Manmohan Singh, the Indian Prime Minister about the growth perspectives of his country, relations with the powerful neighbor China and the expansion of the strategic partnership with Germany.
Handelsblatt: Mr. Prime Minister, you were the architect of the far reaching reforms in India. The economy is growing fast since then. Can this development really continue?
Singh: The process of economic reforms has clearly accelerated the pace of growth. Since 1991 our economy has grown at an average rate of 6% and in recent years even at 7.5 to 8%. In the next five years, we want to increase the rate of growth to ten percent.
Is this realistic?
It is achievable. India’s savings rate has increased to 29% of GDP. Parallel to this, the investment rate has increased to 31%. This has made it possible for us to have 8% economic growth. The savings rate will increase further in the coming years. Our demographic profile, which increases the number of the employed, will make this happen. The investment rate will soon grow to 35 or 36%. Thus our society is headed towards a growth rate of 10%. And we need such growth to be able to create sufficient number of jobs and to generate resources for investing in infrastructure, health, education and protection of the environment.
The condition of India’s infrastructure is the greatest concern of investors. How quickly can one improve the situation?
We need huge investments if we are to remove the bottlenecks and at the same time overcome the great challenges in sectors such as energy and water. Foreign companies can play an important role here. But a lot is happening already. We have established regulators in all important areas. Our highway system is growing, ports are being constructed and airports modernized. Now, the railway network is also being modernized. If we keep up this momentum, the country will soon look different.
The Indian state does not have a lot of resources. How are you improving the framework conditions for the participation of private sector in the area of infrastructure?
Infrastructure sectors are by definition oligopolistic. We therefore need a good regulatory framework, and we are creating this. We have established regulators in all important sectors, from roads to petroleum. In the telecom sector we have had for some years a regulator and a dispute settlement mechanism, and this sector has seen explosive growth. We are using this model now in the electricity sector as well.
But restrictions still hinder foreign investors. Allianz, Deutsche Bank or Metro AG for instance want to do more than what they are permitted to.
We will enable a greater role of foreign banks step by step. Insurance companies are now permitted to hold a share of 26%. We intend to increase this to 49%, but we require a consensus for this in our coalition, and this is presently not in sight. Over the long term I believe the liberalization of the banking and insurance systems will continue.
And the retail sector, in particular, the super markets?
We have begun a cautious opening for the retail traders who sell single brands. We will learn from this experience. Small traders have great influence on all parties in our country. There is something such as the fear of the unknown. But with time we should be able to enable greater presence of foreign firms in this sector as well.
Above all, the communist parties, which support your government, are blocking reforms in these areas. To what extent do these compulsions of realpolitik hinder you?
They limit our options in the short term; it takes a lot of time to convince our coalition partners. There are differences about the pace of liberalization, but even the communists do not question the general direction.
The Communists are becoming more pragmatic then?
They are more cautious than I would like, but they are learning fast. West Bengal is being ruled by a very progressive communist government, which is doing everything in order to attract investors, especially from abroad. And they are successful in this.
While the services sector is prospering, India is lacking labour intensive industries that create jobs for the unskilled.
You are quite right.
Can your country become a second “factory for the world” just like China?
The conditions for this are improving. India’s manufacturing companies have become lean, efficient and globally competitive in many areas. If the World Trade System does not become more protectionist, our industry will continue to grow rapidly.
But the risk of protectionism is increasing, because globalization is no longer disadvantageous for countries like India.
The world trade system continues to damage emerging countries. Agricultural protectionism, especially in the EU and USA, deprives us of export opportunities. But we are realistic. We know that developing countries cannot shape the world trade system freely in accordance with their needs. We should therefore use all available opportunities. At the same time, the Doha Round should, as promised, become a real development round. This is the litmus test of whether old protectionism will raise its head. This will hinder our progress. But this will also adversely affect the rest of the world.
Will India’s rise change the world as strongly as that of China?
If India continues to grow at 8 to 10%, it will stimulate the world economy. And the more we export, the more we will import as well. Unlike other counties, we are no mercantilists. We do not want to horde unlimited currency reserves and we also have a large trade deficit. If Europe and USA help India in achieving its growth targets, they are doing themselves a favor as well.
India and China have good relations at present. But is it not likely that the two Asian giants become rivals over the long term?
At the moment the two countries complement each other. Our bilateral trade is booming. This was unimaginable five years ago. We do not view China as a rival, but as a friend. The world is big enough to accommodate the growth ambitions of both countries. There are still problems relating to the border, but we are making progress here as well. Cooperation between the two most populous and fastest growing economies is important for peace in the region and the world. And this is also of decisive importance for Asia to become the political and economic epicenter of a new world order.
Unlike the USA, Europe is overlooking this development.
Two great countries like India and China, which grow so fast, have enormous potential to change the course of the world. This realization is growing in Europe as well.
America is reacting more decisively. What are the long-term strategic consequences of the Pact with Washington, which recognizes India as de facto nuclear power and promises it access to civil nuclear technology?
A global partnership is emerging between the two greatest democracies. I see this as a positive element, which will help in shaping our world.
As against this, will not the strategic partnership between Germany and India be devalued, unless it is soon extended to the areas of defense and civil nuclear technology?
Our relations are not limited to one issue. Our strategic partnership will however achieve its full significance only if it is broadened, and also addresses India’s requirements in the energy sector. I do hope that we will get Germany’s support for the Agreement with the USA in the civilian nuclear sector. Great Britain, France and Russia support it after all.
How important is nuclear energy for India?
It provides us greater possibilities to meet our growing energy requirements. This will help Europe as well. If our requirement for oil and gas were to increase greatly, it will exercise enormous pressure on the world market price and increase competition for diminishing reserves. I hope that we will be able to convince Germany to look at this issue for mutual benefit.
India seems similarly more ambitious in the defense sector compared to the German side.
We want to diversify the sources for our defence equipment. In the past India has cooperated with Germany in this field, but there are enormous possibilities for expanding this cooperation.
What do you expect from your visit to Germany?
I hope that it will sharpen awareness about India. The German economy should take a better look at our country than it does now. Besides, I am looking forward to meeting Chancellor Merkel. We have the same background; like me she also started her career as a university lecturer.
Was the change difficult for you personally?
I found that it could be done. But have a look into history; one of the best economists, who has ever tried a hand at politics, was Schumpeter. He became finance minister in Austria. The results were catastrophic!
(Interview was carried out by Albert Prinz Croy and Oliver Mueller. A large colour photograph of PM was published along with the interview.)
[The following portrait of PM was also carried:
Manmohan Singh
The reformer: When Manmohan Singh became Finance Minister in 1991, India was in a deep financial crisis. The economist liberated his country from the chains of the planned economy through radical reforms and opened it to globalization. Singh remained in office till 1996 and his liberalization policy became the turning point in India’s economic history. In 2004 his Congress Party came to power again. Intelligence, integrity and loyalty helped him to the post of Prime Minister. Singh has had his most recent successes in the area of foreign policy. He cemented a strategic alliance with the USA, took the peace process with Pakistan forward and improved relations with China.
Career: The modest, gentle professor is known for discipline and integrity. A sky-blue turban and white Indian dress are his external distinguishing marks. Mr. Singh was born in 1932 in a village in today’s Pakistan. After studies in Cambridge and Oxford the father of three children taught at the prestigious Delhi School of Economics. Before changing into politics, Mr. Singh was, among other things, the Governor of the Reserve Bank.]
