Dr. Subramanian Swamy @ GREAT LAKES

from l to r: Dr. Subramanian Swamy, Uncle Bala, Dr. M S Ananth, (Director, IIT, Madras) and Prof Sriram

Great Lakers were privileged to hear the thoughts of Dr. Subramanian Swamy on the subject ‘India Vs China – The Economic Development Model’. Dr. Swamy is and has been a champion on the subject of Indo-China relations.

Dr. Swamy, a doctorate from Harvard, still continues to take classes at Harvard in economics. He came into the spotlight for protesting against the emergency in 1975. He is one of the founding members of the Janata Party and was elected its President in 1990. He has been a Member of Parliament five times. Dr. Swamy also took charge as the Minister of Commerce in the Chandra Shekhar government of 1990 and was also a member of the planning commission. He is known for his efforts in normalizing India’s relations with China and Israel. In 1981, he persuaded Deng Xiaoping to open the Kailash Mansarovar in Tibet to Hindu pilgrims. Even though Dr. Swamy has a strong political background, he restrained himself from speaking about politics in his talk.

The crux of his talk focused on the strengths India must leverage in order to become a truly global superpower. He spoke with conviction about India’s demographic strengths and its ability to overtake China possibly by 2015. According to Dr. Swamy, in the future India has the capability to compete effectively with the USA.

Dr. Swamy began by explaining the drivers of growth for any economy. He put forth equations explaining how the rate of growth of an economy depends on the factors of capital, labor and innovation aided by savings of an economy. (It was wonderful to see him use the white board and marker to make his point, while mentioning that he despised Power Point presentations). He stated that developed countries rely up to 75% on innovation to fuel their growth and 25% is contributed by perspiration (labor and capital). He then explained how important it was for economies to develop their infrastructure to attract investments. He said that while emphasis is on hard infrastructure like power, roads and ports, the importance of soft infrastructure like Governance, law and order, stability and financial markets should not be diluted.
Dr. Swamy then went on to comment about the growth rates. During the period 1950 to 1980 both India and China, followed the Russian economic model and clocked a modest growth rate of 3.5%. In 1980, China changed its economic model and started clocking a growth rate of 9% while the growth rate of India still lingered at around 4%. It was only in 1991 that economic reforms were brought about in India and since then we have maintained a healthy growth rate in comparison to China. But India has still not been able to plug the gap China had created during the eighties.
Dr. Swamy then went on to compare the two economies. Firstly he stated that India is more efficient in the use of resources than China, which he substantiated with consumption of Oil and other resources within the two countries. He then stated that the disparity in the living standards between eastern and western China is more thus the progress shown by China is partial only to the eastern provinces.

Also China is surrounded by countries like Singapore, Hong Kong, Korea etc which are economically strong and healthy countries. On the other hand India has neighboring countries like Pakistan, Bangladesh etc which have a weaker economy and not much scope for big trade relations.
Then Dr. Swamy went on to explain the drivers of Chinese exports with the help of diagrams. India could, opined Dr. Swamy, break this chain of China importing from the East Asian countries and export to the US by diverting this trade through India and has the capability to take on China.

In fact China’s dependence on its export-led model is one of the key problems facing the country. India, on the other hand follows a predominantly service and consumption model with more dependence on home-grown entrepreneurship capabilities. This according to Dr. Swamy would strengthen India’s position in the long-run compared to China which is still largely dependent on U.S.

Another strong point in favor of India is the rapid pace of continuing liberalization and the democracy which has allowed it to attract a larger number of foreign investors. China along with the longstanding dominance of the communist party and the problem of intellectual property rights has “made foreigners exasperated” according to Dr. Swamy.

Despite China’s present success and India’s opportunities in the future, Dr. Swamy was quick to point out that both countries still face many problems due to a malfunctioning financial system. For instance, in China the banking system has become bankrupt and public sectors are uncompetitive. In addition to this China is yet to follow the World Trade Organization mandate that allows foreign banks to take deposits from Chinese citizens who are currently earning zero interest on Government deposits.

Dr. Swamy goes on to point out that India’s issue is not just purely due to the financial system but more related to state and center budgets, which in reality is bankrupt. In fact state government budgets are being financed by the center. Also, defense, subsidies, pension, salaries, interest on past loans are the irreducible components of the budget and they constitute 98 % of Indian government revenues. The rising issues at the Center have forced the Government to finance development projects through loans from banks. “For every rupee the government takes as fresh loan, 99 paise has to be paid for past loans and interest,” explained Dr. Swamy.

Dr. Swamy went on to point out India’s resilient nature, and its ability to react best when in a crisis. “India’s problems can be solved only through crises,” he said. “We throw out existing people in power and bring in new people for taking reformative action.” Therefore we may require another crisis and a revolution before we not only catch up with China but leave them behind.

The people are also an invaluable asset according to Dr. Swamy and India’s rising population can be used for creating a strong economic growth model. “I want men also producing children if they can” he said on a lighter note. The one child policy (under heavy debate in India) has made in roads into China which now faces a declining active workforce. It is therefore a must to leverage India’s clear demographic advantage, by actively promoting primary and secondary education. Dr. Swamy praises the Great Lakes Institute of Management’s slogan “Global Mindset, Indian Roots” and added that higher education must reflect a value system that includes risk taking, team work, giving due credit to people and holding people accountable.

The audience which comprised primarily of students, looking to become future business leaders, were truly inspired by Dr. Swamy’s optimism. India has the capabilities and innovative capacity to spearhead the convergence of Information technology, biotechnology and nanotechnology which is sure to bring about a huge boom in the economy. He advised the audience to elect leaders intelligently and to elect those with the ability to perform in a modern and complex world. Our goal should be to compete headlong with the US on innovation, and to innovate we must build an atmosphere of freedom and high quality education.

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