Singapore
Government Press Release
Media Relations
Division, Ministry of Information, Communications and the Arts,
MICA Building,
140 Hill Street, 2nd Storey, Singapore 179369
Tel: 6837-9666
SPEECH
BY MINISTER MENTOR LEE KUAN YEW AT THE 37TH JAWAHARLAL NEHRU
MEMORIAL LECTURE ON MONDAY, 21 NOVEMBER 2005, 7PM, IN NEW DELHI
INDIA
IN AN ASIAN RENAISSANCE
I thank the
Prime Minister Manmohan Singh and the Jawaharlal
Nehru Memorial Fund, Mrs Sonia Gandhi (its Chair Person) for inviting me to
give the Nehru Lecture.
I belong to that
generation of Asian nationalists who looked up to India’s freedom struggle and
its leaders Mahatma Gandhi and Pandit Jawaharlal
Nehru.
I had read Nehru’s
books like “The Discovery of India”,
culled from his letters from prison to his daughter Indira
and many of his speeches. On 14 August
1947, when I was a young student in Cambridge, I remember vividly the moving
and unforgettable opening of Nehru’s broadcast on the eve of independence, “Long years ago we
made a tryst with destiny, and now the time comes when we shall redeem our
pledge, not wholly or in full measure, but very substantially. At the stroke of
the midnight hour, when the world sleeps, India will awake to life and freedom.
A moment comes, which comes but rarely in history, when we step out from the
old to the new, when an age ends, and when the soul of a nation, long suppressed,
finds utterance.”
The destiny
Nehru envisaged was of a modern, industrialised, democratic and secular India
that would take its place in the larger historic flows of the second half of the 20th
Century.
Nehru never
doubted India's place in the world. When
imprisoned in Ahmadnager Fort during the Second World
War, he wrote:
"Though not directly a Pacific state, India
will inevitably exercise an important influence there, . . . Her position gives an economic and strategic
importance in a part of the world which is going to develop rapidly in the
future."
Nehru’s speeches
resonated with me. I shared intellectual
and emotional roots with Nehru because I had also experienced discrimination
and subjugation under the British Raj and admired
Nehru for his vision of a secular multiracial India, a country that does not
discriminate between citizens because of their race, language, religion or
culture. I first visited New Delhi in
1959 for a conference of the International Commission of Jurists (ICJ). Nehru opened the conference at the Vigyan Bhavan. He arrived in a modest Hindustan (Morris
Oxford, Made in India). Later in April
1962, when I was Prime Minister of Singapore, Nehru gave me time for several
discussions about Singapore’s merger with Malaya to form the Federation of
Malaysia. He encouraged and supported my
ideas. Nehru received me again in February
1964 on my return from a visit to 17 countries in Africa.
Like Nehru, I
had been influenced by the ideas of the British Fabian
society. But I soon realised that before
distributing the pie I had first to bake it.
So I departed from welfarism because it sapped
a people’s self-reliance and their desire to excel and succeed. I also
abandoned the model of industrialisation through import substitution. When most of the Third World was deeply
suspicious of exploitation by western MNCs (multinational
corporations), Singapore invited them in. They helped us grow, brought in
technology and know-how, and raised productivity levels faster than any
alternative strategy could.
Nehru had a
great vision for India and for Asia and his elegant style of writing and speech
captivated many young minds in the British empire. He had insights into the causes of India’s problems,
but, burdened by too many issues, he left the implementation of his ideas and
policies to his ministers and secretaries. Sadly they did not achieve the results India
deserved.
Nehru's ideal of
democratic socialism was bureaucratised by Indian officials who were influenced
by the Soviet model of central planning. That eventually led to the “Licence Raj”, corruption and slow growth.
The end of the
Cold War and the collapse of the Soviet Union undercut the strategic premises
of India's external and economic policies.
By 1991, with the country on the verge of bankruptcy, India had no
choice but to change. Some Indians
believe that, had Rajiv Gandhi lived to serve a
second term as India’s Prime Minister, he would have pushed for major
reform. But he was cut down before he
was able to.
It was left to PM
Narasimha Rao to make the
big move in 1991. Later that year, then Finance Minister Manmohan
Singh and Commerce Minister Chidambaram gave a seminar in Singapore on India’s
new policy of reform and opening up. In 1992, Prime Minister Narasimha Rao met Singapore’s
then Prime Minister Goh Chok
Tong at the Non‑Aligned Conference in Jakarta and persuaded him to visit
India with a delegation of Singapore businessmen. PM Goh visited
India from 23-30 January 1994 and returned enthused.
In January 1996,
I visited New Delhi and spoke to civil servants and businessmen on the changes
that Prime Minister Rao and his team were putting
into place. I said that India's 'tryst
with destiny' had been repeatedly postponed.
When I published
the second volume of my Memoirs in 2000, I wrote "India is a nation of unfulfilled greatness. Its potential has lain fallow, under‑used."
Time to Keep the
Tryst
I am happy to now
revise my view. Nehru's view of India's
place in the world and of India as a global player is within India’s grasp.
Since 1991,
India has changed governments from Congress to BJP to Janata
Dal to BJP, and back again to Congress. There have been six Prime Ministers. The pace of reforms has varied, but there has
been no change in basic direction. The
middle class has expanded. There is now
no stigma in acquiring wealth. Indians
have seen what market orientated policies have done for China and they do not
want to be left behind.
The rise of
India and China is changing the global balance.
Together they account for about 40 percent of the world's working age population
and 19 percent of the global economy in PPP (purchasing power parity) terms. On present trends, in 20 years, their
collective share of the global economy will match their percentage of the
global population, which is roughly where they were in the 18th Century, before
European colonialism engulfed them. China’s and India’s trade, investments and
other economic relations with the countries of East Asia and the Pacific are reshaping
Asia’s economic geography. India is an
important ASEAN Dialogue Partner, a member of the ASEAN Regional Forum, and an
inaugural member of the East Asia Summit this December. And there is no reason why it should not join
APEC (Asia-Pacific Economic Cooperation) after it has developed a thick web of
economic ties across the Pacific.
East Asia is
coalescing, brought together by market forces.
India, China and Japan are readjusting their relationships with each
other and with the US. This will not be
an easy process because all countries want to preserve their independence and
space to grow. If there are no mishaps by
2050 the US, China, India and Japan will be economic heavyweights, as will Russia
if it converts its revenue from oil and gas into long term value in infrastructure
and non-oil industries.
India is an intrinsic
part of this unfolding new world order. India can no longer be dismissed as a
"wounded civilisation", in
the hurtful phrase of a westernised non‑resident Indian author (V.S. Naipal). Instead,
the western media, market analysts, and the International Financial
Institutions now show-case India as a success story and the next big
opportunity.
This is a
comforting development for the US and the West, that a multi-party India is
able to take off and keep pace with single-party China.
Forbes Asia recently
reported that US venture firms will raise US$1 billion for India by the
end of this year. India has emerged as a
power in IT sector. It is the largest call‑centre
in the world. Almost half of the largest
global corporates now do at least some of their back
office work in India. Indian R&D centers of American technology firms are reported to file
more patents than Bell Labs. This year,
India announced more than 1,300 applications for drug patents, second only to
the US and 25 percent more than Germany, way ahead of the UK and
Japan.
The US is now
courting a nuclear India as a strategic partner. The EU has also launched a strategic
partnership with India, and Japan wants a global partnership with India. These are indices of India's growing weight in
the world. Many countries, including
Singapore, supported India's bid to be a Permanent Member of the UN Security
Council. Nehru’s vision is within grasp and India’s
leaders must realise it in the next few decades.
China and India
I have always taken
a keen interest in both China and India.
Like all democratic socialists of the 1950s, I tried to forecast which
giant would make the higher grade. I had
rather hoped it would be a democratic India.
By the 1980s, however, I accepted that each had its strengths and
weaknesses and that the final outcome would depend on their economic policies, the
execution of those policies, the responsiveness of the government is to the
needs of the people, and most of all the nature of the culture of the two
civilisations.
Whether Asia
will take its place in the world as Nehru wanted depends on how both India and
China work together as they rise and actively set out to avoid ending up in opposing
camps. It is vital that they understand where
they stand vis-à-vis one another. They must not be paranoid and suspicious of
each other in a game of one-upmanship.
Instead they can cooperate and compete economically, and each improve
its performance by using the other’s progress as benchmarks for what they should
do better. India's bilateral relations with
China have improved significantly in recent years after both sides decided to
resolve long outstanding issues.
Compare and
contrast: India & China
The world is fascinated by the renaissance of Asia’s two largest and most
ancient civilisations and political and business leaders compare and contrast
their progress and prospects.
At independence
in 1947, two years before the Chinese Communist Party liberated China, India
was ahead in many sectors. Both lost
steam by adopting the planned economy. But
because of its “great leap forward” and “Cultural Revolution”, China suffered
more. However Deng Xiaoping was able to
acknowledge China’s mistakes and China’s course dramatically change when he
returned to power in 1978.
India has a
superior private sector companies. China has the more efficient and decisive
administrative system. China has invested heavily in infrastructure. India underinvested infrastructure is woefully
inadequate. India has a stronger banking
system and capital markets than China.
India has stronger institutions, in particular, a well developed legal
system which should provide a better environment for the creation and
protection of Intellectual Property. But
a judicial backlog of an estimated 26 million cases drags down the
system. One former Indian Chief Justice
of India’s Supreme Court has given a legal opinion in a foreign court that
India's judicial system was practically non‑functional in settling
commercial disputes.
Both India and
China have excellent universities, at the peak of their systems. India’s institutes of technology and
management are world class. China is determined to upgrade its top 10
universities to world class status. Overall
China's education system is more comprehensive. China’s illiteracy rate is below 10%, India’s
about 40%. India’s narrower band of
educated people will be a weakness in the longer term. And although top quality
Indian manpower is in high demand, large numbers of engineers and graduates
lack the skills required in a changing economy and remain unemployed. However India
has a larger English speaking elite than China.
But only over half of each Indian
cohort completes primary school, a big loss.
After
liberalisation, China and India have followed different models of development, maximising
their respective strengths. China
adopted the standard East Asian model, emphasising export‑oriented
manufacturing. China has been immensely more successful in
attracting FDI. India has focused on IT
and knowledge-based services. Job
creation is much slower in India and will continue to remain so until India’s
infrastructure is brought up to date to attract the many manufacturers who will
come to use India’s low cost workers and efficient services.
China's GDP for
manufacturing is 52%, India’s 27%; in agriculture China’s is 15%, India’s 22%;
for services China’s 33%, India’s 51%.
Over the last decade, in the service sector India has averaged 7.6%
annual growth, China 8.8%, in manufacturing
India’s growth is 5.7%, China’s 12.8%.
India and China should
co-operate and compete with each other, spurring one another to greater
heights. ASEAN will be a major beneficiary.
As Senior Minister Goh Chok
Tong once said, India and China can be the two wings of the jumbo jet for
Southeast Asia.
India should
benchmark itself not just against its own past, but against the best in
Asia. And India can take heart from the achievements
and performance of Non-Resident Indians (NRI) in free market economies such as the
US, UK and even Singapore, where large numbers of NRIs
have assumed high corporate positions in multi-national corporations.
Both India and
China have both done much better than most of the world. In the decade from 1994 to 2004, India's GDP
grew two-fold from US$310 billion to US$661 billion. But during the same period, China's GDP grew three-fold
from US$542 billion to US$1,649 billion. In 1984, India's GDP was about 30% smaller
than China's. A decade later, it was
more than 40% smaller and by 2004 it was about 60% smaller. Such a wide disparity
is unnecessary. India can and should
narrow the gap by embarking on a new round of reforms.
Walking on Two
Legs
Can India keep
pace with China’s growth? Yes, if India does
more in those sectors where China has done better.
The Chinese are
learning English with great enthusiasm, and are keen to develop a services
sector like India's. All the leading Indian IT players are expanding in China,
and training thousands of Chinese software programmers. One Indian company, Zensar
Technologies Ltd, has been contracted to train 1,000 Chinese software project
managers from Shenzhen in etiquette, communication and negotiation skills. Huawei, a leading
Chinese technology company, has invested in Bangalore to tap its software
skills. The Chinese want to reach
international standards for the software outsourcing industry. They are not too proud to learn from India. In Dalian,
Singapore is helping to develop an IT park which will be specifically marketed
to Indian software companies interested in the Northeast Asian market.
But India cannot
grow into a major economy on services alone. Since the industrial revolution, no country
has become a major economy without becoming an industrial power.
Just as China is
learning from India to improve its performance in the IT sector, so India must
emulate China's success in attracting FDIs and the jobs
they create in manufacturing. It can do
this by building infrastructure and educating and raising the skill levels of
its workers.
Arvind Panagariya, a professor of Indian political
economy at Columbia University, USA, puts the issue clearly. He noted that some have argued that India can
focus on IT, grow rapidly in services, skip industrialization, and yet
transform itself from a primarily rural and agricultural country into a modern
economy. He dismissed such ideas as
"hopelessly flawed" and
"far‑fetched".
IT is less than
2% of India's GDP. While services have
grown rapidly, the bulk of the growth is from service sectors where wages and
productivity are low. Business services,
which include software and IT‑enabled services, account for only 0.3% of
GDP. Only manufacturing can mop up India’s
vast pool of unemployed, narrow the urban‑rural divide and reduce
poverty. Professor Panagariya
concluded:
"The right strategy for India is to walk on
two legs: traditional labour intensive
industry and modern IT. Both legs need
strengthening through further reforms ...."
India's
relatively young population can be an asset if they are universally well educated. UN forecasts that India's population will
outstrip China’s by 2030. Job creation
through faster GDP growth is therefore an urgent necessity. Growth in IT and other services will not
create enough jobs. IT-related jobs make
up only one quarter of one percent of India's labour force.
To create jobs
the main thrust of reforms must be in manufacturing. That requires a change in labour laws to
allow employers to retrench workers when business demand is down, streamlining the
judicial processes, reducing the fiscal deficit, loosening up the bureaucracy,
and most of all improving infrastructure.
Let me focus on the last two as I believe they are crucial and inter‑connected.
Industrialisation
cannot take off without adequate infrastructure: better roads, and a reliable supply of power and
clean water, better ports and airports.
By one estimate, economic losses from congestion and poor roads alone
are as high as US$4 to 6 billion a year.
Another estimate is that the cost of most infrastructure services in
India is about 50% to 100% higher than in China. The average cost of electricity for
manufacturing in India is about double that in China; railway transport costs
in India are three times those in China.
China has spent over eight times as much as India on its
infrastructure. Three years ago, China's
total capital spending on electricity, construction, transportation,
telecommunications and real estate was US$260 billion or more than
20 percent of its GDP as compared to US$31 billion or 8 percent
of India’s GDP.
If there are
budgetary constraints, the answer is to privatise these infrastructure projects. There are well-established construction companies,
Japanese, Korean and others, that have done many such infrastructure projects on
franchise terms.
One area where India
has done well is its telecommunications infrastructure. This has been a critical factor for India’s
IT success. India needs to aggressively
privatise infrastructure development and open it to foreign investment. Then FDI flows will increase. And the bureaucracy must not impose onerous
conditions that will hamper this privatisation.
The Political
and Economic Risk Consultancy (PERC) based in Hong Kong, recently surveyed
expatriate businessmen on bureaucracy and red tape in Asia. India was rated worst out of the 12 countries
covered. PERC's
conclusion was that:
"The Government would like to liberalise many
sectors, and there are plenty of announcements of new initiatives to do
so. But when push comes to shove,
bureaucratic inertia has been extremely difficult to overcome."
The World Bank
has also done its own study. It found
that in India it can take a decade to close a business through insolvency
proceedings. It also found, among other
things, that official fees amount to almost 13 percent of a property
transaction in India as against just over 3 percent in China.
My secretaries asked
Singapore businessmen with investments in India what, apart from
infrastructure, they found as major constraints. To a man, they replied it was the
bureaucracy.
They believe it
is a mindset problem. The average Indian
civil servant still sees himself primarily as a regulator and not as a
facilitator. The average Indian
bureaucrat has not yet accepted that it is not a sin to make profits and become
rich. The average Indian bureaucrat has
little trust in India’s business community.
They view Indian businessmen as money grabbing opportunists who do not
have the welfare of the country at heart; and all the more so if they are
foreign businessmen. Deng Xiaoping said
at the start of China’s open door policy, it was glorious to be rich. The sequel
is reported in Forbes Asia, November
14 2005, where it listed over 300 China’s richest, 40 of them with thumbnail
CVs in a centre-fold. All are new
entrepreneurs creating jobs and spreading wealth. Now, after private enterprise
and the free market have generated wealth in the coastal provinces, China’s
leaders have concentrated on spreading growth to the inland provinces by
building infrastructure and offering generous economic incentives for
investments.
One Singapore businessman
told me this story. He entertained a
former senior Indian civil servant to lunch in Singapore. Some months later when he was in India, the
former civil servant reciprocated by hosting a dinner at which several other
guests were present. His host made this surprising
comment that he was amazed to see that in Singapore, a business could be
successful without being dishonest.
India must find some
way to reward bureaucrats who facilitate, not hinder investments and enterprise
whether Indian or foreign.
A
factor worth noting: India gets a much better economic
return for the investment it makes in its economy because India’s private
sector capital efficiency is high. If India opens up fully to FDIs, the results will be profitable for the investor and add
considerable employment and added GDP growth for India. With jobs there will be a trickle down of
wealth to millions of Indian workers, as there has been in East Asia.
Politics is the
Issue
What India has
achieved since 1991 should not be underrated.
There have been many successes. The Delhi Metro is one. Bharat Forge, the
largest Indian exporter of auto components and the leading global chassis
component manufacturer, is another example in the manufacturing sector. There are others. The question is why there are not many more of
them?
There is no
dearth of excellent analyses by Indians about this problem. An entire library could be assembled on the
subject. I consulted two books: The Future of India by Bimal Jalan, who was Governor of the Reserve Bank of India from
1997 to 2003, Chairman of the Economic Advisory Council to the Prime Minister
and has represented India at the IMF and World Bank; one other book, Governance
by Arun Shourie who has
held several government portfolios and is a well‑known writer. To sum up their arguments for the failings
of the system in a single word: politics.
Earlier this
year, Prime Minister Manmohan Singh gave a wide‑ranging
interview to the McKinsey Quarterly. He
rated his own government's achievement as 6 out of 10, a performance he said
was unsatisfactory. He acknowledged the
need for better infrastructure, for more FDI, and also the need to move ahead
in manufacturing. When asked whether the
pace of implementation was fast enough, he replied:
"
... economic policy and decision making
do not function in a political vacuum.
It takes a lot of time for us to take basic decisions. And furthermore, because we are a federal set‑up,
there are a lot of things that the central government does, but there are many
things, like getting land, getting water, getting electricity - in all these
matters the state government comes in, the local authority comes in .....
.... I do recognise that at times it
gives our system the label that it is slow moving. In a world in which technology is changing at
such a fast pace, where demand conditions change very fast, we need to look at
a more innovative mechanism to cut down on this rigmarole of many tiers of
decision‑making processes."
Prime Minister
Singh added, "We are a coalition
government and that limits our options in some ways."
Politics is a
fact of life in any country. And coalition
politics is a fact of Indian political life.
It has been suggested
that India's slow growth is the consequence of its democratic system of
government. Almost 40 years ago,
Professor Jagdish Bhagwati wrote that India may face a "cruel choice between rapid expansion and
democratic processes".
But democracy
should not be made an alibi for inertia.
There are many examples of authoritarian governments whose economies
have failed. There are as many examples
of democratic governments who have achieved superior economic performance. The real issue is whether any country's
political system, irrespective of whether it is democratic or authoritarian,
can forge a consensus on the policies needed for the economy to grow and create
jobs for all, and can ensure that these basic policies are implemented
consistently without large leakage. India’s elite in politics, the media, the
academia and think tanks can re-define the issues and recast the political
debate. They should, for instance,
insist on the provision of a much higher standard of municipal services.
By way of
example, Chinese politics have always been plagued by factionalism. China also has great regional diversity. Like India, China also has powerful vested
bureaucratic interests. But Deng
Xiaoping forged a basic consensus among all political factions and the
bureaucracy on the economic development and the necessary opening up to the outside
world to succeed. A similar consensus can
be achieved in India.
The passage of
the Special Economic Zone (SEZ) Bill by the Lok Sabha (Lower House of the Indian Parliament) in May this
year was an important move. SEZs can finesse some difficult internal issues blocking
liberalisation. Singapore has some
experience with SEZs in China. If India thinks it useful, we are willing to
share our experiences with you, building upon what we have done in the
Bangalore International Technology Park.
I must conclude with a word of caution.
SEZs, once embarked upon, must be made to
succeed, which means total and sustained commitment from politicians and
bureaucrats at national, state and local levels. When they succeed, they will have a powerful
effect on the whole economy, give a boost of confidence and spark off a healthy
competitive dynamic between different states and regions. Successful SEZs also
will erode opposition to reforms because their benefits become self-evident, as
has happened in China.
A few months
ago, in August, the communist Chief Minister of West Bengal was in Singapore to
drum up investments for his state
offering market incentives to attract investors. He said: “The lesson from the collapse of the
Soviet Union and from China is that [India] must reform, perform or
perish.” That very same month, members
of his own party in Lok Sabha
in New Delhi forced a retreat on India's privatisation programme. This is India’s party politics.
Imponderables
There are some
imponderables. American commentators believe that China’s political system is
too rigid, that it does not have the flexibility of pluralistic politics and
democracy with freedom of speech, the media, assembly and respect for human
rights. So China will encounter severe
problems and setbacks. Professor Pranab Bardhan[1] of
University of California, Berkeley, has explained the problem this way:
“China's authoritarian system of government will
likely be a major economic liability in the long run, regardless of its
immediate implications for short-run policy decisions.
“But inequalities (particularly rural-urban) have
been increasing in China, and those left behind are getting restive. With
massive layoffs in the rust-belt provinces, arbitrary local levies on farmers,
pervasive official corruption, and toxic industrial dumping, many in the
countryside are highly agitated.
“China is far behind India in the ability to
politically manage conflicts, and this may prove to be China's Achilles' Heel.
Over the last fifty years, India's extremely heterogeneous society has been
riddled with various kinds of conflicts, but the system has by and large
managed these conflicts and kept them within moderate bounds. For many
centuries, the homogenizing tradition of Chinese high culture, language, and
bureaucracy has not given much scope to pluralism and diversity, and a
centralizing, authoritarian Communist Party has carried on with this
tradition”.
If they are
right, India will draw ahead in the longer term.
Such analyses
assume that the Chinese political system will remain static. If China’s political structures do not adjust
to accommodate the changes in its society resulting from high rates of growth,
India will have an advantage because of its more flexible political system in
the longer term.
But Bardhan also cautions: “India’s
reform has been halting and hesitant. India’s heterogeneous society has been
riddled with conflicts, but the system has by and large managed these. There
are many severe pitfalls and roadblocks which India and China have to overcome.”
Both India and
China are huge countries with vast populations and long histories. They have to evolve standards of governance
that is consonant with their cultures and the spirit of their
civilisations.
Conclusion
At stake is the
future of one billion Indians. India
must make up for much time lost. There is in fact already a strong political
consensus between India’s two major parties that India needs to liberalise its
economy and engage with the dynamic economies of the world. The BJP led coalition government of former PM
Atal Behari Vajpayee
continued and indeed extended the economic liberalisation policies of Manmohan Singh when he was Finance Minister in PM Narashima Rao’s government. India now has a strong, able and experienced
team with Manmohan Singh as PM. The time has come for India's next tryst with
destiny.
. . . . .