 Good morning everyone. Welcome to India Goes Outwards. This is a special panel on India and over the last 20 years what we've seen with India is a rising nation in the region affecting key decision-making in the region in terms of political security as well as economics. It is the largest democracy in the world and India is increasingly becoming a major power in the Asia-Pacific region as well. 2007 marked the 60th anniversary of Indian independence and India's rise and what it means to the world has now become a catalyst for many people studying the region and many people have actually just discovered that India has become the significant player in security as well as global economics. It's not just an Asian giant, but it's also a player when it comes to the business world as well. We're seeing increasingly many Indian firms go outwards and becoming multinational corporations. The likes of Tata, Infosys, Whippro and many other companies. Indeed it is now envisioning what Prime Minister Javaharlal Nehru said India is certainly awakening. India faces enormous opportunities when it comes to business as well as when it comes to security policy framework in the region. But it also faces enormous challenges as well. The recent McKinsey quarterly growth expected said that India had to invest something like one trillion US dollars into its public infrastructure and would have another 10 mega cities by 2030. This impoverished enormous challenges to current India administration as well as future ones as well when it comes to economic decision making as well as security framework within the region. When it's not just infrastructure India faces problems with but also reducing the gap between the rich and poor with the rising middle class. There was a challenge to get the rural sector back on track in India and that is enormous challenge faced by the Indian government today. Without further ado I'd like to introduce a very distinguished panel today. They've come from far and they've got many other commitments and we're very grateful they've been here today with us to present their thoughts on this very special topic. The format today is going to be a little bit different. Professor Javaharlal has to leave early today due to prior commitments. So we have a Q&A session right after his presentation and then we have Dr. Sandy Gordon presenting his topic along with the Q&A after that. I'll just introduce Professor Javaharlal. Professor Javaharlal is currently working on an Australian Research Council and Aussie project on the design of social safety nets in India and the RDRC. He's also worked on a monetary policy and fiscal federalism issues for India before. In June 2006 he completed a four-year departmental project for the International Development UK and on the impact of nutrition on labour markets in rural India. He believes he works on the behaviour of retail prices for food grains in India, the sustainability of public debt in developing countries and the linkage between macroeconomic stabilisation and banking crisis in semi-open developing countries. Today he's going to be talking about the GFC in India and how India's played a role in the GFC and its effects on the region as well. Our second panelist today is Professor Sandy Gordon. Professor Sandy Gordon is currently a visiting fellow with the Centre of Excellence in Policing and Security, Regnet, the College of Asia-Pacific. In 1997 he was appointed the head of intelligence in the AFP, a position he held until 2000. He then became the co-chair of the Council for Security Cooperation in the Asia-Pacific Transnational Crime Working Group and a member of the National Expert Advisory Committee on illicit drugs. Between 2003 and 2005 he lectured on terrorism and transnational crime at the Australian Defence Force Academy, the University of New South Wales. He's the author of a number of books in India, including Business and Politics, The Search for Substance, India's Rise to Power and Security, and Security Building in the Indian Ocean region. Without further ado, I'd like to welcome Professor Jark to present his material on India, the GFC, and if there's any questions at the end we'll take it after the presentation. Thank you. Thank you very much and I want to welcome from my side as well to the Pacific Week at the ANU. It is really quite a remarkable event for us in the University where we get to meet young, bright young people from not just Australia but from across the region as well and we get to discuss ideas and possible research. The talk itself is entitled, as you see in this slide here, India and the Global Financial Crisis. I want to preface my talk by just giving you an overview of what happened during the Global Financial Crisis. And then talk about the context in which India was able to deal with this Global Financial Crisis. Now, the Global Financial Crisis essentially had its roots way back in the early part of the previous decade when after the session, in the early part of 2001-2002, the interest rates by interest rates legislated by Central Bank, and in many parts of the world the developed countries, particularly the US, Europe, England, so on and so forth, stayed low for very long periods of time. So the interest rates were lower to fight the recession of the early 2001-2002 period, but after that they forgot to raise the interest rates. So when conditions started to improve and therefore there was an atmosphere in which loans were easily available and returns were particularly low in some areas. So capital was very keen to find out avenues for very sharp rises in profits, so they invented the subprime mortgage issue there. So they invented which you may have heard of in the United States, where they created very complex bonds which they traded, sometimes these bonds didn't even exist. They were a pigment of the creator's imagination and they traded in these bonds to somehow increase their yields. And the financing for these bonds came easily from the easy money policy and from the fact that there were huge amounts of funds available from China which was running a huge surplus, still running a huge surplus, particularly the United States. The United States became a huge net debtor and China became a huge net creditor. Of course, apart from China, there were some other countries as well who were involved in this situation. Japan was one of them as well as some petroleum exporting countries, but China was the predominant player on the credit side and the United States was the predominant player on the debit side. So the funds were available from cheap loans as well as from the inflow of capital from China and the opportunities were available in the form of these complex instruments, complex bonds that were created. So the yields, particularly in bond markets as well as in equity markets, went up very sharply. That was what is called an asset price bubble and banks of course were the predominant players in lending to institutions which wanted to invest in the asset price bubble. Nobody realized that there was an asset price bubble building, not nobody, some people did realize but their voices were not heard in the din of rapture that engulfed all these people where they were making so much money out of bonds that didn't even exist in the first place. So as a consequence of that, when the bubble burst, all financial institutions which were exposed to this, essentially financial institutions which had anything to do with lending for purposes of investing in subprime mortgages or other forms of suspect investment, they essentially went bankrupt because they had lent huge amounts of money to institutions and people whose enterprise had suddenly collapsed. So they went bankrupt. As a consequence of that, there was a collapse of confidence. People thought that if you lent money to somebody, they would never pay you back. So there was a confidence channel as well as well as a financial channel and as credit froze up, there was a downturn in economic activity because economic activity depends crucially on credit. The credit freeze up, the lending to the private sector dries up and if the private sector can't borrow, then it cannot hire people, it cannot run the machinery. So there was a real effect. The real economy started to shrink. There was a huge recession in major parts of the world, in Europe, in the United States and so on. Australia avoided it very narrowly but Japan of course is going through a prolonged recession and for the first time in many, many years, at least since the Second World War, first time both global output as well as global trade actually shrank. It never happened in more than 60 years. So there is a very dire situation and people are, the world economy is slowly pulling its way out of it. If this situation were allowed to continue, there would be an outcome worse than the Great Depression of the 1930s. There's no question about that. But what this has left behind is a legacy of huge debt as government intervened very sharply in order to protect markets, in order to protect lending. The government intervened to stop banks from paying, the government intervened by injecting liquidity into the market, the government intervened by tax cuts and so on and so forth. So all governments in the region, all governments, not just in the region, in the whole world actually ran up huge budgetary deficits which lead to large debts with which they are leading now. So in some ways the global financial crisis has become a global debt crisis now and we are not really completely out of the woods. I would not say that just because output has registered positive growth in some parts of the world for a few quarters, that doesn't mean that the global economy is out of the woods. So basically there were three channels through which the global financial crisis went beyond borders of the United States where it actually occurred and affected other countries like the virus. So the three channels were first there was the finance channel, which I've already talked about very briefly, then there was the confidence channel, which I have also talked about briefly, and there was the consequent trade channel, the collapse of trade, because trade needs to improvement in income and employment and so on and so forth. So trade, finance and confidence, these are the three main channels through which the global financial crisis went beyond the borders of the United States where it originated and engulfed the whole world. So just keep that in mind when we approach the question of how India performed during the global financial crisis and what are the prospects for India now. Now the Indian economy, let me give you a little introduction to the Indian economy and I'll talk about the financial crisis and its impact on India during this process of giving you a brief overview of the Indian economy. So the Indian economy in 2010, India's gross domestic product in purchasing power parity terms, this is a technical term, you can compare GDP across countries in two ways. One is by the official exchange rate. So if the GDP of one country is 100 rupees and the GDP of another country is 50 dollars, then you can use the market exchange rate between rupee and dollars to express the GDP of one country in the currency of the other and so on. But that doesn't take into account the fact that there are many non-traded items, I'll explain this term a little bit, non-traded items for which the official exchange rate is a very poor proxy. So for example, the time on your example is, of course, is help us, you can't trade help us, you can't trade taxisites, so on and so forth. There are huge quantities of goods and services, particularly in economies like India and China and some other large countries with huge domestic markets where the official exchange rate with a non-traded sector is very large and the official exchange rate would be a poor proxy for converting the currency of one country into another. So to get around that, we have something called a purchasing power parity, which adjusts for the fact that there are huge non-traded goods sector and so according to that, in 2010 India's GDP was 3.92 trillion US dollars. So by this, India is the fourth largest economy in the world after the US, China and Japan and in a decade India is expected to become the third largest economy, expected to overtake China. Now this is before the global financial crisis, between 2000 to 2001 to 2007-08, India's real GDP growth averaged 7.3% per annum. Growth rates have recently been around 9% and sometimes in excess of 9%, except for the period since 2008-09. So in that year, the GDP growth rate fell to 6.7% in the face of the global financial crisis. India's GDP did not slow down very much, but it is still quite a shock for India to go down from 9% to 6.7% in the course of one year in the face of the global financial crisis. Now why did this shock occur and why was this shock so limited? Let me spend a little bit of time on that. Now I isolated three channels through which the global financial crisis went beyond the borders of the United States and affected other countries, the trade channel, the finance channel and the confidence channel. Now in each of these, India is actually reasonably well placed. India's trade to GDP ratio, the extent of exposure of India to the world economy in terms of trade in goods and services is much lower than other comparable countries like China. India's exposure of Indian banks to the kind of capital assets which were involved in the subprime court market crisis is very limited. India has some of the best banking in the world in terms of non-performing assets. It is very small non-performing loan sector and it's very reasonably attached to or related to the kind of capital that was involved in the transmission of the global financial crisis. And the confidence channel of course was there as global credit markets was up. Then in India also started to decline. People were simply reluctant to lend money and if the people don't lend money, banks don't lend money, then there is a problem of investment and production starts to fall. So in all these three areas, India's exposure was limited but was growing. It's important to understand that. India's trade to GDP ratio was growing, India's exposure to international banking was growing and Indian investment was going abroad and was mentioned earlier and a lot of FDI was coming into India. So through all these three channels, India's exposure to the global economy was growing but not big enough to cause a serious damage. So it was a Goldilocks approach to economic policy, not too open, not too closed. That was the way in which the Indian policy makers approached this. So they took advantage of the global economy when it was expanding and therefore had greater exposure. But the exposure had not been so great that it would cause a sharp drop in output from 9% to 2% to 3% or even become negative. Now let me add to that some figures that were released just this past March that this India's population is now, there was a census on the 28th of February 2020, India had a census. And many of the results were released a month later. The results are still to come through. And the India's population is now 1.21 billion people. It's a huge population and it's comparable to that of China. And between 2001, which was a previous census, immediately previous census in 2011, the growth rate of population has been about 1.7% per annum. So if you look at per capita income, so 9% minus 1.7% per capita growth is about 7.3% per annum. So by that reckoning India's GDP per capita will double every 10 years. So that's the scale that we're talking about. So it's a huge economy on the move. And another important point about, and I'll talk a little bit about that a little later on, another important point about the Indian population is that the median age of the Indian population is less than 25 years. So you have more than 600 million people who are younger than 25 in the end of the workforce. So these people are just a staggering thing to contemplate. These people are going to work harder. They're going to enter the labor force. They're going to work. They're going to save. They're going to pay taxes and provide much needed support for Indian growth into the future. So in that regard, this is extremely important. So this is a quick picture of India's GDP growth. So in the first column here, you have the average for 2001 to 2007-08, average growth rate by different sectors of the economy, and GDP growth rate was 7.3% during this period. 2005-06, it jumped to 9.5. 2.67, it accelerated further to 9.7. 9.2, 6.7 during the global financial crisis, and 8%, the very next year it improved from 6.7 to 8%. And then, in 2011 it has been 8.6%, accelerated again, again going towards 9%. And in 2011-12, this is an estimate of the economic advisory council to the Prime Minister. It is likely to go back to 9%, but recent trends have suggested that it will probably be a little lower than 9%, not exactly 9%, but certainly around 8.5%. So it's a very substantial growth performance. But one important point is, however, that agriculture, which is this thing here, this is something which is terribly important, agriculture which is not growing very well still supports a huge section of the Indian population. So India's fundamental economic problem is the problem that India faces, economic problem that India faces, that a sector which accounts for only 17% to 18% of GDP, that is agriculture, still supports 60% of the population. Growth has been fantastic in manufacturing, in services, and so on, so forth, double digit growth. But in agriculture growth has been lackluster and laggy. Overall growth, though, this is a very interesting picture, overall growth has shown this kind of structure. The blue line here is average growth rate percentage per annum, and the red line is the year-to-year standard deviation of growth rates. This is plotted for decades beginning in 1960-61, and as you can see, what is happening is that the growth rate is accelerating and becoming more stable. Growth rate is accelerating, and it is becoming more stable. Growth rate is not fluctuating very much from year-to-year. That is because the line of agriculture which has this problem of being dependent on the monsoons is becoming less and less. Let me quickly talk about the message about the impact of the global financial crisis on India is that India's exposure to the global economy was limited in terms of trade, finance and confidence. Therefore, although the Indian economy took a hit, quite a substantial hit, it recovered fairly quickly and is now more or less settled onto a growth path of 8-9% per annum for the foreseeable future. So now we will talk a little bit about how we are doing in terms of time. Five minutes. Five minutes. I will not take long. So that is the basic message about India and the global financial crisis. I will talk a little bit about contributors to India's high economic growth. One is, of course, the structure of the population that I talked about. The population is also getting literacy rates have expanded substantially. And particularly for women, they have gone up very substantially since the 2001 census. India's saving and investment. So typically, economists think of output in terms of three components. The care capital, which comes from savings and investment, labor and technology. These three factors are essentially involved in producing output and creating output and so on. So that's the population aspect. If you look at population aspect a little bit more, this is a very interesting graph from a working paper from the IMF. So this is what is called a population pyramid. So here you have population in millions. And this side measures females, this is males. And this is age group. So this is zero to four age group. China in 1960 had so many million girls and so many million boys. Similarly, all the way up to 80 plus. And this is for India in 1960. Now, if you contrast the two countries between 1960 and 2000, you will see that the importance of this population dividend or the large base of the Indian population pyramid. We think of it as a pyramid. China's population structure is now age structure is now very different from what it was in 1960. It is more people in the age group 40, 44, 30, 34 and so on. Whereas in India, it's a real pyramid with the largest number of persons Being in the zero to four age group. So there's a huge population dividend which will continue to occur for at least another 20 years. So at least under 20, 30, this is supposed to go on. And every 10 years, as you were saying, India's giving people capital and money, but you can imagine a huge scale that could bring not just for the Indian economy but for the economy of the region as a whole. So that's labour. Let's look at capital. So India has a very strong increase in savings and investment. The red line is investment and the blue line is gross domestic savings. So if you look at it, if you look at 2001, 2002, the savings rate was just about 20%. And now it has jumped up to in just in less than seven, eight years. It has increased by more than 10 percentage points of GDP. And this is precisely what's going to happen if you have a large young population, so young people save whereas old people are retired and they're disabled. So we have a huge amount of capital that is coming through to work on the economy. So labour is expanding, capital is expanding, and I want to finally give you this table. This is from a paper by Bosworth and Collins in a Brookings paper volume which shows that technology factor productivity in India, particularly in things like services here, services which is India's dominant sector, which contributes to more than 60% of India's GDP, is really growing very fast at 3.9% per annum, which is a very substantial growth rate of total factor productivity. It is much more, it is not growing very fast. So this remains a problem sector, agriculture, a laggard sector here, but in industry it is slightly better. Overall the economy is enjoying 2.3% of total factor productivity growth. So to summarize now, I'll stop the Indian basically here. I'll just summarize and try to give you some lessons that we can learn from this kind of analysis. To summarize, the exposure to the global economy should not be unquestioned and unfettered. This is what India's growth experience is telling us. The global economy is an engine for growth, but it can be an engine for sharp reduction in confidence and an avenue for transmission of business cycles, particularly recessions from one country to another. So the unquestioning view that the global economy is always a good idea is subject to some caveats. In particular, whereas it may be useful or it may be right to suggest that opening up of the economy to trade in goods and services is a good idea, it is not necessarily a good idea to suggest that opening up the capital account to close of capital is always a good idea. So we have to distinguish between opening up in terms of goods and services, trade in goods and services, and trade in financial assets. Trade in financial assets needs to be thought through much more carefully than before. That's one major lesson that we can take home from this. A second major lesson that we can take home from this is that the Indian economy, like some other economies in the region, provided a much needed support to the global economy, the regional economy certainly, maybe even to the global economy, at a time of crisis. In the global financial crisis, if India had also gone into crisis and registered negative growth, what would have happened in the region? It would have been a much worse recession, a much longer recession, and a much bigger debt problem than what we have now. And so if the Indian economy continues to perform, according to expectation as we have here, then it will continue to act as a major support, as a major bulwark of support for the region in particular, maybe even the global economy, though it's not as large as yet in the global economy to provide support for the world economy as a whole, but certainly to the economy of the region, and particularly including its major trading partners, India can provide, Indian economic growth can provide much, much needed support. So I'll stop there and I'll be happy to answer any questions that you might have. Thank you, Professor Jha. The Australian National University hosts the Kaur Narayan Oration every year. And this year we have a privilege to have the Reserve Bank Governor of India, Dr. Subaru, present on India and the GFC as well. So we encourage you to look on that. Yes, sir. There's one over there, sir. So please check with the video. That's correct. We'll open up to a Q&A session, but in the interest of time, I'll just take a collection of questions and because Professor Jha has to leave early as well, we'll take a group of questions and if Professor Jha can briefly answer them, that would be great. Thanks, Professor Jha. My question is just about inclusive growth in highlighted agriculture, perhaps one of the problems is that it's a small base in supporting too large percentage of the population. What's the prospect of inclusive growth in the future? We'll just take another question. Any more questions? Greg? I think that a huge 60% of Indian population is below 25. If you could... 50%. If you could just clarify where they are, are they in the 500 million that are poor or are they in the middle class? Where is this below 25? At what become level, if you could clarify that? Number two, you mentioned agriculture is the... absorbs 60% of labor but also the least productive. I understand labor market reforms can help this. Am I correct for your suggestions? And relating to the third question, how will these two leave this inclusive growth? You have a doubling of GDP every 10 years but where is... where is... per capita per 10 years? Where is it for you? Sorry, if Professor Jock can just briefly answer those. Yeah, okay. Now, in terms of inclusive growth... Yeah, in terms of inclusive growth... In terms of inclusive growth... In terms of inclusive growth, here's a graph that I wanted to... that I can show you. So, this is the... economic growth and poverty reduction in select Asian countries, 1995 to 2005. So, this is the percentage response of poverty reduction to economic growth in various countries. So, the last column here says ratio of annual rate of poverty reduction to annual per capita GDP growth rate. And as you can see... India doesn't do particularly well on that score. India's rate of poverty reduction is smaller than Bangladesh, Sri Lanka or Vietnam that we have here. Okay, and why is that? It's not a great mystery. The reason for that is that because the... the growth is biased towards manufacturing and services which requires skilled labor rather than unskilled labor. That's not a mystery at all. And that is the reason why that is happening. Nevertheless, that said, millions and millions of people have been brought above the poverty line in a relatively short period of time. So, you must remember that when mass poverty was... was eliminated in Europe, it took centuries. In fact, President Obama mentioned that in his address to the Indian Parliament that you have done in decades what took Europe centuries to do. That was almost... that's almost a... reproduction of his... of his statement before the Indian Parliament. For mass poverty has... there have been serious dents made to mass poverty but there's a long way to go. There is no question about that. There's still a very long way to go and about a quarter of India's population is still quite poor. In fact, the golden age of India's poverty reduction was not the current time period, but the golden age of India's poverty reduction was the 1980s because growth in the 1980s was concentrated in agriculture. Okay, and agriculture... the rural sector is where the poor mostly live. Okay, so the revival of agriculture is crucial to making India's poverty reduction record better than what it is. It really needs to improve. There is no question about that. It needs to improve. Now, in terms of the gender bias which you talked about, a couple of things on that. If you look at the... it's a very strange picture. The gender bias is different for different age groups. For zero to six years, the gender bias has actually deteriorated between 2001 and 2011. There are fewer girls per thousand boys in 2011 than they were in 2001. It's deteriorated, not improved. That's a fact. Nevertheless, the gender bias in the age group five to 14 is very different. It's much more balanced. So there are things happening there which demographers still have to think about. And now, in terms of that poverty pyramid, I think that the differences between males and females male and female children in the age group zero to six are too small to really register in a diagram like that. Sorry, I forgot your question. What? Anything like that? In the below 25 years... They distributed all over. They distributed all over. It is all over the place. But we know, there's some of my own work in this area, is that the poor have more children than the rich. That is a fact established by the... In fact, if you take the richest group in India, people who are more than positive poverty line of India, the population growth rate there has almost stopped. There's hardly any population growth in that. Basically, it's a replacement. It's taking place. But there's a lot of population growth at the bottom end of the information. So that's that. Any other questions? Thank you. And good morning, everyone. Now, just before I start, I need to know if many of you read Hugh White's book on China Power Shift. Anyone familiar with that book? Okay. So generally, you're not familiar with the idea of a concept of powers as a way of governance in Asia. Okay. Well, I'll just explain that concept a little bit in that case as we go through. But my basic start point, if you like, in this, and I'll just slide on, is that all countries, as they rise to power, have to do so in the first instance within their own immediate region or what I call neighbourhood. And India is certainly no exception in this. If you think about it, even the great imperial powers like ancient Rome had to first beat the Etruscans, conquer the Italian peninsula, before they could emerge as the power in the Mediterranean world. Similarly with the U.S., it had to realise its quote-quote manifest destiny by moving westward across the continent. Then it had to exercise some sort of command in its own hemisphere, which it did through the Monroe Doctrine and so on. You could say the same thing about imperial Russia and all of these powers. And certainly India in this, as it rises to power, is absolutely no exception. However, international relations experts often overlook this fact and they tend to look at emerging powers as simply chess pieces on the international chess board and to view the whole thing internationally instead of, in terms of neighbourhood then region, then internationally. So what I'm going to try and do today is to give you a picture of India's rise to power, but to do so specifically in its domestic context and how that domestic context interacts with its immediate region. And then finally to say something about how you put all that together and view what sort of power India might be and how it might fit in with our Asia-Pacific region. Now, when it became independent in 1947, India inherited a series of what I would call irrational borders and the same applies to what was then Pakistan, which consisted, and I'll just find the point of view. Actually, I might do this with this. You can all see the cursor there. Okay, that's great. Just to the full power point. Okay, terrific. If you look at South Asia today, you'll see that the Duran line, which is set up by the British as the border with Afghanistan, actually cuts across the Pashtun area. And that problem is a seat of much of the difficulties we see today in the so-called AFPAC area. Similarly, of course, with Kashmir. Kashmir was a princely state at the time of independence. It was ruled by Hindu Maharaja Hari Singh, but 70% of its population was in fact Muslim. And it has been a bone of contention between India and Pakistan ever since. Also, if one looks at the border with China, that was negotiated as a McMahon line in 1912, I think it was. But it was negotiated between then British India and Tibet. The Chinese were initially at the negotiations, but they left. So the deal was signed with Tibet, and the Chinese subsequently said this is not a deal because it wasn't signed with us and we were the caesarean power at that time. So you have a contested border along here, and a war was fought in 62. The only difficult part of the border at the moment is the Indian state of Arunachal Pradesh over here, which has a population of 1.1 million is claimed by the Chinese. And were that claimed to be realised, it would bring the Chinese down below that strategic barrier of the Himalayas. There are other aspects of this border which are difficult, which I could talk about. I'll be mentioning the border between India and Bangladesh, which is, it has all these little enclaves, it's a patchwork of a border. The Indian northeast is almost cut off by this area here called the Chicken's Neck, at the District of Natural Bari, which is where the name, the naturalites come from. And it's strategically an extraordinarily difficult region as a consequence. So this has been a very difficult post-colonial settlement. We also had the fact that on independence, all the railways ran the wrong way because of the bad blood between India and Pakistan. And you have to keep in mind that what is now Bangladesh was then Pakistan. The great rail route set up by the British to service the manufacturing centres of Calcutta and Bombay, actually ran from the jute growing areas predominantly in Bangladesh and many of the cotton growing areas in Pakistan around the city in here, down to Bombay and into there. Now those railways were sealed at independence and so these manufacturing centres lost the hinterland and the hinterland lost the source of their markets. And this affected the economy ever since. Sark, which is the South Asian Association for regional cooperation, set up in 85, also has not progressed either economically or as a security arrangement because of the fractured nature of politics which was inherited from this background. And interest Sark trade is very low, it's only 5%, and that is extraordinarily low for a region. If one looks at NAFTA, I think it's somewhere in the region North American Free Trade Association. It's somewhere up and also the EU is somewhere up around the 60% and 70% much higher. These factors in turn contributed to significant internal problems in India. We've seen since 1989 a separatist movement in India in the Kashmiri part of India sponsored from across the border in Pakistan, sponsored at both the official and the unofficial level. The Pakistani military intelligence has supported groups like Lakshya A. Toyba and Jaish Mohamed and other groups such as Hoogy. Now particularly, L-E-T and J-E-M have been very active within Kashmir and even today in wider India as we saw in the Bombay attacks in 2008 in October in supporting unrest. So there is a close connection between many of these internal problems which you find in India and the post-colonial settlement. The situation in the northeast is very much the same in that many of the people in the northeast are Indo-Tibetan background. They may be Christian or animist in religion they are quite different than the people in the so-called Hindi heartland of India and many of those seven states in the northeast, the so-called seven sisters have been in a state off and on of separatist revolt going right back to just after independence. Added to this you've had the fact that India has today 13.5% of its population is Muslim about 160 million people an enormous population of Muslims. Now most of those people are thoroughly integrated into the Indian polity but by and large they've suffered economically since independence for a variety of reasons which I don't have time to go into and there is also a homegrown movement as well as being supported this violent Jihadi terrorism as some call it is supported from across the border by Pakistani groups like Lakshayi Toyba but also there is a significant homegrown terrorist movement within India groups like the students Islamic movement of India and others who have been brought in. These are homegrown and they've got their own perceived grievances within India. Now one of those grievances comes from the fact that really since the 1980s you've seen the emergence of a more strident sorry I just missed a slide which I just want to show you I've disappeared it doesn't matter where the Mahalang was but this form of more overt Hindu politics which has emerged in the 80s and 90s particularly but it's actually been going on since the 1920s this has actually resulted in the so called Hindu right assuming power in India in the latter part of the 1990s and up until 2004 and of course they were the ones that detonated what's called pockering to the nuclear explosions. Now their agenda is I think quite well summed up by this really brilliant cartoon which shows a Hindu holy man here talking to a BJP politician here who looks a little bit sleazy I must say and he's holding a document called the common code and I'll just explain this as I go through the common code when the British were in India they had this policy which some people called divide and rule but they were largely supported by the minority which were the Muslims which were about two fifths of the population at that time and they allowed the Muslims to keep the civil law which govern family relations or at least some of it which equated to some aspects of Sharia law and when the British left that those provisions were continued by the successive democratic governments in India and this became a bone of contention as the Hindu right rose they said this is not fair every other religion is subject to the state common law the state civil law why are Muslims selected out why do they have their own special law and what this politician is saying here is once the national debate is through we move on to a uniform civil god the national debate is about who is an Indian and the Hindu right wants those who aren't Hindus to take on the cultural mares of this ancient Hindu civilization even if they might be Muslim or Christian or Sikh or whatever and this is particularly problematic not so much for the Sufi Muslims but more for the Salafists the more puritanical Muslims so that's what that's about we move on to a uniform civil god unlike the so called people of the book Christians Muslims and Jews whose law if you like is written down in Bibles, Korans and so on Hinduism has none of that and it's extremely subtle complex and divided it's divided between north and south between all the different traditions and there are literally thousands of avatars or sub gods if you like now that is like hurting a bunch of cats if you want to use that politically it's very very difficult so part of this agenda of the Hindu right is to create of Hinduism a more unified religion and the movement around the northern god Ram who also resonates in the south which resulted in the destruction of the mosque at Ayodhya in 1992 the supposed birthplace of the god Ram is part of this effort I can't go into the detail because of time but one of the results of that of course was the destruction of the mosque and also we saw terrible riots in the state of Gujarat in western India in 2002 in which almost 2000 Muslims were killed and that state at that time and it still is was governed by the the political expression of the Hindu right now this rising up of the Hindu right and these depredations were part of the response of this homegrown terrorism as we've seen it I've got these things I'm sorry there's another cartoon that's missing but it's a cartoon about again this the same BJP politician is talking to a much smaller journalist and he's saying the politician is saying the ISI is responsible for all this terrorism in India and the journalist is saying yes ISI meaning I is responsible so the journalist is implying that the BJP politician is responsible for creating this terrorism in India and the BJP politician is saying it's all coming from across the border in Pakistan before and that of course had a serious effect on India-Pakistan relationships the other great problem which India has is the naturalite movement which is less connected to these cross-border movements but is nonetheless very serious in fact Manmohan Singh the prime minister said in 2005 it was the most serious of India's internal security problems it's evident in almost a third of the Indian districts these coloured areas the red, the purple and the yellow and what's really significant about it it's a malice movement is that it happens to fall within India's minerals provinces and great forested areas and there's a connection here and that connection is that the tribal populations and they're heavily represented in these regions are being alienated from their land many of these populations are animist who have a relationship with the land a little bit like the Australian Aboriginals and as they're forced off their land they have become a fertile ground for revolt and that is in a sense the background for the malice movements they're a great challenge for India not just in a straight security sense but also because India needs the minerals and the coal and the energy if it's to rise up economically all this dissonance has contributed to a situation today in South Asia as a whole in which the population contains more poor people than any other region in the world more even than sub-Saharan Africa you'd have to do the maths here to look at per capita incomes whether it's in PPP or GDP and the standard measurement but overall these 1.6 billion people are extremely poor India still carries approximately 300 million people or a quarter of its population living in poverty depending on who's measuring although the latest report of the UN says that poverty will fall to 22% by 2015 it's approximately 26-25% now so it is falling but there's still an awful lot of poor people this means that India's policy in terms of how it approaches growth approaches its position in the world is one of what I call growth with balance it has to offset the acquisition of raw power if you like with efforts to alleviate the lots of the poor by transferring wealth whether it's through universal education and the past universal education act health programs or rural poverty reduction and rural work programs like the massive national rural employment guarantees scheme or NREGs which is worth approximately $1 billion a day an awful lot for India so the upshot of this is that defense spending in India which is currently around 2.4% of GDP today has risen at times to just under 2.9% but it's actually relatively low these are data that come from SIPRI in Stockholm and it shows that in the decade up until 2008 defense spending had been rising in the USA at 67% China 194% India 64% so India is still relatively low in terms of what it's spending on defense if it's measured in relation to GDP and what's more in terms of the way the Indian budget works while defense expenditure has been rising handsomely we've seen how overall GDP has been growing from Professor Jha's lecture just now and therefore defense expenditure which has been pretty constant in terms of GDP has been rising ipso facto actually it's still constrained in terms of the central government's budget and that it's only 13% of the budget whereas if we look at the United States today it's 20% of the central budget whereas you get an enormous chunk of this budget for instance in the central plan which goes to development and other aspects of lifting up the people so this is what I call the policy of growth with balance the problem India faces however in all of this is that while it's got these giant schemes they don't actually work the food for work sorry the the off-take policy which rips up all the grain and that cooking oil and all that and then redistributes to the below poverty households only 40% of that grain and oil actually gets through these are world bank studies to those for whom it's intended Rajiv Gandhi famously said when he was Prime Minister that only 5-15% of the rupee that's levied at the centre actually gets through to the grassroots because of the problems of governance and corruption so you've got clinics, you've got classrooms you don't necessarily have nurses, doctors and teachers who are turning up for work you don't have medicines necessarily and this is an enormous problem and corruption in India has now hit the political dimension in a big way because it's gone mega the latest big corruption scandal is the so-called 2G spectrum scandal and the auditor in India estimates that the central government lost $39 billion US because those spectrum licences were corruptly awarded $39 billion US now others have lower estimates the central Bureau of investigation estimate is $7 billion but it's somewhere in between those two figures either way it's a massive amount of money the Swiss Bankers Association did a recent study and they found that $1.4 billion $1.4 trillion of Indian money is in Swiss banks much of it so-called black money the next house amount is Russia we all know about the Russian mafia that's approximately $400 billion the scale of this is absolutely enormous so the challenge is not just to levy taxes and get this money it's actually to make it work they have a range of projects that they're engaged in at the moment to make this happen and I believe some are quite promising I don't have time to go into that today I want to now move on to look at some of the regional implications in South Asia of all of this to bring up this particular slide again five minutes five minutes a little bit over there alright okay I've got to put my running shoes on in this I'm going to skip over India and its South Asian region I've talked about it a bit I just want to make a couple of points quickly about it firstly the domestic problems throughout the region wash back and forward and trigger off inter-regional friction I've already referred to what happens between India and Pakistan but that happens in a whole lot of countries and also India is a giant amongst Pygmies in this region and therefore according to what we call the Cotillion dictum Cotilia was a great strategic philosopher in the fourth century BCE these countries are suspicious of India that surround India, the much smaller ones and they tend to form alliances with more distant powerful countries that can offset and balance India the current one which is active all through South Asia is China and China of course is India's great competitor so this is what's going on in the region you've got this dissonance you've got China as a major factor so India's region is a burden in its rise to power but in some ways it's also a blessing if you look at the Indian Ocean India is the only power of potential in that region Australia is always going to be middle power it's the next most powerful power Australia in military terms India is the only power of potential whereas if you look at China it's offset by the United States Russia and Japan in its part of the world I'm assuming that in strategic sense the Himalayas are a great barrier so even though India and China share a border it's very difficult for them to fight a major land-based war I'm now going to move on to say something about India and the world India's economy as it rises in the world is in many ways favourable to it it's an economy that's developed through high-tech services and not labour-intensive manufacturing it's going to have to in the future pick up that labour-intensive manufacturing mantle if it's going to really compete which means it's got to spend massive amounts on infrastructure Rommel mentioned even the urbanization infrastructure 1.7 trillion but at the same time because it's a significant service-based IT it's got this enormous soft power potential these are some of the Indian companies which are investing all over the world much more prominently than Chinese companies people are suspicious of Chinese companies because many of the big ones are actually state-owned companies this is very much an economy which hasn't developed its infrastructure but it's got 100,000 million little entrepreneurs working away you see one of them here I don't know if you can see the detail of this but when it comes to India and the great powers you see a different situation these are the border areas this is Arunachal Pradesh here which I've already mentioned and Aksai Chin and these border areas are contested you've got China still shifting away and drawing away from India these are data which come from the Economic Economist Intelligence Unit unfortunately the grey line which is India is very hard to see here this is GDP at market exchange more importance PPP so this is China it's rising rapidly this is the US and this is India so even though India's done extraordinary well China's doing still better there's the population tree India will start to pick up with China no doubt because of the problem of the lack of young people but to do that India's got to realise its labour intensive manufacturing potential and it won't happen soon because China can substitute capital for labour just as Japan did enormous amount of capital so at the same time India is very suspicious of China India considers that China is developing a string of pearls of basis this is not true this is how India sees it it protects energy sea lines of communication now China ironically sees the need to do this because it sees India as a great big aircraft carrier that might work sought with the US and India and the US are moving progressively closer together to interdict those vital energy sea lines of communication so it's trying to build influence right through this region and we have a classic security dilemma that as China tries to protect its domain India sees it as a threat India then ramps up its alliance with the US it ramps up its military capability it's gone nuclear as you all know it's trying to put those nuclear weapons on submarines and so on and so forth now I've done because I ran out of time scan justice to this but my essential message is and that's why I asked about Hugh White Hugh White says that one way of handling this security dilemma in Asia is to develop a concert of powers in which the great powers China, the US, Japan, Russia and India will work as a rich man's club they'll sit down and solve the problems of the region together an informal relationship my argument would be to this is that it doesn't account for the way India has to rise to power first of all through this very difficult region and then in terms of its relationship with China a China that is actually pulling away so there's an equal chance I'm not saying that what Hugh White is advocating won't happen but there is an equal chance that this relationship between India and the US India and Japan India and Australia, India and other like minded powers in the region may not become what I call an incipient balance of power so that while I don't think we'll see a balance of power and containment as we saw in the Cold War because no one can afford to have that anymore because we need trade it'll be what I would call an incipient balance of power that is there waiting in the wings and is developing if China's rise is not considered to be a peaceful rise, thanks for that