"India is Seven Times less Relevant than China in the World Economy'

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Business Standard | December 2, 2011

Interview with Indira Kannan

Parag Khanna is an Indian-born, New York-based author of the international bestsellers How to Run the World: Charting a Course to the Next Renaissance (2011) and The Second World: Empires and Influence in the New Global Order (2008). Currently, a senior research fellow at the New America Foundation, he has been named one of Esquire magazine’s “75 Most Influential People of the 21st Century”. A frequent speaker on global trends and emerging market strategies, Khanna has also served as a foreign policy advisor to US President Barack Obama for the 2008 election campaign. In this interview, he discusses with Indira Kannan why Bric is “bullshit” and what India needs to do to assert itself on the global stage. Edited excerpts:

Are there any lessons India needs to learn from the euro zone crisis?

What we’re seeing in Europe is that markets shape politics and politics shape markets in this incredibly volatile cycle on a daily basis and that can be extremely dangerous. We’ve literally seen two European heads of state replaced by the markets. If India doesn’t do the right things around inflation, for example, there could be consequences. Or corruption. And India is shockingly a country where foreign investment has declined in the last year, which is very rare for most successful emerging markets today. India, obviously, is enjoying enormous macro success in certain ways but it has to worry about some of these fundamental areas of inflation, investment, corruption and so forth, and infrastructure.

Everyone agrees that India needs investment in infrastructure. But with the crisis in Europe and the US economy slowing, where will this investment come from?

GE hasn’t exactly pulled out of India. IBM is actually moving a lot of stuff from China to India as we’ve been hearing because of China’s IP issue. So you know the stronger and more attractive India makes itself, the more it’s going to continue to get FDI [foreign direct investment]. We know that the US government is not able to stop companies from outsourcing, it’s not able to stop globalisation — the benefits are too enormous. India’s been launching PR campaigns around the US and Canada, saying look, we – TCS or Satyam has employed 50 people here and 100 people there – that’s trivial, that’s small potatoes. You need to show fundamentally that US corporations can make enormous profits by producing in India and exporting from India, and it’s Washington’s problem whether or not Washington is able to tax companies and force them to repatriate certain investments.

It’s been 10 years since the term Bric (Brazil, Russia, India and China) was coined by Goldman Sachs economist Jim O’Neill. What’s your assessment of how this group has performed?

I actually have a PowerPoint slide that shows BRIC, CIVETS [Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa], Next Eleven, BRICSAM [Brazil, Russia, India, China, South Africa, and Mexico] and VISTA [Vietnam, Indonesia, South Africa, Turkey, and Argentina] — and then BULLSHIT pops up. And I’ve given that presentation with Jim O’Neill of Goldman Sachs standing in the room, and he laughed his head off. So I know he doesn’t get too offended. But I mean, it’s complete bullshit. The Brics have absolutely nothing in common in any meaningful sense. They actually have summits now — but only because the media expects them to have summits. Two of the three World War III scenarios involve the Brics, right? And Brazil is part of the West, so its rise helps the West, it doesn’t help China or India. Finally, Russia doesn’t even belong there — it’s a shrinking country, it’s the world’s largest gas station. So I think Bric is just phenomenal marketing, but utterly incoherent and illogical and incongruous.

So where then is India positioned in this new global economy?

India will only matter truly structurally when its share of the global trade and global GDP increases above two per cent, which it hasn’t even really reached. Meanwhile, as you know, China is at 14 per cent. So India is seven times behind China, literally, very measurably — not just perception or Chindia and all of that rubbish conversation, you can measure these things. India is seven times less relevant than China, which is a lot less relevant in the global economy. So it has to increase that share — through trade, through investment and all sorts of things. India needs to take advantage of its geographic position overseeing this huge volume of trans-Indian Ocean trade between West Asia and the Far East, of which it’s also a part. It needs to be influential in the energy markets of Asia, and as it already is, in the demographic and labour markets of West Asia, and also of Asia. People think of India as a great power today not because of nuclear weapons, but because of its companies. This is what will earn it global respectability and it should continue to do that because its companies are professional, trustworthy, have good management and so on.

These are economic strategies. But could they get sidetracked by political challenges?

Economic globalisation has not been sidetracked by political crises. That’s the good news for India, given its geographic position and proximity to huge markets. So the things that can affect India are very much internal — corruption, high youth unemployment, skills gap, poor infrastructure and the fragmentation of politics. I don’t think Pakistan is really a big threat, and I don’t think there needs to be a big destabilising conflict with China although there could be. I don’t think anyone should be waiting for the next Mumbai attack — I think India should be backing the Iran-Pakistan-India gas pipeline but it’s not doing that and so it’s now just an Iran-Pakistan pipeline. That’s too bad. India should not be caving in to US pressure and should be engaging directly with Pakistan and Iran on that gas pipeline.

Is the perception in India that the Bush administration was more strongly pro-India than the Obama administration justified?

Rhetorically, sure, one can say that and everyone has noticed that. But you don’t want to be pro-Bush or pro-Obama. You want the volume of investment from the US to increase, and military, strategic engagement, defence — these are the things you want to continue, it doesn’t matter who is president. It doesn’t matter whether or not he comes to India, whether his speeches mention India or not and if he supports India’s seat on the UNSC [United Nations Security Council ] or not. You have 10, 15 areas of functional cooperation you want to make sure you keep active at all times. And it actually doesn’t matter who is president for those things to continue.

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