Lee Kuan Yew's India rethink

Lee Kuan Yew's India rethink

By Kaushik Basu
Professor of economics, Cornell University

Lee Kuan Yew
Mr Lee caused a stir with his upbeat views on India

When it comes to crafting national economic policy, few political leaders in the world have had the perspicacity of Lee Kuan Yew.

Not only did he steer Singapore from the Third World to the First in three decades, he has written and commented on the economic problems of different nations with remarkable prescience.

Concerning India, during his term as prime minister of Singapore, he routinely expressed pessimism.

"It was sad to see the gradual rundown of the country," he once wrote.

Coming of age

It therefore caused a stir when, earlier this month on the occasion of the founding of the Lee Kuan Yew School of Public Policy in Singapore, he predicted that India would be propelled into the "front ranks".

Aided by the sharp rise in foreign exchange reserves, Indian companies have, over the past three years, begun making global acquisitions

In this amazing speech, crammed with information and analysis, he argued that, over the next decades, "China and India will shake the world... In some industries, [these countries] have already leapfrogged the rest of Asia."

The question I want to investigate here is whether this optimism, which seems to be widely shared - from Martin Wolf in the Financial Times to Roger Cohen in the International Herald Tribune - is founded in facts.

The short answer is yes. While India has been doing well for more than a decade now, there have been changes over the past three years that are significant. I shall dwell on four of these changes.

First, Indian companies have come of age.

Wen Jiabao and Manmohan Singh
China and India will shake the world, says Mr Lee

This was noted by Mr Lee. When he spoke about what India had to offer China, he mentioned India's "near world-class companies", good corporate governance and capital market transparency.

This began with software companies like Infosys, Wipro and Tata Consultancy Services, which set new standards in corporate culture, and spread to other sectors.

And, aided by the sharp rise in foreign exchange reserves, Indian companies have, over the past three years, begun making global acquisitions.

In 2003 they bought up 35 companies abroad. Buying even one would have been unthinkable a few years earlier.


Second, there has been a windfall in India's outsourcing business, related to the US presidential race.

Call centre worker in India
US outsourcing to countries like India has been a huge boon

Readers will recall that losing Democrat candidate John Kerry had criticised US companies that outsourced back-office work to developing countries.

He later back-tracked on this, realising that this was not good economics for the US and also that it was not commendable ethics to propagate protectionism vis-a-vis poor nations.

But once this topic made its appearance, it refused to go away.

A host of writers and commentators on television, such as Lou Dobbs, went out of their way to vilify American companies that, for greed of profit, outsourced jobs.

A lot of small American companies that had the greed of profit but did not know of this great opportunity suddenly woke up to it.

Firms that may have had four or five secretaries decided to keep some of them and shipped the remaining jobs to English-speaking poor nations.

For the Third World this was an unexpected boon, since advertising on US television is so expensive.

A large number of countries have gained and India, which already had the organisational infrastructure for back-office work, did especially well.


Third, with China joining the World Trade Organisation, India having removed quantity controls on imports, and the advance of the IT industry, there has been an unprecedented rise in Indo-Chinese trade.

Suspected Kashmiri militants
Tackling militants has given the US and India common purpose

The trade between these two nations was $5bn in 2002, $7.6bn in 2003 and $13.6bn in 2004.

Moreover, what is interesting is that it is India that is running a trade surplus.

In general, there seems to be a boost in India's trade with the rest of Asia.

Finally, these strong economic developments come with a fortuitous political change, no matter what moral position one takes on this.

With the rise of global terrorism, US political interests have come into alignment with India's.

As Thomas Simons, ex-US ambassador to Pakistan, has noted, the Soviets left Afghanistan in February 1989 and insurgency in Kashmir rose from the summer of that year.

The fundamentalist forces that were engaging the Soviets began settling into a new job, providing a common problem for the US and India.

And combined with the fact that India and the US share similar political systems - democracy, free press and a constitutional commitment to secularism - this makes India a natural strategic partner for the US.

India should nurture these new economic and political advantages.

This will involve a pragmatic assessment of its self-interest but also, I like to believe, a commitment to certain values.

It will entail cooperation with China and the US, but also the strength to retain moral independence in global politics.

And there would be reason to take the new optimism seriously.

To read Kaushik Basu's future columns, bookmark bbcnews.com/southasia

Below is a selection of readers' views.

India remains a poor third world country. Here is the proof. Just a few kilometers from Lucknow, the seat of UP government, the largest State in the nation, tens of thousands in many villages do not have electricity at all. I challenge anyone to prove me wrong.
Sifwat Ali, USA

Urban India might be changing, thanks mainly to private entrepreneurship and the strong desire for wealth and profits. However the crying need for India now is not wealth but good administration. India lives in its villages. It is a pity that the government, the companies and the people in urban India totally ignore this side of the country. When proudly talking about how much progress has been made, they pretend that India's villages do not exist. The plight of millions of people in villages is one of despair and dejection. It is commendable that India is doing well, but it is rural India that needs to be looked into to see if achievements are truly laudable.
Tom Evans, Milton Keynes, UK

It is a huge disappointment to find Prof Basu jump into the bandwagon of hype when he should no better. Just which India is he talking about? For all the hype about companies flourishing and IT giants taking on the world, the fact remains that vast swathes of the country is in the middle ages, with millions and millions of poor who do not have access to basic literacy or health care. It is not clear at all that recent gains--admittedly remarkable--have even begun to bring any change in the life of India's dispossessed. The bitter fact is that there are two India's -- the India of optimism, development and possibility in IT and back office driven metropolises and a handful of states -- Tamil Nadu comes to mind -- which have made strides in manufacturing.
Ashfaque Swapan, Berkeley USA

I completely agree with Mr Basu regarding 'Moral Independence'. India is the most secular country in the entire world and we should try not lose our strength. Where else can you find a Muslim in a non-Muslim country to be the richest man (Mr Azim Premji) or a Muslim be the most respected person (Dr Abdul Kalam). Mr Jahangir Akbar of USA, I agree with you regarding Hindu extremism with regards to Babri mosque or Gujarat, But that does not mean that you can blame the entire country.
Kalyan, Edinburgh, UK

I find this article to be just rambling and out of depth. India is going the way where Latin America is right now, huge disparity between those who have and the have nots. Swelling in the ranks of the have nots. Marginalization of the have nots. India can call itself a success when its growth is organic, and when when atleast 50% of our people can boast of having a decent square meal a day.
Ajay, India

Every time I go back to South India where I originally come from, I see a significant change in the outlook of younger people, and gradual increase in their affordability. I do not understand Economics, but one thing that worries me is the slowness in distributing the wealth of the rich and middle class to the poorer people.
Ramachandran, USA

India is slowly losing touch with its intellectual, spiritual heritage and being turned into a super-fat consumer society. In addition we are an environmental disaster, and we make bad, kitschy cinema. I don't see this as a tremendous achievement.
Prashant, Toronto, Canada

India is definitely going strong but needs to make sure that the momentum is not derailed by short-sighted political ideas. Also India needs to widen the tax base and make every effort to ensure the benefits trickle down to the poorest of the society. Only then can India can claim its rightful place in the comity of advanced nations.
Uday Hiremath, USA

Well said! It is about time Indians started to be optimistic about their future and celebrate their successes rather than be pessimistic and have an inferiority complex as it has been for so long. Enough has been said about India's poverty in the media and India bashing by people who have other vested interest and comments on India and we all know which quarters they come from. True, there is a lot to be done, it's a matter of time. Corruption and poverty will decrease by an educated, progressive and united India. Work is already underway!

As a resident Indian, I can attest the changes occuring on the ground in India by many of our optimistic columnists. "Slow and Steady wins the race" is also true in economics...as of today no great civilisation has progessed explosively, it has matured in its own time. Hence, I am slightly worried about the runaway growth of China...explosion then implosion? Hope not!
Ketan Khare, India

Well, another brilliant work by Basu. If only the BBC learnt to focus more on these than the typical third world images it loves to portray India in...
Rohit, London

I am a Singaporean of Indian origin. While, I do not doubt the predictions of Lee Kuan Yew and other economists, I would like to know if the wealth that is India is gaining is going to be concentrated in the hands of a few. Has there been a change in the welfare of people? Or is it too early to tell?
Gayathri Gunasekaran, Singapore

The outworldly rosy picture is not enough to propell India in first world category, there are host of internal issues, which are required to be tackled in due time for India to achieve developed status in near future.
Indu, Us

Ever since the economic reforms started in 1990, India is moving in the right direction step by step. For India, this is just a beginning towards prosperity and her success will be directly proportional to the improvement in infrastructure, education and health care to her citizens.
Raj, India

India is on the move. It is no surprise that the rest of the world has started to take notice. With an economy growing consistently at over 6 percent every year, with over US$100 million in foreign exchange reserves,and a bourgeoning middle class, there is every reason to be optimistic about India's future. India has always been a potential superpower but poverty and corruption have hindered its progress. Manmohan Singh, in his brief stint as Prime Minister,has made significant gains with regards to India's external relations. If he displays the same determination in trying to tackle the country's internal problems such as corruption and communal divisions,India can realize its enormous potential.
Siddhartha Talya, Toronto, Canada

While I generally agree on optimisitic note of Mr Basu's analysis but would like to add caution of more economic reforms required to liberate the full potential of Indian economy. India must reform its labour laws and Small scale sector reservation policies to become more competitive and widen its economic base.
Shailendra Saxena, USA

Prof. Basu always manages to show us light and hope in its purest form. Thank you.
Babuli, India

Its interesting to see that leaders across the world are coming together to form a viewpoint that Asia is going to be the new economic superpower in the coming years. It is not surprising though because the percentage of skilled workers churned out every year is much higher in asian countries than western countries. The quality of work in these countries is no doubt achieving higher standards and giving more satisfaction to the outsourcers. All said and done, I think it will be interesting to see in the coming years if India and China can be threatened by other countries in this outsourcing race. That will also help smooth out some of the huge benefits that outsourcing has generated for these countries. In general a better economy for the world.
Neeraj, New York City

How can Kaushik Basu say that India and the USA have so much in common. India has opposed every US foreign policy initiatave for over 50 years. He says that India is devoted to secularism, but the truth is India promotes Hindu extremism. Indian politicians promote and engage in policies that violate the human rights of its own citizens. The Indians promote the slaughter of Christians and Muslims. We should not for get the Barbari Mosque or Gujarat. This idea that India is such a great place is utter nonsense. People should inform themselves rather than listen to opinions given by self serving commentators.
Jahangir Akbar, USA

I agree with Mr. Basu's positive article on India's economy. We shouldn't however forget that this excellent growth could be even better if the government can tackle rampant corruption which still exist in all quarters.
Vinod Uttamchandani, USA

It's really interesting to know that you are such a wishful thinker and Indian spokesman who is considering only booming economy alone. You are not talking about downtrodden and destitute Indian people living in various Indian states. Please always show us both sides of Indian progress and prosperity. Thanks
Ashfaq Ahmed, Canada

Well said Kaushik. The world is tilting towards free trade and India is in the driver's seat to leverage this potential. Our politicians need to inculcate this potential and improve the infrastructure, root out red tapism and empower the people so that we could be in the forefront of capitalism and freedom thus heralding democracy.
Rajesh Sundaram, India

"Moral Independence" are very lofty words. Morality depends on your paradigm and independence is worthwhile only if you can lead. The Non Aligned Movement both highly moral and independent created little value for India or the world. Cooperation with China and the US could to a large extent force India to give up a portion of its moral independence eg. India's position on Tibet and Iraq. India might be propelled to the front ranks in less than 10yrs but fronk ranks with the strength to retain moral independence is a dream very far away.
Nisha Nath, usa

I sort of liked the reasoning put forward by Mr. Basu in his optimistic assessment of India till I reached towards the end. His recommendation for India to maintain "moral independece" is scary. The Indian self-righteousness is world renowned and has set us back diplomatically just as our economic policies did us in till the 90's. I believe India needs independent but emapathetic foreign policy. India must first begin to understand and resepct compulsions of other nations before preaching moral superiority.
Neil Mehta, USA

A further goal for India would be to stabilize the subcontinent and make it a dynamo of growth that it was a long time back. The subcontinent contains upwards of 600 million muslims - by far the largest denomination of muslims anywhwere. Thier inclusion into a progressive and democratic framework would do more to stabilize the Islamic world than any amount of military intervention. Also India will have to work to ensure that countries in the emerging world do not emulate the neo-autocratic framework of china. For this India will have to become more liberal, more prosperous ,more democratic and less unsure about herself.
Rajiv, Japan

There is no doubt about the progress made in IT. But we as Indians have to reassess and redefine our work culture and tackle severe corruption in certain areas such government offices where we all know what's going on. This is not a small problem at all.Law is not sufficiently helping in this regard.All major government organisation have to revamped with common code of functioning all over India.Just progress made in IT will not make any country superpower.
Arjun, India

I do certainly agree that there has been a fundamental shift over the last decade in India. Unfortunately, this is limited to a few companies in a few sectors. It is irrational to think 35 foreign acquisitions is going to make any difference to the over 600 million rural Indians. The opportunities created over the last decade has been limited to a few elite Indians who have had the privilege to study in urban institutions in English. A hundred kilometers from any 'booming' city, nothing has changed. India will have to invest a lot more in education and basic infrastructure at the rural level to "propel itself into the front ranks"
Pranay Sonalkar, USA

Mr. Lee's observations on the future of India are correct. I am sure the credit should largely go to the Indian private sector. About 15-20 years ago, there was a little difference between the public and private sector of India. Both sectors were equally inefficient and non-productive. From that point Indian private sector has taken a quantum leap ahead. I am sure the top Indian firms - not only IT firms - now stand shoulder to shoulder with their US or European counterparts in every respect. As Time magazine has noted for fifty years India was waiting her self restricted wheel chair. This is the time to get up with a bang!
Chanuka Wattegama, Sri Lanka

With the youngest population in the world, and a second tryst with destiny, I have full faith in the inherent Entrepreneurship and deep desire to excel among Indians. The energy that was all bottled up for decades has been unleashed. Outsourcing and current Entrepreneurship trends are only a start of a wave for India and china to join the global economy as equal players. Like Manmohan singh (India's Prime minister) once quoted "No one can resist an idea whose time has come"
Shubham Nagar, UK

I read this with interest. It's good to hear about optimism about one's own country.We must be cautios and see we do not get into the cycle of self satisfion and not do anything about the looming problems like Electicity Shortage, Water Supply, corruption, and so on.
Ishita, India

It is a fact that India is moving ahead with a better pace than the previous decade. Initial days were similar for both China and India, but with a strong and fruitful administration, economic reforms and healthy infrastructure China has leaped ahead. This is the right time to do a comparative study between these two giants. Recently India has got a modern leadership which is similar to that of China in decision making, but still has to improve in implementation. About foreign investment, it is really interesting to see the leaders are acting like salesmen, and it will bring India very fruitful results in future. But the most crucial area is of infrastructure. Indian companies are already feeling suffocation and it is too late to work on infrastructure building. Briefly, building up of good infrastructure will build up another India with a strong foundation for heading towards the block of developed countries.
Jossi John, United Arab Emirates