arabs, Portuguese, British and others – come to their land and have coped just fine. Today’s Indians will be fine too. India Wide Open requires confidence and a real conviction in the power of its people and its democracy.

Revolutions by nature are volatile creations and history has shown that they are difficult to control. In order to do so India will need to adopt a series of enablers to bring about the scale of change required. India Wide Open would need to be achieved through three resolutions implemented in one revolutionary shift over one decade. This would create the momentum for India to break the shackles of its own situation. The three resolutions are:

Will the incumbent political elite unleash this revolution? Fortunately, for India – and the world – it takes a small group of brave visionaries or a very deep crisis to turn an entire country in a new direction, as the events of 1991 demonstrated. What are the triggers one should look towards to determine whether India is adopting this radical path or, perhaps more importantly, what are the catalysts that will accelerate its adoption and progress? Continued political unrest, further revelations of corruption, the government’s continued inability to deliver on promised infrastructure improvements, or even a clear victory in India’s next national elections could all accelerate India’s movement to adopting a Wide Open position.

Conclusion. The cumulative impact of a successful India Wide Open strategy would have a significant effect on India’s growth, with annualised GDP growth rates of up to 11.2%, through 2025, reducing to 8.6% from 2025 to 2040, on par with China during the period of its fastest expansion. A Wide Open India in 2040 would look very different from India today. GDP/capita would be at US$17,700 or larger than Brazil or Russia’s today. India’s workforce would have expanded from 480 million today to over 950 million, with significantly increased female participation in the workforce. Literacy rates would increase from 75% currently to 85% or above. India’s economy and capital markets would be fundamentally transformed with manufacturing output rising over twenty-fold from US$200 billion to US$4.5 trillion and the total market capitalisation of the equity market would increase 16-fold (assuming current market capitalisation to GDP ratios).

The smartest dictators will be those that overthrow themselves. India’s political class is smart and resilient and will learn this lesson faster than others. Given the size of the challenge and the opportunity, we believe India has no choice but to pursue an India Wide Open strategy. India Wide Open is not an option for an India that will have 1.6 billion people very soon. It is not an option also to imagine that one can micro-manage this level of change. The risk to India failing to deliver on even the 7% annual growth being currently assumed is very real given the challenges India faces today. The role of government as enabler will be a massive transition for a nation with the world’s biggest bureaucracy. The traditional values of the country support the principle of “duty” as leadership. It seems time to put these values to the fore. Power without purpose and principle will not move India forward.

1 : United Nations Population Fund (www.unfpa.org)

2 : International Labour Organization (www.ilo.org)

3 : Ministry of Labour, Government of India

4 : Joint Economic Committee, United States Congress

5 : In 2010 equivalent dollars

6 : Transparency International Survey 2010

7 : Debroy/Bhandari “Corruption in India: The DNA and RNA” Konark 2011

8 : Global Financial Integrity: “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008″ 2010

9 : Comptroller and Auditor General of India