India Still Rising?

hello I'm Russell green I'm the wheel Clayton fellow for international economics here at the Baker Institute and it's my pleasure tonight to introduce to you the Honorable David C Mulford ambassador Mulford what is the the vice-chairman international at Credit Suisse we're going to hear from him talking about India as he is the was the is the former ambassador to the United Stated States to India where he served during a transformative period of the us-india relationship from 2004 through 2009 and oversaw numerous major accomplishments of including the us-india nuclear deal he on his watch we had the the unfortunate Mumbai attacks but that was beneficial for the us-india relationship as it greatly transformed the degrees of trust with with us help in that in that episode prior to that ambassador Mulford was with Credit Suisse but also served as US Treasury undersecretary for international affairs in the the both Reagan Reagan terms and through the entire first Bush administration so is a man with with fantastic breadth of experience and we're lucky to have him here so with that please join me in welcoming ambassador Mulford [Applause] thank you very much Russell I'm very grateful to you for inviting me down here it's an honor to be here I'm delighted to have this opportunity to speak to you I will speak very informally and I hope this turns out to be stimulating and fun evening I don't do much in the way of giving lectures so I'll speak rather a reasonable period of time and then open up to what I hope is a dialogue with you which is how I'd prefer to spend the evening I should begin by saying that I know Jim Baker isn't here at the moment but I did work for Jim Baker for four years at the Treasury and I remember my very first experience with him the first time I met him and that was when I was asked to come up to the secretary's office Don Regan who was swapping jobs with Jim at that time and the congressional relations people were there and they said we want you to go over to the White House and see mr. Baker and help to prepare him for his congressional hearing so please go over and make sure when you meet him that you ask him very tough questions because they'll be asking tough questions so you want to really get him prepared so I said okay I'll go over and meet him so I went over and I met Jim and I said no I'm here to brief you and help you prepare for your congressional hearing so I'd like to ask you a few questions so my first question was what do you think qualifies you to be secretary of the Treasury and deal with all the complicated affairs of international financial affairs of the United States he looked at me you know what that look is and he said um well he said I would say the preparation of seven economic summits for the President of the United States and four years in the Marine Corps so that took care of that question and I was a little more reserved in my further question so is India still rising this was the topic that was set with a question mark and my answer to that very shortly is it is still rising in a very remarkable and fundamental way and it is a rising that will in my view continue that's the headline now nobody should represent that India is an easy country or an easy country to get things done or is a country that is anything other than a very large genuine democracy of great diversity and as I say a kaleidoscopic nation of color movement and everything you can think of Under the Sun always a great entertaining place to visit to watch to listen meet people and it is a wonderful country everybody knows that India has lots of problems shortcomings deficiencies confusions so we should get over that I acknowledge all that and yet I am extremely positive so I'd like to explain why and I think my experience there was long enough and over a unique period which enables me to have the views that I'm going to express plus since then I have been in constant contact with investors around the world whom I see a great deal of my time I do some Investment Banking but I do a lot of work with hedge funds and international investors of various kinds and so on and these are you know populated by smart people who ask a lot of questions and put you on the spot on things but so I get a lot of practice and I get a lot of chance to think about things and then I go to India two or three times a year my wife had breast cancer when she was there and and was cured and then when she came back she the first walk for life for cancer awareness in New Delhi in 2008 so we go back each year for that because she leads the walk and this is a major event in her life and in both for both of us so let's just go back and make sure we're on the same wavelength on India's past not too much history but some 1947 India was formed and for the years between 47 and 2003 it never grew faster than two and a half to four and a half percent with exceptions where it touched five but never sustained fibre sent meanwhile the population in 1947 was 300,000 by 19 by 2000 or so it was 1.1 or 1.2 billion so I always say that two main products of India's first 60 years were first of all poverty because it didn't grow fast enough to take care of its population growth and secondly democracy most remarkably to have created a genuine democracy of the type India has after after partition and the violence that took place at that time everything morphed over the years into a truly democratic society it is a chaotic place that's true but it is very stable so if you can fit those things together then you can begin to understand India until - until 1991 when the reforms began under Manmohan Singh India was a very closed economy a sort of import substitution economy not really very very open to the world at large and it Naumann it regarded itself as the sort of self-appointed leader of the non-aligned world in those years I was at Treasury in many of those years and I used to have to meet Indian delegations and they were always on the other side of issues from us in the United States and the yep and the relationship with India between the u.s. and India was up and down over those years and the Gandhi dynasty if you want to call it that was very very paternalistic in his view of policy towards rural India where 80% of the people lived and it made them gave them a different view of the world and made it hard to cooperate I think in the United Nations it was rare actually for India to support the United States and votes over those years and yet after 1991 when India began his reforms things began to change first of all the reforms initially were more in the nature of opening India to the world than they were internal structural reforms and the opening process was something India Brazil he forced to do at that time because of its financial situation and gradually they begin to show some signs of stronger growth although they had coalition governments during the 90s but the great setback in that period came when India tested its nuclear weapon in 1998 and as a result drew sanctions from the United States and many other countries around the world these sanctions were very punitive and they were very embarrassing to India militarily because india imports most of its weapons and many of those weapons became unusable or difficult to service because they had dual used parts and etc covered by sanctions the sanctions were lifted by george w bush in 2001 and within one year there had been the pakistani attack on the Indian Parliament which took place early in 2002 and all of these events disrupted India's continuity and under mine to some extent its capacity to to really establish higher growth levels so the first year that growth really penetrated and was sustained above 5% was 2003 so that is the year iDate quote-unquote the modern Indian economy from and I think this is very important distinction when you look at India's prospects because they really date in a major way from then in those years oh three four five six seven eight growth went from five to six - seven - eight - nine ten ten plus percent and India really enjoyed a major breakout and the reforms bent began to be more than just opening to the world they began to be internal reforms that were promoting growth or assisting growth there was a lot of slowness there are a lot of difficulty but these things did begin to happen in the United States George HW Bush made an initiative in 2005 of extreme importance in terms of its so-called strategic relationship with India which is what George Bush wanted and which we were dedicated to try to achieve in a major way when the United States agreed to negotiate with India a civil nuclear agreement that would restore India's access to global civil nuclear technology even though it had not signed the 1974 not nuclear non-proliferation treaty under that treaty a country that hadn't signed it couldn't could couldn't have nuclear weapons if it wanted to sign the treaty and gain access to global civil nuclear technology it had to give up its nuclear weapons India had developed its own nuclear weapons China had nuclear weapons Pakistan had nuclear weapon and therefore their view was they wouldn't and couldn't give up the weapons and George W Bush took the view we better be on the right side of history accept this and negotiate an agreement with them that would establish this access once again after 35 years of isolation and that was regarded as the most important diplomatic in India of the past 50 years it took us three and a half years to negotiate that agreement it was successfully concluded in October of 2008 and India enjoys the position among all nations about number six outside of the big five where it has nuclear weapons hasn't signed the treaty has access to full civil nuclear technology it's a very rare and privileged position and India's game plan which it hasn't executed yet was to build its own expanded civil nuclear industry so that it could depend more on civil nuclear generated electric power and avoid becoming the world's greatest polluter after China so it was a very important political goal for them anyway that background I think is is is is is very important to understand because what happened in the next year's after that and this is I think what one has to try to come to understand as to why I feel so positive about nuclear about India's progress is that in those breakout years especially in the years of oh seven oh six oh seven oh eight a remarkable phenomenon took place and that was that India established mobile telecom coverage of the entire country in a short space of about three years in a country of eight hundred thousand villages and seventy to eighty percent of the people living in rural areas in a agricultural economy setting many of the people's subsistence level people to accomplish that step was something of a miracle and it happened as I said in three quick years at the same time the congress-led government exercised its usual philosophy of paternalistic policies and distributed lots of money and subsidies and so on into rural India which was their habit going way back so fertilizer subsidies food subsidies hundred days of work and variety of different policies and the effect of these two things was remarkable because it created for the first time among Indian rural families their first ever slice of disposable income and they began to spend on simple fast-moving consumer goods but this gave real energy to the economy and moreover it raised expectations of people Indians have very high expectations for themselves and their children and they're prepared to work and the seek out opportunities and this change enabled that process to really begin to take off a sort of revolution and expectations and at the time I identified this as the transformative event of that decade because rural India was beginning to be transformed which had never happened before and by having mobile telecom coverage they skipped an entire generation of investment in fixed line coverage in the normal fashion so huge amounts of infrastructure were simply frog leapt into the future and in the years after I got there when rural India was very rural still as I traveled around all of a sudden there began to be handsets appearing in the hands of everybody farmers women in the villages kids and they were very simple sets about $11 to buy almost free to use and very sort of primitive in a way but they really struck a chord and people bought them and then that was followed by the next government of Manmohan Singh five more years when momentum and growth was lost and India fell back to about a five and a half percent growth rate over those years and people began to question India's momentum and progress its growth no longer was it 10% it wasn't a leading player among emerging markets it was falling into a lesser category and it was a lot of criticism of the government the second administration of mahon Singh lacked momentum and continuity and decisiveness and it began to be a situation where people were really very very concerned and into that situation is when Modi emerged as a major political player he was the governor of the state of Gujarat had been very successful there for 12 years the highest growth rate in India the highest foreign and direct investment rate in India and he himself had some problems in doe - that were still haunting him and riots that took place at OU - but he and he was very much a chief minister of the state but people began the thirst for a chief executive if you talk to people they'd say well I don't know if I trust Modi maybe he's a Hindu nationalist maybe he'll divide the communities etc etc but we need a chief executive somebody who really runs this place and gets us back on the track and that is how he got elected rather quickly he moved to spokesman of the BJP and then candidate for Prime Minister and he won the election in a very significant way with an absolute majority which was not seen in India for something like twenty years at least so that was a moment of extreme importance it was followed then since then by India's current situation and this is where one has to really focus judgment on what is happening and what Modi is or isn't achieving there's been a lot of criticism by economists media people political commentators and so on about Modi coming in and not doing enough of the right things and losing momentum and not following through and the things that he should be doing and even on the things he said he would do and all of that has an element of truth in it but I think what's involved here is a failure to really look at what is happening in India and that's what I'd like to spend the next few minutes on before we open up to questions because it is the kernel of the question is India still rising first of all Modi took office and first he went to Japan China and Brazil no Prime Minister had ever gone to foreign countries in his first three weeks in office and he announced a few weeks later a new foreign policy for India it was that India would no longer just be a balancing factor in global diplomacy it would be a promoter of initiatives in global diplomacy and he'd gone to these three very important countries he hadn't called mr. Obama or come to Washington he'd done what he thought was the important things to do and he then instead of doing the kind of things a leader does to be measured in his first hundred days in office and nothing happens in a hundred days in India anyway so he avoided that he didn't get trapped in that he simply disappeared in a way and in his first budget which was in July that year he didn't do what everybody thought he would do kind of amend it and reform it and promote it with BJP ideas and so on he just made a few twists twit works at to it and and then went ahead with him instead he introduced some very visionary ideas and these ideas I just want to convey to you because you can read about all the economics and commentators of use anywhere if you have that interest he introduced what seems a very simple idea which was that every Indian should have a bank account now you in our country nobody cares about that because everybody has bank accounts too many often but any that's not true because Indians don't trust banks they save on their arms gold under their mattress wherever they do not use banks so the penetration rate of banks very low in India but he introduced this idea especially for women who are the head of the household and make the spending decisions in Indian families so he wanted them in particular to have a bank account now what he meant by a bank account was not a normal bank account it was what you would call a payment account or a payment platform and that is a an account small from which you can make money transfers electronically to another account if you think of that simple idea where an amount of money is sent electronically and received almost immediately and it is the same amount you're addressing a problem which for generations in India has been a real problem and is undercut trust in banks namely Indians and working and urban India transferring money to family in rural India we're constantly being ripped off the different amounts of money would arrive cash would be taken out cash change hands it was a very awkward system so there was a lack of of any kind of confidence in the distribution system and yet people had to transfer money to relatives because there's great distances involved and frankly they had a bad experience for generations not just shortly but for generations so here was an idea that would allow a family or a person working in urban India to transfer an amount of money and be assured that it got there very big idea secondly he made the same decision on the transfer of monies for the gigantic distribution of subsidies in India government subsidies he announced that they were going to be transferred electronically and not in the form of cash where according to the figures 30 to 35 percent of those transfers of subsidies were leaking being lost or taken by corrupt players in the system and people had said when he was elected well he's going to have to kick the teeth in of his people who elected him the rural farmers by cutting their subsidies he didn't do that he instead addressed the question of leakage in the system which helped the fiscal accounts and didn't cut the subsidy of the recipient but improved the delivery of that money now there's a third part of this and that is that he announced that there was going to be licenses given for this activity and the licenses were distributed and some banks applied and won a license but who also won the license were two of the big telecom companies so why did they want a license because they could see that in this system the simple primitive handset wasn't going to serve anymore they would need to develop more complex and sophisticated handsets to allow people to do things online and this is a way to overcome the distances and the infrastructure difficulties of India and it was in my view a brilliant idea which will promote and is promoting already the development of e-commerce in India and this raises a very interesting point I was in India about three or four weeks ago and I was speaking to one of the companies that is engaged in this and I said to them how does it work when you have a 45 percent literacy rate in many part of India to use a more sophisticated handset because he was talking about how there was training going from the top down and so on I said what about all these illiterate people what happens to more sophisticated used handset use and the answer was striking he said you'd be surprised that people who are illiterate are able to use that kind of handset as effectively as anybody else they overcome the literacy difficulties by learning how to use the functions on the handset so you know this is a revolutionary breakthrough because it means that India will be going online much faster than anybody would have expected and that is indeed what's happening the other piece of this picture began before Modi came to power when a man named Han on nickel Ani no Connie was asked by the government to serve as a minister to create a program of identity cards for Indians and this was undertaken I think it was about five years ago maybe it was when I was in India and this is an iris ID system so completely accurate and they have been issuing cards on a non-stop basis and I'm told they're up around a billion now and these cards a person in a village can take his card to his greengrocer he may have a bank account in a bank 100 miles away give the card to the greengrocer that greengrocer identifies him in four seconds accurately and can fund him with it with drawl from his account the debit is then created in the bank so here again you don't need branches in every one of 800 thousand villages to run the system so these kinds of changes and others such as for example when I was there this past month I interviewed company that are working on paperless transactions and these are obviously startup country companies great investment opportunities maybe but what they bring is a future of efficient economic transactions and like I said before on the telephone lines fixed-line telephones India may leapfrog a whole generation of credit cards and credit card bureaucracies that are entrenched in our system and they may move straight to a more modern system so there's a couple of examples of what is going on in India that I think distinguishes India at this point in time in a very major way there are many other examples but we can talk about them later if you would like to delve into them for the purpose of this point I would like to say that when I tell people about India they say to me would you invest should we invest it's a difficult place to invest for a whole lot of other reasons the complexities and rules of the bureaucracy the restrictions on sectoral investment and so on but what I say to people is today India is the leading growing country among all emerging markets when it was growing at 10% China was growing at 12 today China is growing it if you believe any figures six or six and a half other people say for four and a half but I can tell you one thing about China their adjustment is not going to be there reform process the reform adjustments are not going to be accomplished in a short period of time they are very complex politically and very hard to carry out I foresee difficulties in China lasting over say five or six years this means that the tortoise which passed the hare will occupy the leading position among emerging market countries for a considerable period of years add to the fact that India imports 72 3% of its oil and oil prices are down a pure gift to mr. Modi and the Indian economy consider the fact that this year was the best monsoon since 1954 I'm told and a good monsoon means cheaper food prices and that means lower inflation in India so India's tendency for inflation is going to be reduced and when that happens the central bank will cut rates and when they cut rates you will see stronger domestic investment lead growth so if if you put all that together in my view you're looking at a long term position where India is really going to continue to grow I hate to say it this way but also it's almost in spite of itself because the rural economic transformation that is going on has real dynamism about it and I believe that analysts economic analysts and media analysts and so on they don't know how to measure this dynamism how to get your hands around 800,000 villages and individual activity and the growth of banking services and the types of things I've been talking about I see a country that is going to grow at 7 to 8% possibly higher over the next five or six or seven or eight years and will as it grows of course enjoy the benefits of a rising GDP value and standard of living and so on now there's problems we all know better education absolutely vital more jobs have to be created everybody knows that there was a real challenges for mr. Modi but the dynamic is there and so that's the basis of my thoughts on that so rather than go on and make other examples I thought I might just open up with you and we could talk about these or any other international issues here to raise thank you yes sir master andry was very appreciative your top power - I run a global macro it has been fun and I wanted to request you could take a step back and look at a bigger picture for example having a vigil issing absolutely had longer time friends multiplying rational while he has growth and because the population half episode power in the country and the population humph is expected to reach its peak in the next 10 to 20 years however the country's thora capita income is today still on the lowest in the world and we are seeing only a migration from India to other norwich countries like Bangladesh in Vietnam for you know textile jobs on the low wage jobs so even though India is rising at 78% my concern is so I've been shared by some government economist is that India might not be able to raise his profile on a per capita basis from a low each country to a middle-income country because of this differences in KS 70 percent is artificial far it's going to happen what I have used on this coming kind of episode might be on that is that a good plan this week is better than a perfect plan next week first of all and secondly these are the challenges the primary and secondary education system of India is broken everybody goes to private schools if they possibly can but not everybody can job creation is inadequate that ought to be cured to some extent by lower rates and stronger domestic investment but India is still very much a subsistence dominated economy and an agricultural economy in the first figures I gave you from 47 until let's say 2000 they had low growth and even lower slice of agricultural growth in the period between 2009 2014 when they sunk down to five and a half percent growth it's interesting to note that agricultural growth remained a relatively higher proportion of total growth in other words the hit was taken by urban and middle-class India in those years and less by traditional Indian so the expectations were not as severely affected early and the opportunities for investment in rural India are just prodigious you know and you as you know you go around in June and grain is lying in the fields and Muslims coming and they can't pick it up fast enough large mount of crops are destroyed each year by failure of the infrastructure system to pick them up and move them these are all problems that can be addressed they will not be addressed as effectively as you'd like them to be in India likewise the problems you mentioned low wages but if you look at it in another way India has a young workforce it is a rather well-educated workforce those parts of it that are educated are really very well-trained people we have them all over the United States for example and my view is that this this workforce will remain and they speak English largely so this workforce will remain one of the most competitively priced workforces in the world over the next generation that will be one of India's great advantages so the fact that they don't increase their income to you know middle-income levels as quickly as everybody thinks they should I don't think is going to matter as long as they're moving in the right direction because it's that that the Indians want and I don't think you have to meet a sort of global standard India remains a very you know very peaceful country it has very large and divided populations very little in the way of radicalization in those various communities and there's one other feature of India that I'd like to draw your attention to that I didn't mention and that is that when Modi came to power one of the first things he did was scrap the Planning Commission they had a Planning Commission soviet-style for all the years since independence and he scrapped it from one day to the next and the Planning Commission was very powerful in India and one of its jobs was to adjudicate distributed distribution of financial resources between federal and state projects so they had a really heavy hand in the manipulation of that process once he abolished it he then began to push more money into the states we've done quite a lot of research on this and we show a faster rise of spending in the states of India than in the federal government I suspect he began to do that because he wanted to use that to win state elections so he could influence his position in Parliament positively but that hasn't worked very well because he hasn't won elections very easily at all hardly and there's more elections to come but one of the effects of this is dramatic when I got to India and I went around and met chief ministers and governors in various states every one of them was sort of 80 plus they were dressed in traditional style they were kind of old boys from Congress politics and the rural areas and so on but within a few years this began to change and younger people started moving into state politics and once the money started coming in the result is that a lot of people in state politics are working their way first of all into better state performance which i think is Modi is intention to create more competition among states in the hope that another four or five become many Gujarat's which will create more jobs and better incomes and so on and the distribution of these resources is very very important and it it it one of the reasons it works so quickly is that under the Indian Constitution the distribution of powers between the states and the federal government is clearly and it's all in writing all in black and white in 1947 it's not like the United States where we have to go to the Supreme Court to figure out states versus federal all the stuff is there state responsibilities federal responsibilities shared responsibilities so these guys have come into politics they got it in black and white what they can do education roads water electricity whatever it is and they're getting the resources to do it so it seems to me that politics is going to change substantially in India and there's going to be a significant increase in growth job creation and so on especially with the favorable factors I mentioned earlier of declining inflation continued lower oil prices and so on so I just have a realistic view of that and I don't think they need to meet the standard of middle income that somebody in the World Bank thinks is important I don't think it matters if you're an Indian in an Indian village and just trying to get ahead the reason I asked if I'm going to do anything you're saying it is a growing 70% faster second of all that totally driven the the ultimate really was that the opportunities that have been presented today from external master of our external needs might disappear that is a good argument and because of that that might have adverse effect on the low-wage jobs right and these are typically based on typical countries performance in the past you know if you look at industrial aid in your onboard India our UFO fellow doesn't really the thrust of the question based on that people were concerned that the years are going fast enough it's really thick fish that was great that's not fast enough for where it is today in its age in terms of you know how far did the native population hug that was the question well the people who decide that will be the voters in India as to whether or not they think they're growing fast I I continue go back to you know we live in a world where all these standards are set by external people and agencies and newspapers and journals and all the rest of it and I often say to people you know if you want to really understand India think of it in terms of not Singapore in Hong Kong and all these other places think of it like the 19th century America big landmass poor people all over Lao the infrastructure robber barons in every direction later who build libraries maybe but but you know it's that kind of situation and I think you have to look at it that way and it's a democracy so people vote and they have that freedom to say whether or not wages are growing fast enough and if they're not going fast enough they'll vote somebody in who make them grow faster at least that's my view so I think this and I realize I read all kinds of stuff that point out all the problems and believe me I know all the problems in India because I had to live with them and try to get things done it isn't easy it's not an easy place to work under any circumstance and they do not do the things often that it should clearly be in their interest but you know they they have their own version of what we call American exceptionalism except it's Indian exceptionalism and you get a lot of that and that's just how it is portal gene talking moccasin in the communism between China be too soon cause I copy a stick communism mm5 do you foresee that such kind of an approach is against India's it's chaotic force but it's I'm a US citizen I've been living in this country for 30 years and I observe in the from outside now what effect will that have in its long-term growth prospects and also how would they can tackle some of these issues like you know in China for example I'm a professor here at Rice that I travel to China every year for various can be reasons that I've seen a growth explore in China and at the same time then they will not explore the same problems that you mentioned but I honestly feel that democracies are much better than all these artificial building that's going to China and so to me look like those analogies but we are seeing the problems right away what do you think about this perspective well China and India are utterly different and always will be India as I said as a genuine democracy China is not China has recently been permitted to join the SDR and the which means it's an aspiring Reserve currenty country a reserve currency country is a country that is transparent publishes accurate data and provides accurate data China does none of those things I don't understand how they got to be in the SDR I don't think they have any credibility frankly now they're going through a process of reform which is very you know we admire that we accept that they should be trying to do it but the complexity of it in China is just unbelievable because of how they run the country they started by making a small market economy which they peopled with bureaucrat and ran successfully ie big exports growth job creation but the world didn't like the model and came against it so then they moved to try to bring a market model in their national economy that's a much bigger and more difficult proposition and because one of the facts of life with market economies is that they require increasing degrees of personal freedom of choice civil choice and they're finding is difficult to keep control and to try to accomplish that same objective they have all these people in China who are illegal immigrants in their own country they're in the wrong places with the wrong papers and documents and they haven't been able to rationalize their healthcare system their pension system there are other safety net positions and they run this economy which permits banks to have huge non-performing loans and they've had that for 25 years so what's the result that I hear it when I'm in India people come and say well you know in China they really are growing they can build a road anywhere they want in six months and I say yeah but does the road go to the right place and to the buildings at the end of the road have people in them and what happened to the 10,000 people who got moved people complain about infrastructure in India and I say to Americans let's give a measure of respect to India where people like their land don't want the government to take it and if average farm size as it is in India is three and a half acres the government takes all your land not just a corner of it to put a superhighway through and you have 100 acres or something and Indians fight this and they can they can go to court and prevent it so they make life difficult roads are built very slowly as a result but here we aren't a democracy any one of us with land would probably fight it being taken over by a government to do something anyway so we should admire that even though I know it's a frustration to everybody and helps in as adverse to growth and so on but China is living on borrowed time in my view and it is already turning to a more authoritarian governance and it looks like the current leader is engineering a situation where he will be reappointed for another ten years or whatever it is that's a sign that it doesn't work and if you follow central banking and exchange rates and so on who in the world knows what their monetary policy is and what their exchange rate policy is nobody that I know so so I just think it's a completely different cup of tea basically and my money is on long-term is on a country that is more stable more democratic more inclusive in terms of its people it's it's a much better formula for slower but steadier progress yes sir is it possible the for the last hundred years or so countries have raised their people's standard of living by going from agriculture to manufacturing assembly line manufacturing instead of one person working it is it possible that India can skip through or go very quickly through that manufacturing phase and end up somewhere else well that's a point that's just discussed a lot because Modi has put a lot of pressure on the idea of making products in India which means manufacturing and so on and that turns out to be difficult to achieve and India is already moving quickly towards a service dominated economy services of various kinds there are exceptions to this it's very hard to talk about this subject because for example there are some very large projects going on in the energy field for example defense manufacturing that are just starting with foreign companies and my feeling is that that he will achieve more in terms of employment and manufacturing than people give him credit for when he first started that objective people said well you know that's out of date nobody's going to set up manufacturing but it was announced not too long ago that Fox come and Taiwan was going to move some of his lower end manufacturing processes into India which would create jobs in India and move them from China because in China labor costs are rising very quickly and people are looking at moving to India so as the point over here the lower wages and may not be a disadvantage it may turn out that they they are an advantage and if people are satisfied with a higher wage level that's not as high as the global standard for example I mean really their decision and maybe that will work I just don't know I think that it's too early to tell whether manufacturing is is going to be a sustainable activity for Modi in terms of creating jobs but he is trying it and we'll have to see there are plenty of companies that are ready to have a shot at it but you know it's kind of amazing what goes on the for example one of the things that India has to do is to reform its government banking system very very important recapitalize it and reform the governance of their system and there's private banks that have expanded into rural India in a major way the government banks haven't done it because they don't have the capital the leadership the continuity and so on to do it at this point because they're undercapitalized but private banks several of them have moved heavily into rural India and they hire people in rural India and they train them and they have a lending program at village level regular loans of all kinds and you know this is a very important development because when I was there a farmer if he wanted credit either had to go to a loan shark charging him 40 or 50 percent or maybe more or a micro lender who was usually a group of ladies lending very small amounts of money and there was nothing in between so banks are coming out there and providing something in between and the services that go with it and as this happens credit will be extended more and more sizeable and better terms into rural India so again it's just another one of these signs of change taking place in village level and Modi has announced this idea of smart cities secondary cities be converted into smart cities that you know are in theory at least paperless service providers and and and the evidence that some of this is working is the simple fact that companies like Amazon and others are expanding at an enormous rate in India with offers of e-commerce services ecommerce was thought to be unworkable in India a year ago because of info structured problems a lot of streets don't have names you know it's a hard place to operate a sort of e-commerce delivery system but people are overcoming those things and I've already given the example of non literate people using handsets effectively it is really changing very very fast yes sir mr. ambassador India has not always been a model of ethnic and religious stability and we do have a huge Islamic population that al-qaeda has recently said that they're going to designate for an interest you have a right-wing growth of Hindu nationalism and you always have ethnic flare-ups even with Indian do ISM what do you think will keep this stable ability that we maybe are enjoying or least on the surface and join in India and keep it from exploding in the future my answer to that is that their track record up till now as a country with 150 to 175 million Muslims so far for example the Muslim community has not been radicalized and we spent a lot of time trying to understand why and it comes down to the simple fact that I think my personal view is that Islam in India was softened in the period of the moguls when the Persians came in and the invaders were surrounded by Hindu wives concubines advisors etc Hoover of 300 year period and and Islam I think was softened I can't prove that but it seems to me that something has been successful historically there because what we found was that Indians were first and foremost Indians and secondly Moslems and that worked pretty well there have been outbreaks of extreme communal violence that's true and Modi was accused of fomenting or not doing enough to stop that in 2002 and it's not constantly on the mind of people when it comes to elections and we experienced problems with this for example in the attempt to abolish polio when I was there because certain Muslim communities where we had to abolish polio for three years no new cases we kept getting 40 or 50 or 100 new cases in northern areas of India with Muslim populations we're not very progressive Muslim communities were convinced the drops that were being given were aimed at making their children infertile in fact what was happening was that those kids were so sick with diarrhea they couldn't keep the drops long enough for them to work and so the government went to a program of giving injections and this again was regarded by these Muslim communities as an attempt by the government to make their children infertile by this program so you're up against those kinds of things but those were overcome and polio was eradicated successfully after I left we did some research on the recruitment of terrorists in India we found first of all very little in the way of successful recruitment almost none at all in the madrasahs of India that have been set up by Saudis and others investing in this and the conversions or recruitments were taking place among specific groupings that were unemployed or unhappy in some way it was not to do with madrasahs and teachings and those people who were recruited and took part in something usually were in the position of a driver or holding somebody's coat well they did things they weren't chief motivators and movers and this became a very important issue at the time of the hotel attacks when I think is you stated earlier was a turning point because in all the years I was in India everything we did with India worked all of our joint operations except cooperation operational cooperation in counterterrorism we shared intelligence with them but they never trusted us enough on the operational side because of our relationship with Pakistan and that was a just judgment on their part in my view because when an attack took place in India where as we said in state we oppose terrorism everywhere in the world we never punished Pakistan for its outrages in India and so they found that very unconvincing but then at the time of the Mumbai hotel attacks they changed home Minister's and within 24 hours they had agreed to bring in an FBI on-the-ground forensic unit of people from LA Atlanta and New York I think it was 12 guys who went right to the Mumbai police in one day they got all their high-tech stuff in there and they showed the Mumbai police how to take a melted or damaged cell phone from the body of a terrorist and derive from it the verbal communications that had been in there and this enabled us to put together the verbatim conversations between handlers in Pakistan and the terrorists in the hotels we had all those conversations and we had countries 11 countries were affected with people killed we distributed that portfolio to everybody and we made it knowing that the claim of Pakistan namely that that wasn't planned on their territory and wasn't carried out by Pakistani nationals was bogus untrue and the other evidence that we had was a satellite telephone that we recovered from one of the dig knees in the harbor and we did a map the cops in Mumbai and the I'm on the FBI guys that showed where that phone had been with a yellow dot in northern India and Pakistan every day for four weeks before the attack it never left Pakistan and never left the area of the terrorist camps until I went to Karachi we knew what house it was in what street it was in it went to the harbor and we had his trace of it all the way down the coast to Mumbai so the idea that Pakistan was guiltless was absolute nonsense and if you had read those verbatim conversations you would have been horrified by what you read about the directions given by those guys up in Karachi or wherever they were Islamabad to execute people and so on so now we have because I presented to them for years why they should work with us as I said we're a federal system we have federal guys state guys County guys every time you see a movie when you were growing up it was all about the competition between the FBI the sheriff the local fellows in LA or whatever it was and that was what the story was about and you have the same problem here as they went around and attacked different markets they had trouble ever prosecuting anybody and finding them and preventing it so things are improving and of course the result is there have not been terrorist outrages until lately when the Pakistanis came over the border and killed Indian soldiers in Kashmir and unlike at the hotel attacks when India did not strike back a wise decision in my view at that time Modi did strike back this time why did he strike back what risk did he take in my view minimal because India cannot forever accept Pakistani incursions and not punish but in punishing they'd have to try to do it in a way that avoids a counter-attack and war where people reach to the nuke closet you know hot-headed people so I was for the counter strike and one of the reasons says to do with your question is that China's relations have grown so broad across South Asia especially with Pakistan that my view was if China has a big relationship with Pakistan China certainly doesn't want to be part of a nuclear war in South Asia so they probably will be a controlling force in Pakistan and so far there's not been no counter strike so seems to be right yes sir no one enlightenment does a quarter shot of Indian corn Barzini only Jesus to stay in Iowa isn't afraid to give me what is your take on the situation I take on that is that it died when I was there or maybe before or at least it was severely pulsing because they began to realize how hard it as a progressing country how hard it is to manage a whole collection of non-aligned countries like that and now that India is a much more established power I don't think they'll go back to that they are showing signs of more mature leadership if I could put it that way yes sir what are the chances that the United States might declare Pakistan state sponsor of terrorism in the next year I don't know what the chances are we should have died years ago in my view I mean I'm not any Pakistan but I mean enough Sanaa few know and they are guilty of carrying out a you know never the first time I was in India in 2005 October 26 I think it was I went out to a school outside of New Delhi to give a talk to parents and so on that evening and I got a phone call that there'd been an attack in the surah Jinnah market in New Delhi that night and there were 60 some people killed in a very fiery blast of irate were passed which exploded other canisters of natural gas and so on so it was a very desperate situation and we then looked into our intelligence that followed that and we found that the Pakistani motivation was that the programs they had for terrorist activities in Kashmir we're not producing enough headlines for on the evening news and various other things so they wanted to have a broader attack that would divide communities and destroy confidence between communities in India and their plan was to attack markets all over India which they did with crude pipe bombs and various other things and that led up to the railway attacks in Mumbai and then that led up to the hotel attacks and at that point Manmohan Singh's government you know debated whether or not to counter strike but the reasoning was a counter strike won't get the people who did this it won't the camps are empty now you won't achieve anything and if it stimulates the Pakistanis to strike back and then we strike back you know won't be long before Pakistan knows it's going to lose and it'll reach for the nuclear closet and I was with him on that decision but this time I think what he was right and once he's done that you know there's nothing like punching in the nose you know in the playground - stop it yes sir India's always been someone I'm duelin to buy a foreign direct investment you probably love the state of play God David OD has said he'll act he must have a lot of foreign direct investment and he did do it in Gujarat I lead a group of investors out to India every year and one year about before he was Prime Minister we went to Gujarat where this miracle had been taking place you'll like this story so at all these American investors you know these guys wanted to know what the secret of Gujarat was so we went into a room and the director of investment a kind of bouncy guy came in and they said to him okay what what is the secret of your success in attracting all this FDI the guy said well let's see he said first of all you have to understand we have a laws about this and they're all federal laws that lay out what's legal and what is not illegal secondly we have a huge body of regulations that govern foreign direct investment and those are also federal so we have to abide by them so really the only thing we do here is return telephone calls keep commitments beyond time and so on the ABCs of doing business anywhere and of course it deflated our group of investors but that is really the story now what Modi hasn't done he hasn't been as aggressive for example he's not agreed as I think he should to agree multi-brand retail it's a silly decision but it's a big political issue for the BJP secondly he has permitted the legislation that was passed in the last government in a fit of pique by the finance minister at the time where with regard to a Vodafone tax issue he passed the Supreme Court overruled the government and said the tax department has no jurisdiction on that tax case so he issued legislation that said we have jurisdiction and we are going to be able to review any investment back to 1962 and that's called the retroactive tax provisions or the terrorists tax provisions by some people and I think they made a big mistake I think Modi should have when he came in should have said I wasn't in Parliament then we're getting rid of this because it it's a sort of you know maybe we've said we're not going to enforce it but what about future governments and so on and so forth but he hasn't done that and I wish he would but he hasn't the other mistake Modi made which was just inconceivable to me was that there was a flaw on the Indian follow-through on the nuclear legislation after we did the deal they had to pass legislation that conformed civil nuclear liability law in India to the global standard and instead they got all fouled up in Parliament and they ended up with a version of the law that puts the risk on suppliers and not on the operator and this effectively has shut down capital from coming in for civil luchador development and I think he should have come in to and said look because it was a BJP that did this in opposition they're the ones who queered that deal so when he came in he should have said look I wasn't there we made a mistake we're going to fix this instead they're going through an elaborate dance of insurance and contracts and all kinds of things they got a couple of people interested the Westinghouse is supposedly interested in working on some deals but I think they have to fix that at some point or else they won't see the capital come in yes sir what is the current central bank intervened in right you know that kind of baracy question because I don't know well you mentioned that you thought it might idle I think it'll come down a bit you know Rajan was very famous and the former central banker and he was replaced - everybody's angst the new man I've met he's a very competent guy and I know why they replaced Rajan which is they wanted not they wanted a central banker and not a global philosopher on top of it as I put it so they made that decision must be hardened USA oh yeah no it's probably I mean I'm thinking it's round four and three-quarters maybe somehow yep what chances in Indian farmer that had three and a half acres and loses 40% of his produce on the way to the market have a chance in competing with international Apple business well the answer to that in part at least is to sell his wheat at a competitive price and with a handset I mean when I got to India I went to the biggest grain market in India which is up in the north and these poor guys drove wagons of wheat in and they had to take whatever the market was that day and they had to pay an amount of fees and taxes equal to 11 percent of the nominal value of their sale and they had no choice to sell it that day unless they wanted to just drive their wagon back and unload it now they can open up a handset they can find out the price they can do a contract for delivery payment against delivery of the wheat and that is improving things but you're right they are not competitive but they are such a huge market that they have their own market to supply so you know they run a rather protectionist agricultural system and that's something that a lot of people argue should change but a lot of farmers probably don't want to change because they're able to sell their product in India yep I guess one more question I'm being told although I should ask this lady here Oh Thank You ambassador um I noticed that your presentation and asked the question and they are still rising and with all that you've told us clearly it is still rising and I've noticed that something that you've mentioned often is infrastructure and how though it's grown and with the eminent growth and continued growth how are they bridging this infrastructure one thing that you mentioned was that it shouldn't be weighed against nations like China in terms of growth in certain areas but to look at it as 19th century America and how it developed from there and that is a challenge that faces most developing economies like in sub-saharan Africa where they weigh them against larger economies but not take them at the growth that they're making at that level but with the eminent growth and continued growth how do you see the infrastructure particularly with roads because that is very important in fueling businesses of working with all the companies that you say that are bringing in more business that is something very important I mean looking here at Houston when with all the growth that we have here how much roads and up roads are important well that sustained the answer to that is first of all I didn't mean to be to flip about 19th century America I just thought is useful sometimes to try to remember getting around wasn't easy in those days the truth is that at the moment there is a huge road program and large amounts of money being put into the building of roads and a more aggressive policy of land acquisition where farmers are being paid now something like four to five times the value of the land they have for the government to take it it used to be the government would take land and then somebody else would buy it and then resell it some higher price that's not happening so much there is a fair deal now going on and I saw the highways minister when I was there and you know he said to me he's going to build 30 kilometers of road every day so I said to him how many kilometers you build now he says three so then I asked some experts how many kilometers of road can you build in a day and they said well you're six to nine so that Minister was doing what the old planning people used to do in other words the Planning Commission is dead but not in the brain to that guy so he's still talking a little unrealistically but they are funding much more in the way of roads and also railroad development is a very high priority freight movement and opening the and they have the land for that they have the right of ways so that'll be an area of where you know there's a separate budget in India there's a budget day in Parliament for the railroad Minister something like three million people work for the railroads it's an enormous business and they work pretty well really to get more railroad lines than anybody in the world so those things I think are happening there was one more question here ambassador you mentioned that India's how to break with the low oil prices so can you expand a little bit about energy policy going back 20 years to that double power project the kind of disappointments with natural gas the reliance I'll call when you see this and is it a constraint on their future growth I would say that energy policy in India in my retrospective lease has been chaotic has had a lot of other policies and India and they are improving to some extent but even recently they got into this thing where coal companies were buying foreign coal mines to send coal to India because it was too complicated for environmental reasons to get the coal in India so these kinds of idiosyncrasies which are legion in India I'm not saying they're dying but they are diminishing to some extent for example one of the things that Modi's done very simple is ministers who don't come to work at nine o'clock or fired they used to come at 11 maybe that's an improvement and corruption at cabinet level has been stopped I know that because I talked with all the business guys who used to run the system of corruption and they say it's over they can't get it done anymore so so you have to believe them at least I do so there is progress and in India you know it's a very just about every kind of diversity you can think of and exception so it's very hard to generalize which is what I've done tonight I hope with some effect thanks a lot thank you for your patience

Channel: BakerInstitute

Views: 548,583

Rating: 4.7069993 out of 5

Keywords: David C. Mulford, Russell A. Green, India, International Economics, Baker Institute

Id: Pn0GMJ0FnZQ

Length: 78min 15sec (4695 seconds)

Published: Wed Oct 26 2016