 Good afternoon everyone. Thank you for for joining us here at the Carnegie Endowment. My name is Milen Bashnov. It's a pleasure to welcome you all here in the midst of what is a real India bonanza here at Carnegie last week on April 6th. We formally inaugurated our sixth Global Center in New Delhi. I think the name has actually just finally made it onto this backdrop. You probably caught some, those of you came early, glimpses of pictures from the launch event. So for those of you who don't follow us and would like to be apprised of what we're doing there, please check us out. Join our mailing list. CarnegieIndia.org is where we'll be notifying you of everything that we're doing under the leadership of Raja Mohan, who is the first director of our India Center. So we're very excited. In the weeks and months ahead to share with all of you all the things that we're that we're planning, just one programming note in two days on the 13th at 4.30 in the afternoon in this room we'll be hosting the India's Finance Minister Arun Jaitley for a conversation with our president Bill Burns on sort of the two-year anniversary of the Modi government and what's been accomplished on the economic agenda, what remains to be done. So I hope all of you can come back in two days time on the 13th. Of course, we're here today to commemorate a new report by my colleague Ashley Telus, India as a leading power and in thinking about what to say about Ashley. There's not much, there's a lot one could say, but I was reminded of an email that I had gotten a couple of days ago, which I'll just read you verbatim which illustrates the problem of working alongside Ashley Telus. This was from a friend, he said, Dear Millen, what is wrong with you? In the time it took you to write three op-eds, Ashley has written three books. My favorite part about the email is he signs off saying best and then his name. Ashley of course is a prolific scholar of South Asia of Indian foreign policy of US-India relations and has written a really thought-provoking and some would say provocative new report on this concept which the Prime Minister has spoken about India as a leading power which I won't seal his thunder, he can elaborate some of his arguments but congratulations to Ashley on the release of a new report. And we have two distinguished commentators who are going to offer some of their thoughts and reflections on Ashley's arguments and hopefully find some points of disagreement as well as some points of agreement. Irvin Subramaniam who is known to most of you in this room who we miss dearly from across the street at the Peterson Institute in the Center for Global Development. He's of course currently the chief economic advisor to the government of India and for those of you who haven't read the economic survey which is what Irvin and his team are responsible for putting out it comes out every year alongside the budget. It's really worth taking a look at. It's chock full of ideas unlike most government reports and virtually something on every page which will jump out and hopefully we'll hear from Irvin on some of those insights. Last but not least, Dvesh Kapoor who is a professor of political science at University of Pennsylvania and director of the Center for the Advanced Study of India, Cassie who is working on at my last count I think four separate books. He has a forthcoming book which I want all of you to to go out and get as soon as it comes out which is the definitive look at Indian Americans and Indians who have migrated to this country which will come out later this year. He's working on a book on the historical ideas and concepts that have motivated Indian foreign policy. He's editing a volume on state capacity and rebuilding Indian public sector institutions. He's also working on a fourth book on Bellets and low-cast entrepreneurs in India. So he'll draw on all of those things in some of his reflections. So I'm going to turn it over to Ashley who is going to talk a little bit about his new report and ask Dvesh and Irvin to come up and offer some comments. Then we'll have a bit of a back and forth and then open it up to all of you and we'll end just at 4.30. So without further ado, Ashley. Thanks guys. Thanks. Thank you Melan. Let me start my remarks this afternoon actually by thanking all the three gentlemen on this panel here. I don't think I need to tell any of you how what a difference Melan has made to the program. I mean for the first time we have a real South Asia program but absolutely first-rate work being done on India's political economy and India's domestic politics. So the quality of the program has been levitated ever since Melan came on board. So thank you very much also for hosting this event this happened. And of course special thanks to Irvin Subramaniam and Dvesh Kapoor whom I have been privileged to learn from over the years. Everything that I've written in the areas of India particularly any intersection with economics has really grown out of this continual dialogue that I've had with both these gentlemen. And on this report in particular Dvesh Kapoor made an extraordinary contribution and I acknowledge that in the original text. As Melan pointed out the idea of India's leading power was an idea that Prime Minister Modi himself proposed less than a year after coming into office. And he drew the distinction between India as a leading power versus India as a balancing power. And he challenged his diplomats to help get India out of the balancing power mode into something that resembles a leading power. A few weeks later the foreign secretary Dr. Subramaniam Jai Shankar explicitly linked the idea of India as a leading power to the emergence of global multiple. And if you take those two ideas and bring them together as Dr. Jai Shankar did, you're left in no doubt that the Prime Minister has actually been more modest than he intended to be. That when he talks about India as a leading power what he really means is India as a great power. He wants India to become another pole in the international system. From my vantage point I think this ambition is long overdue. For many, many decades Indians have been justifiably proud of their country as either an ancient civilization or as a very noble political experiment. And both those ideas are profound. They're very fecund. And they have sort of nourished the discourse in India for a long time. But the idea of India becoming a leading power is actually a new idea. And actually quite controversial within the Indian context. Several months ago, if I remember correctly, Mr. Ramchandra Goa, an eminent Indian historian, challenged the idea of all the desirability of India becoming a leading power. And I believe on one occasion Sonia Gandhi did the same as well. I think thinking about India as a great power, a great power in bearing, thinking of the aspiration of becoming a great power is important for India's future. And of course, it's important for the United States. It's important for India's future in my view, because it can serve a catalyzing function with respect to the accumulation of material capabilities. You do not become a great power in my view simply on the strength of military powers. You don't become a great power in my view, simply on the strength of your self power. At the end of the day, great powers are those with exceptional concentrations of material capabilities. And if you can assemble material capabilities in quantities that are qualitatively different from those enjoyed by other powers, then suddenly you become very attractive, your self power begins to have certain resonance, and you acquire the wherewithal to build the military capabilities that all great powers have built in history. So if the idea of India as a great power serves as a catalyzing, has a catalyzing quality and serves as a catalyzing influence for India to marshal its capabilities, its wealth, its national output, more systematically, more prodigiously, that will have served India's interests. And from the viewpoint of the United States, it will have served American interests too, because the powerful India's, I have argued, ad nauseam leads to a desirable, a favorable balance of power and measure, which is ultimately in the interests of the United States. The key question is whether India can get from here to there, whether India can essentially transform itself into becoming a great power in a relatively short period of time. And the paper that I've written argues that it is a possibility, but it is still a possibility that is surrounded by considerable uncertainty. Uncertainty because the future of economic reforms is a question that requires more more serious reflection. And the challenges of state and societal transformation are challenges that have not yet been overcome. Let me just summarize the paper by making three basic points. I argue that if India has to become a great power in the conventional sense of the word, which is what I believe Prime Minister Modi and the Foreign Secretary in a sense would like to see India become. Then there are three dimensions that have to be satisfied. The first is that India's trend growth rate has to improve over a sustained period of time. India has demonstrated remarkable peak growth rates, particularly after 2001. But the challenge for India is to transform those peaks into a sustainable trend. And the longer that trend can be sustained, the easier it is going to be for India to acquire those material capabilities. Now, the devil is always in the details. It means India will have to be more efficient in how it accumulates capital. It will have to take the labor force, which it has a favorable demographic relative to many others and improve its quality so that it becomes a workforce that really contributes to the kind of expansion I'm talking about. And the productivity in the Indian economy has to grow progressively over time. It's not clear that these things will either be easy to do or successful in the short term. And so this is something that India has to pay attention to. The second major point that I make in the paper is that you cannot become a great power even if you get the economics right. If the state does not have what Michael Mann calls infrastructure capacity, that is, the Indian state has to become far more effective with respect to its capacity to set goals and to attain its goals. And there are three things that one has to think about in this connection. First, India actually happens to live in a neighborhood where the threats to it are significant, but not so profound as to compel its state to actually redouble its efforts with respect to material accumulation. India in that sense is not in Israel. So it does not feel external pressures or internal pressures that force it to mobilize resources in a way that other great powers have done in history. So if India succeeds, if the Indian state is to succeed, it has to do it despite the absence of these external and internal pressures to mobilize resources. The second issue has to do with the quality of Indian institutions. No great power has become a great power if it has not built robust state institutions. And it's not enough just to have robust state institutions, but it's got to have a very productive relationship with its own society. State must be present to its society, it must be able to extract resources from its society. And it must be able to regulate social relations within its own society in certain ways that are productive for state purposes. On all these counts, I think India has considerable challenges. And if you look at some of the work that Milan and the Veshis have done, particularly in the area of state capacity, I think this is becoming more and more clear. The third point that I make is that becoming great power will require India to increase the levels of rationalization in state and society. To put it simply, India has to find ways of creating extremely efficient solutions for power maximization. And the rules, the institutions, the processes that it follows have to be more and more efficient. The rise of the West, as Max Weber pointed out, really drew from the fact that Western rationalism created strong incentives to increase efficiency. And because the West turned out to be more efficient than other societies, the West grew in contrast to others. So on all these counts, I argue that there is still much work to be done. If you look at the current projections in the academic literature, most of the current projections agree that India does become a major international poll by 2015. But even at that point, it still remains the weakest of the great powers. Now, none of these projections are cast in stone. There's nothing sacred about them. The future is not entirely written, which means that it creates opportunities for India to begin to think seriously about how it could either make these projections come to pass earlier, or do even better than the projections suggest. If it is to go in that direction, however, I believe it has to make some difficult decisions with respect to resource mobilization, building the effective state that all of us would like to see it, and ultimately think about strategic partnerships with other countries in the world for their value for India. Now, the Prime Minister has made some very traumatic gains on this last issue in the last two years. He's begun to think about foreign relations, not simply as foreign relations, but rather as investments in increasing India's capacities at home. And to the degree that those efforts begin to gather steam, we are likely to, we can be more optimistic about India's prospects in the world. But those remarks yielded to my colleagues to offer some thoughts as well. Thank you. It's always a real pleasure to read Ashley's work. The clarity of thinking which he brings is something very rare, especially in people who work on India. Now, you know, there have been many ways that India has been seen both internally and externally as a regional power, as I actually said, a balancing power, a bridging power, a swing state, a jugar state. There are all sorts of ways that Indians see their own power. And there are two really questions that Ashley is asking. Can India be a leading power or a great power? And the other is, should it be? And as he said, that there's a surprising ambivalence within India itself in its intellectuals, whether India should indeed aspire to be a case of leading power. And there's been this ambivalence about power in the Indian intellectual context, which is particularly interesting because Indian politicians have no ambivalence about power within their own country, but they have much greater ambivalence about power outside the country. So on the question of Canada, I have to say I'm much more pessimistic than Ashley and I will lay down my reasons why that's the case. The three things that Ashley lays out, which I completely agree, which are the foundations of India, is to try and achieve this aspiration. One is the economic transformation, which should hopefully bring about a material basis of power or a transformation in the material basis of power. Second is to build a more capable state and better state society relations. And the third is to build stronger links and relationship with the US. So in a sense, it helps to achieve a form of the balancing, especially in the Asian context. Now, I think the challenge I see in India is the challenges are so... India faces such a range of domestic challenges and I'm deeply pessimistic about the politics of the country to be able to address those challenges. And let me sort of lay them out as why I think that is the case. One is if we begin with the Indian state itself, so then think of a state's core functions of a modern state. There's the regulatory state, there's the law and order state, there's the public good state and there's the state in the international system. Since independence, a state that was created really to run the colonial India, India has undertaken almost no actions to fundamentally alter the administrative apparatus in any of these functions in any significant way to address a country which is very, very different from what it was when it inherited a colonial administrative apparatus. The human capital of India, so you know people have talked a lot about India's demographic dividend. In the next thing, a decade, about one out of five workers entering the global labor force will be like from India, which is a huge, huge fraction. But I think there were two things which are a huge part of the problem. One I think is, I think the most serious error that Nehru made when he was Prime Minister, which is ignoring primary side education. And that is not just about creating the foundations of human capital, it is also about transforming social norms which primary education can and should be an instrument of in the process of nation building. That really did not occur in India. And now primary education is so fragmented that that task is virtually impossible to achieve. The second is higher education. India now has more students in higher education than the United States. You know between 2000 and 2014, India created six new colleges every day, including weekends in the past 15 years. Which is a, you could argue, it's a tremendous achievement of higher education, except of course the quality is really quite abysmal. India has had single biggest brain drains of any country in the world. There are a hundred thousand people born in India with TSDs living sort of in the United States. Roughly India produces about 20,000 a year of which the quality over here is at best 10% of the same quality. So India has gifted to the US half a century of a stock of human capital of the PhDs that it produces. That's a huge, huge, you know, brain drain. The problem is not of the reality of this. The problem is that India's politicians really don't care and have done everything to wreck higher education, which is a ticket for the countries in the future. No political party, including the current ruling party, has really any interest or any knowledge of how higher education really works. And that means you really mortgage the future of the country. Because I can't see a country emerging as a great part without the country being also in a capacity to create new knowledge. That capacity in India is very big and it's limited precisely because it has so undermined its higher education systems. The third asset of India, which also has its huge negative aspects or externalities, is the way India's democracy works. The strength of India is of course that it has managed a very rambunctious, open democracy against very overwhelming odds. But the sheer pressures of very competitive elections means that you have huge pressures on election financing. Those pressures on election financing ricochet through all parts of the system and in particular have very adverse effects on state business regulations. As we know from the United States that's hardly uniquely to India. But nonetheless it creates pressures which have quite adverse effects. The second is India's electoral system which is a first-past-the-post system. And a first-past-the-post system when you have social cleavages creates very sharp incentives for the politicians in those social cleavages to win elections. It did not occur in India's early decades because politicians exercised self-restraint. That self-restraint seems to be diminishing in more recent years. And if that continues I think that it will pose very, very serious challenges like for India. So Ashley mentioned the neighborhood effect which is India faces threats from its neighbors but not really an existential threat. For instance the way South Korea faced which led it to create a much more robust state machinery. But it's sort of interesting you know if you look at the history of military reform in India which happened after 62 and then if you see what happened after the Kargil incursion and also after the attacks on Mumbai it is really quite astonishing the degree to which you had this massive public outrage but in the end how little really has changed in the way India's military reforms have taken place. And it's because you know these attacks are really shrugged off their reports and then after a year or two or three basically they were forgotten and people have you know moved on. The other thing I think which is going to make the task and Alvind I'm sure will be speaking more about it which is of course on the economy itself in the past you know half century you know many developing countries have really seized on the benefits of globalized cessation especially international trade as a way to sort of both access technologies and of course broader economies. India came very late like to the game but when it did now you find that actually there are severe pressures on globalization. It's not at all clear that the way international trade grew in the past 50 years that that rate will continue. India is of course a very small player so it may not matter as much but but at least India seems to have entered this party just when the music is starting to fade and that means it is not it is it places more pressures on being able to leverage the international economy to improve its own economy. The other thing which relates to the point on the demographics which is you know this youth bulge that India faces. The challenges and this is of course not unique to India except of the scale which is so about one million people enter India's labor markets every month. India's rate of urbanization now is also about one million a month. So in the next 40 years India's urban population will will will increase by about 400 million. It's the single biggest urban transformation of the 21st century by a long shot. The question is about employment is where are the jobs? I mean where are the the decent jobs. For formal sector employment has virtually not changed at all. India in fact India's public sector you know India's long criticized as this you know bloated state actually that's just not true. India is one of the smallest governments and public employment in the world compared to its population. India's population last 25 years has increased by more than by about a hundred four hundred million. Its public sector employment actually declined by about one and a half million. So on a per capital basis it's been falling even as you know its population expanded by more than the entire population of the US. So there are no jobs I mean employment creation means that you have very large numbers of young people who are no longer very poor who do not want to partake in agriculture who are leaving agriculture moving to urban areas but whose only job prospects are in the informal sector. The sheer scale of this challenge is one that of course requires very very robust rates of labor intensive sort of economic growth and that simply does not seem to be happening. The last point and I'll end there which is a you know larger point which is you know Indian politics and society as a friend of mine argued in a book a burden by the burden of history. Identity politics in India whether it's religion, caste or region these are fertile lands where political entrepreneurs which can they can fill it quite hastily. We had in the last like decade when the Congress of the first term it did well. It seemed as if India was poised to really break out and the second term it completely fitted away the opportunity. This government was elected with a clear majority for the first time in three decades and I'm afraid that it is also doing exactly that rather than focus on the key point the Prime Minister ostensibly says he wants to focus on which is to make India a leading part which requires above all to focus on the economy. Huge amounts of energy have been fitted away on social cleavages or everything from cows to beef bands to bands on free speech all sorts of things which are really designed to create enemies within the country rather than focus on building the country itself. I think you know it's very hard to drive a car if you are not if you're focused only on the rear view mirror and the burden of history in India as such and the way Indian politics now is that everyone in a sense really thinks that there was some Halcyon days of the past. The left things the Halcyon days were before the economic liberalization. Something that it was before the before independence for the British came something it was before the Muslim invasions is always going back further and further in the past when there was this golden age of India you know if you want to build a great part you have to look over the future can't just be bogged down in the past and be burdened by that historical past which is of course largely you know quite mythical quite invented and I think that above all requires a type of political maturity a type of political leadership which at least right now India does not seem to have. Thank you. Excellent. This was all strategic the order in which you wanted to go last. I guess the optimist the pessimist and now the apologist I guess. First of all I want to thank Carnegie Miller and Ashley for not me. I guess giving me this opportunity to say a few words on Ashley's excellent paper and piece. Let me begin by saying that I don't know whether you know India may or may not become a leading power but certainly Carnegie is extending its empire like Brookings and they're all becoming leading powers and my alma mater Peterson has stayed you know small narrow focused but value for money Fred second to none. As David said it's one thing you cannot fault Ashley for you know obscuring things is so clear so articulate so I mean so purposeful as well that you know it's really a pleasure to read everything that Ashley writes and the same is true for the way she's well but you know they wish comes from the other side so which is also very nice so it's nice to see this I wish I could have been more of a spectator rather than a participant in this but anyway I want to make three points and I hope I don't I won't be too long the first is just to raise I think three conceptual points about you know leading powers and so on you know for whatever it's worth I wrote a book on China so that China as a leading power it kind of provides a focal point to you know at least compare conceptually what India's leading power might mean I think there are three I think interesting I think I know the contrast similarities contrast with China and maybe other leading parts first is that you know just some basic facts that you know in India's per capita GDP now is about I would say 10 percent of the frontier you know that's it's four thousand five hundred five thousand per capita of PPP the frontiers around fifty fifty five thousand so that's where we are relative to frontier so so as supposing India were to become a leading power whatever fifteen twenty thirty forty years from now I don't know what it is going to face the dilemma that you know I had outlined you know in discussing China but perhaps even more acutely it's what I would call the you know the big but not so rich potential leading superpower you know if you look at historically the UK and then you know the US and then the UK United Kingdom they were all you know pretty especially the United States they were big but they're also very prosperous you know so so in that sense that has a material impact on you know acquiring capability devoting resources to projecting power and so on so if you are a leading power but you know you have a per capita GDP that's a twenty five percent of the frontier you know how much you can really project power is kind of an open question and that was a question raised even with respect to China when I raised this issues China as a leading power so I think we need to keep that in mind and I think this big but not so rich actually has confronted India in all major foreign or climate change trade etc where I think we grapple with this with this dilemma so and that's something that will you know even if India were to become a leading superpower or leading power I think that's something that conceptually will the second thing which is you know the second prerequisite which Ashley laid out and which you know they wish touched upon which is the state capacity thing I think it's it's very interesting if you again look at China and India so supposing you were to you know draw a graph of you know economic institutions on the one hand and political institutions on the other you will find that there's a very nice fit between the two you know for most countries and it's in a sense the crux of the ace mogul Robinson book about you know why nations fail but you'll find that there are two real outliers to that relationship you know between you know could the correlation between economic and political institution and their outliers in different directions China is kind of economically its institutions in terms of being able to deliver economic services you know public services of health education etc are very advanced relative to its political institutions but India's now trying exactly the opposite direction where it's you know political institutions are very well advanced at some things that you said that we really cherish the fact that we've nurtured democracy and so on at such low levels of per capita GDP but the corollary of that is that the political institutions are way ahead of its economic institutions and state capacity now so just as a kind of analytical matter we don't have very many examples in history of you know does state capacity catch up over some point with its political institution or not and what the prospects for that I mean quite apart from all the things that you know insightful things that they wish that just as a kind of analytical matter you know can we kind of catch up whether it's even possible theoretically it's kind of an open question and or in other words if China and India will they both converge to the the mean as it were which is where economic and political institutions are much closer aligned I mean and that's one of I think the fascinating questions historical questions going forward how China and India will converse to the mean and at what pace and that I think will also speak to the question of state capacity that the third point again it's a kind of China and their comparison but also perhaps applies to the United States it's actually you know very interesting if you read Kissinger's book on China it opens with a funny enough Mao speaking to his generals on the eve of you know the Indochina skirmish and what what Kissinger says of course is that Mao in order to rally his generals makes a reference to some 7th or 8th century BC general and what Kissinger says is that it is assumed it was Mao assumed that everyone there would know the reference because there's such a continuity in a centralized Chinese state now if you look at India for example just conceptually again the fact that you know as India develops it's actually becoming more and more decentralized power is actually you know going flowing vertically down to the states but also in the last 20-30 years and deviation Pratap Mehta have you know written on this very nicely which is that power is also dispersed away from the executive horizontally to a host of other institutions so conceptually is it possible when this is happening domestically when power is getting dispersed is it in fact possible to project power international you know you know does there need to be a certain core modicum of power with the executive in a strong central federal federated state as opposed to India which is a much more decentralized power so is kind of thing is this possible for India as a leading part so these are three kind of conceptual questions that you know I would certainly like everyone to think about when you even begin to think about India as a leading part quite apart from the questions of the desirability which you know they spoke about so that's my point number one point number two I just want to pick up on you know let me get into the point number two is kind of you know is is the proposition that there's no doubt that you know you India needs to grow very rapidly to become a leading part and you know my own view and the view of my team who wrote the survey is that you know India's potential growth is somewhere between you know 8 to 10 percent you know give or take whatever I mean and I would say that's potential growth as as Ashley said we achieved that for a brief period of time but I think it's worth remark noting that India's in fact been growing at about six to six and a half percent for now 35 years I mean it's not a mean achievement I think it would place India amongst the fastest growing economies and sustainably fastest growing economies and actually amongst democracies and amongst non oil countries it's actually a quite a so so the Indian economic transformation has not been has been pretty pretty good and you know going forward if we can achieve 8 to 10 percent I think that now can this 8 to 10 percent be achieved I think all of you will have your views on you know is not being done not being done and we can get into this debate and I certainly think it's feasible I think that provided you know we can continue the pace of reforms at a reasonable pace this is possible I think that you know there is a kind of debate to be had on you know what is the nature of Big Bang reform what is the nature of reforms possible in a situation where you know when you're out of you know last year when we wrote the economic survey we did say that you know the expectations of Big Bang reforms outside of a crisis is somewhat unrealistic so so the yardstick against which you know any government including this one should be measured you know is a kind of phrase that I find also in Ashley's paper I said you know the yardstick should be you know is there I was is there creative persistent and encompassing incrementalism that's that's my yardstick for you know measuring what things are being done and I think we can have a debate on you know whether that's happening or not I certainly think that if you can continue the current pace of reform perhaps you know get a few more things done I think you know the potential of 8 to 10 percent growth is really realizable I think one really noteworthy aspect of the last two years where I think tremendous progress has been made has been in terms of a foreign direct investment and and I think now the Indian foreign direct investment regime is you know has become significantly more open than it's ever been in the past and the most recent statistic is that for the first time I think FDI flows covered India's current account deficit or more something quite quite impressive so so I think you know if we can maintain the space of reform maybe accelerated I think that's certainly put India's potential is realizable that's point number two my last point of course is is picking up what one Davis said but you know 8 to 10 percent growth is contingent on a reasonable external environment my own view is that you know no country does 8 to 10 percent growth sustainably without its exports growing you know at significant double-digit pace and that's what all the East Asians did in fact that's what we India when it grew during the period that Ashley mentioned I think export growth was pretty significant so the question is you know will the external environment be favorable for that kind of and I think I would say three things cloud that outlook one of course is I think at the level of ideas I think the ideology of you know integration globalization has I think you know I hesitate to say for the first time it always sounds too much more dramatic than it ought to be and maybe not true is that one gets the sense looking around you know the domestic debates in the United States what's happening in Europe you know what's happening in other parts of the world you one gets the sense that one can no longer take this you know this inevitable inexorable progress of globalization that was happening I don't think I'm as confident that we can take that for granted going forward and it matters at the level of ideas it matters because you know if you're in India as I am these days you know to embrace this becomes I mean it's hard always but it becomes even more harder when you know everyone else is maybe not moving in the same direction so so I think the you know the the ideological or the ecosphere of ideas is kind of if it's changing globally away from you know embracing open markets and so on I think it makes it a bit more difficult so that's one you know kind of cloud on the horizon in terms of the external constraints the second one is technology I think that many including you know many many many academics have written about this that you know going forward technology is becoming across the board more labor saving and so whether India tries to replicate the manufacturing miracle going forward or the you know services miracle which could be sui generous for India whether that's going to be possible going forward with technology really so that even if we were to generate the growth and the exports whether it would lead to you know a commensurate increase in jobs which has you know important implications for state capacity and you know and being able to project power I think that's an open question so I think technology is kind of a little bit riding you know against the late commerce to to this export-led growth phenomenon that even they wish referred to the third and last I think constraint on this is policy I think that just as at the level of ideas we can't be sure about you know being confident that markets will remain open even you know you read today's FT column by by Larry Summers you get the same sense that you know it's going to be much harder to sustain an open system everywhere and especially in places like the United States which are going to be very important which are and going to be very important markets for India you know whether India is going to do you know manufacturing goods going forward manufacturing exports or whether it's going to do services exports going forward I think the policy environment you know I was in India the day after one of the candidates says you said he wanted to close down the H1B program and and and you know this kind of you know does raise alarms in India and then of course has a bearing on on the soul you know whether the growth that's required to get to become a leading power is possible if the external environment is going to be just just in the side of that I think that you know it's possible that I think there's almost it's a very low possibility or probability that India can do 8 to 10 percent growth without rapid growth in exports because I think that's just a historical fact that we observe but I think the possibility for India being different from the East Asians is that perhaps India doesn't have to do manufacturing maybe it can do a combination of manufacturing and services and there I factored that I find quite interesting is that you know when China embarked on its miracle let's say the mid 80s each share of world manufacturing exports is not very dissimilar from India share of world services exports today so so you know I think it's it's doable at least in that sense but of course the external environment has to be favorable so with that let me stop just say that you know that the conceptual issues about India's a leading part that need to be you know addressed to I think the intern whether India can do it internally you know there's the pessimism of the wish you know makes very good points I think but I think one could also argue that you know there is a lot of hope opportunity dynamism in India which I think can be leveraged to India's advantage and generate the kinds of growth but of course the international environment has to cooperate thank you very much actually let me start with you before we will have a bit of a back and forth I mean three things came up in both the comments that the Vesh and Arvin made right one is about the role of ideas in forging this transformation the second is the role of interests and the third is is the role of institutions right and the Vesh focused a lot on on on institutional point and you began your remarks by quoting the prime minister and quote the foreign secretary but my question to you is to what extent on the question of should India be a leading power what extent of those ideas really embedded in the kind of psyche of political elites right I mean I'm thinking about the conversation that's playing out right now in the op-ed pages in India and they're the old arguments about you know non-alignment that that we prefer not to get too tangled up the United States as we're discussing you know closer defense cooperation we have a lot of suspicion that the TPP is a Wall Street plot to to take us over right a lot of the arguments that you've heard so great so a few people at the top may have a different point of view but are those widely shared if Modi comes and goes are we back essentially where we began but that's a very good question my own judgment is that the battle has not yet been joined let alone one this is an idea that the prime minister has proposed but it is far from becoming the national consensus if you ask Indians at a highly superficial level whether they would want to become a great power the answer would be universally yes when you then drill down into what being a great power actually means and what one has to do to get to that point I think the consensus splinters very very quickly and one of the points that I make in the paper is that there is really elite dissonance with respect to goal-setting in India even reforms right at the abstract level all Indians are for reforms once you begin to actually propose specific reforms which have differential costs for different constituencies the consensus in favor of reforms begins to dissolve which is why the question of reforming by stealth became you know the sort of mantra of the last administration and I think Irvin's strategy of your persistent incrementalism is really an effort to cope with the fact that outside of a crisis you cannot get a consensus for Big Bang reform so part of the argument that I make is that if India is to move in this direction the Prime Minister has to really and others not just the Prime Minister and others has to take the lead in building a consensus behind this idea because if the body politic does not share a connection that this is what India's future ought to be then this would be another grand idea to that will sort of take its place in the sweep of history with virtually no consequence now my hope is that for the first time you have external factors that are pushing India sort of no matter how hesitant in this direction the fact that India is going to have a genuine superpower on its doorstep China for the first time in its history is going to I think have to compel it to think about what is the implication for building India's own material capacities in a way that would never have to before so this is still a work in progress and you know everything that Arvind said on this issue I think is worth is worth a fraction Arvind I mean you mentioned that no country had grown at a sustained 8 to 10 percent level you know over a period of several years without strong growth in exports right I think one of the real questions a lot of people in this room of people in this town have is given the prime minister's point of view on the leading power given the talk about economic transformation given the talk about making India right of building India into a 21st century manufacturing powerhouse why so little movement on trade when we don't see India feature into any of the major agreements a lot of people would say there's very little difference between the trade policies of the previous government and the trade policies of the current government such as we understand them yet in your remarks came through as this is a critical piece of the puzzle if India is to grow at the sustained period of time do you think that those of us in Washington have a mistaken view or how do you see this this this role in economic policy again a very good question I think that if you actually look at the numbers melon in terms of trade to GDP ratios India's been a lot of progress you know India's trade to GDP ratios I mean goods and services something like I think 60% which is not small at all so there's been some endogenous you know opening that's happened I mean we've had a lot of reforms you know compared to the barriers that we used to have I think the barriers have come down quite significantly and plus the fact that we've had all this rapid growth I think our trade has expanded but I think when it comes to trade policy I think what Ashley said there is a kind of genuine ambivalence about how rapidly India needs to you know open up domestically and thereby you know how seriously we should engage you know internationally whether it's the WTO or the TPP or regional integration so on so I think there's a there is a an ambivalence within within India and I think part of it has to do which is what we say in the economic survey part of it has to do with I mean of course as the usual you know you know interests involved and so on but part of it I think has to do with the fact that exit in India is actually quite difficult you know because when you open up I mean you gain because of the churn and churn means dislocation and disruption and you know if you have may I mean and this is something that's playing out even here the whole to talk about trade adjustment systems and so on we face it in spades and so unless you know I think we can crack the generic problem of exit we'll always you know how do we allow inefficient firms industries inefficient deployment of resources unless we can address that you know in a kind of meaningful way I think there will always be some you know it's not that we're not engaging or not liberalizing but I think the pace at which that will happen will be marked by this kind of ambivalence I think but is there a worry that that there was a moment of time that's been lost so Devesh used this very evocative phrase that you know India is joining the party as the music fades right this whole idea given the clouds you mentioned on the horizon of technology of globalization the end of policy you know the the ground has shifted right so has has sort of India lost out is this even an option no I see I think let me say two reasons why I don't think I mean we I mean we have Devesh is absolutely right I mean we have come to this there's no question about that right you know if you look at the wave some some Asians East Asians started in the 60s some in the 70s China in the 80s and we came to it in the 2000s when our earlier exports took off I think that I am reasonably optimistic you know subject of course to the international environment is that one we're still very small in services we're still one one and a half two percent of world share of exports and you know even if you get from two to seven or eight that's a rapid expansion by the way China went from about one and a half to 15 percent at the peak of in terms of world so I think we have a lot of room the second that's in services but even in manufacturing I think take clothing for example right Chinese share of world trade is something like I think 40 percent in clothing China's Lewis it's turned the Lewis you know manufacturing wages are rising very rapidly there is no reason why that the space that is and will be vacated by China on clothing is not something that we can that we shouldn't be able to occupy and all this without actually stressing further the ability of the advanced countries to absorb those we're not talking about you know global clothing exports as a ratio of whatever rising even within the current space I think China is going to vacate space and we should be able to fill it provided of course we can do our things domestically so I think it's doable I don't think it's too late it's doable but I think a lot of things have to come into place so let me let me ask the best something on the domestic scenario I mean this is a bit of a role reversal I usually feel that the best you're the optimist and I'm I'm having to sort of you know reign on everyone's parade and now you're you're the other way so let me go back to things you've written about in the past in your optimistic days okay you've talked about you've talked about you've written extensively on the changes in Indian foreign policy from moving from the days of the Soviet embrace to a new partnership with the United States an embrace of global capital markets and so on and so forth on the economy you've talked about the huge shift pre-91 post-91 or really frankly pre-80s but we can define the starting point but you know the old and the new on social change you've written a lot about the empowerment of the previously marginalized disenfranchised whether they be dullets backwards my other minorities politically you've written about the increase in political competition which has gone hand in hand with this emancipation of the of the backward cast so in fact on a lot of these dimensions politics society economic foreign policy it's pretty big shifts I mean I think all of us could in this room could debate how far how fast you know we'd like to see more we'd like to see less but pretty uh I mean I think you could say a sea change in each of these so why so much glumness about uh about where India stands today I think uh look the reality of the transformations is absolutely right or whether it's social transformation the political and the economic right the three core transformation which is really I think so historians sort of writing about India decades down we really see the last few decades and the complete transformation I mean I mean think of it even 15 years ago the gender ratio in primary and secondary education was a huge gap between the girls and boys but by this year or next not only at the primary but even at the secondary level there'll be a parity of you know the sort of ratio which is a huge change in a society you know that's then why the glum so the thing is that that when you think about you know if you think of you know work like Fukuyama is about order I think where I see the challenges are precisely when you have these transformations the issue of order becomes way more challenging because you know a person if you were uh Dalit 50 years ago you were so cowed down by the system there was no question of your raising your voice or challenging anything so order is easy in fact it is it is not just these three think of the systems of order so India as as sort of Erwin he eluded to India always has had a very weak state unlike China historically so how did India produce systems of order and that was because it was a very hierarchical society hierarchies are terrible for many things but they're very good for order because they do produce order right so whether it's the family so where the eldest person the grandfather or great grandfather said x and in the joint family that was law that was order now age every hierarchy is is being challenged that's the great news but when hierarchies are challenged and systems of order which happen say in Europe etc in the 19th century when feudalism all those systems of order were being challenged the systems of order move from society to the state to institutions of the state so the first the good news which is happening which you're absolutely right which I have written about but the second is not happening which is the parallel shift to systems of order in state and public institutions and it's this mismatch and an increasing mismatch between the scale of the transformations on the one hand and the and the low level equilibrium of public institutions and their inability or unwillingness to to to be able to transform to accommodate this change that I think is the one that worries me most so let me come back to Ashley then before we open up you know have one final question for you Ashley I mean nobody can accuse this particular prime minister of not having grand visions on various things and you've touched on his visions about India's a leading power to what extent do you feel that he the people around him his administration his government are seized with the institutional challenge and what are the benchmarks of the signposts that we should be looking towards that will give us some sense of optimism that uh-huh they've finally understood that this challenge of creating a capable state which India arguably has not had it's at a very weak state is actually finally we're making some progress on that well the two parts to the story I think they are moving may not be in very dramatic ways but in important ways to liberating the productive elements in Indian society right becoming a great power requires a certain liberation of societal forces because ultimately that's where the productive elements in the nation are I think this government has may not be as successfully as it would like begun this process of trying to liberate productive forces I mean everything they've tried to do from land to GSD whether it's been successful in art suggests that they recognize that this is something they cannot overlook I think history on this issue is on the side of any government in India that over time the processes of decontrol are going to win because the alternatives have been tried and they've failed I think they've moved much more slowly on the second half which is dealing with the issues of state capacity the point I would make there though I'd make two or three points the first is this is not a project which one can declare successful in the sort of discreet way that is there will never be a moment where one can say aha they've done it this is always going to be a work in progress so we've got to constantly keep looking and constantly sort of encourage them and keep their feet to the fire too the second is there is no doubt that they have fallen behind on this process and I think part of it has to do with tinkering with the constitutional structures of the state at a time when they have constraints in terms of their ability to do this at least through legislation whether they will succeed over time is an open question but I would make one point here you do not really need an absolutist state of the kind that you saw in early modern Europe for this to succeed all you want is a minimally efficient state so it's unfair I think to judge them relative to the ideal so if what you're looking for is a minimally efficient state then what we want to see is the accumulation of these small things that Arvindas talked about if this happens and this is not a project for even the life of one government because the kinds of changes that Devesh has talked about are truly transformational changes on a very macroscopic scale as long as the direction is right I think there's hope and so we've got to constantly keep looking for the accumulation of change I would like to see it happen a lot faster but I have the luxury of sitting here in Washington very comfortable not having to sort of do mundane things like you know survive elections every few months or every few years but for those in the political class who have to go run those gauntlets I think one needs to be a little more you know a little more understanding of their predicament that's why I came back to the point that I made at the start of my presentation it's really important for India that Modi hangs on to this vision of India as a great power because if you do not have that vision none of these things will happen if you are content to remain a great civilization or a noble political experiment then natural evolution will take you whatever natural evolution takes you but if you really have a vision of India as a great power then there are many things that become obvious right and then it's simply a matter of how consistent they're going to be in getting there can I challenge that Ashley on the last one go ahead but actually there is a I mean it's true that you know as a kind of aspirationally galvanizing you know force you know this leading part I think but I think I think there can be and there are other kind of motivations for the kinds of transformation which is that you know people believe in development freedom you know capability domestically I mean there can be a I mean there can and I think must be many more domestic imperatives for change which drive change and and the aspiration of a leading power while I mean I'm not saying it's unimportant I mean I I'm not sure whether that necessarily has to be or you know the driving force it's not as if we lose that we lose the you know the desire for domestic change the best one is again to you I mean one thing actually which I think is interesting which you raised it's interesting that the idea of using an external anchor to drive domestic change India has usually been quite reluctant so usually if you think of an IMF program as an external anchor you know I just use it as an excuse which China has done very well when it signed on to the WTO it was precisely that to then say we'll use this to drive all the internal changes we think we have to make in any case you can argue that if India's you know which to some extent it's moved on the climate change that India needs to do all these things for itself actually forget the world on energy and you use the agreement external agreements whether trade climate change or your aspiration of it so use external I mean anchors to drive internal change that's actually the exception not the rule in India's case and I concede that the point here is that the imperatives for becoming a great power not coming from the outside they're coming from Modi's vision right so it is purely an endogenous development the only issue here is whether this endogenous development survives a simply one man's dream or whether he's able to sell that as a dream for the country writ large and this does not have to be in competition with other visions that can drive India the two can go together just perfectly right I just think that the potential for forcing change is greater in this area than possibly a purely developmental sort of motivation I do not see the developmental motivation as imposing urgency it's extremely important but India has lived with various conditions of under development going back hundreds of years so there's an incrementalism that people are content with but if you talk about a great power that is highly measurable relative to your neighborhood and a global system and as I said the threats are going to increase they're not going to decrease at least from the outside so all of you have been very patient we only have about 15 minutes left so why don't we take three questions we'll try to group them and please direct to keep them short direct them to one of our panelists and we'll try to get another round and I think Fred has had his hand up so let's start with you here's the mic I wanted Fred Bergsten Peterson Institute I wanted to push further this question you're just discussing about catalysts for change all three of you ought reform it's very clear question how to get it Ashley said in his opening remarks one constraint on getting what he liked is that the neighborhood is not so bad it's not so threatening Arvin said you only get economic reform when there's a crisis now you've just discussed using external forces as an excuse for internal change that you want anyway but I want to ask whether there might be real external forces that would force change and the one obvious one is the superpower rise next door will the rise of China at some point sufficiently threatening to India force change of the type actually wants on the trade side as Arvin well knows we just had kind of a modest example maybe there was maybe a little TPP shock in India when TPP was announced a lot of people in India said ah we are being left behind in fact maybe we'd better move no dramatic change from that yet there's only been a couple months maybe some doubts about whether the US goes ahead but the basic question is whether something real externally could be the catalyst for the kinds of changes you want okay let's take there was one over here on this side right here in the front Rachel watch Raghubir Goyal India Global Asia today Ashley first of all congratulations Carnegie in New Delhi and New Delhi in Washington long waited what is the future what will be a difference for this new name to be added at the Carnegie and another question is that as far as this political drama in India that every Indian Americans are watching on TV here and of course the Americans also arrived talked in the White House in the State Department what and this is the hindrance I believe many think that in the development in India because if the states are not ready for development if you want to invest let's say in Bihar and the Chief Minister doesn't want so what Modi ji can do because so my question is what is the difference politically the last two years during the Prime Minister Manmohan Singh and now Modi ji why there is so much anti-Modi as far as development in India is concerned thank you okay why don't we take those and then we'll Ashley do you want to crack out of this let me try and answer Fred's question I hope there is an external catalyst for change but there seem to be two Indian responses to it so if you think about China for example the response on the left is let's neutralize so let's sterilize the challenge of China as a catalyst for change by you know simply finding a political solution with China that does not require us to do fundamental transformation the view on the right is there is no such political arrangement on the horizon and therefore you have to get real about dealing with China now whether that extends to economic policy changes that are truly far reaching I think is an open question and in India's democratic polity what you get is competition from the propelling forces on the outside versus all the limitations that come from having to survive in internal politics right and for most politicians I think the calculus is we are likely to lose office first before we are going to be invaded by the Chinese and therefore anything that allows us to preempt the loss of office which means the status quo becomes even more entrenched acquires priority over structural change which might help us get there now the one question that I don't have an answer and I would like to hear on this is that if we are truly moving to a world the best days of globalization are in a sense behind us then what does it mean for the export growth that India needs in order to satisfy its own developmental agenda on the inside and what are the implications of that for political survival because if globalization is truly at risk because of American weakness more than anything else right then at the end of the day what does this mean for the political class do they see this as forcing them to make the changes that are necessary in order to grow or do they simply accommodate towards low level equilibrium of low growth let me take Fred and Ashley's question together I think Fred let me I kind of broadly agree with what Ashley said in response to you but let me give a couple of examples where I think what you're saying is actually very useful and important and it's a very good point if you take for example how India needs to manage its water and all the things that come from it I think the notion of China as being the upper riparian state which is controlling all the waters of what comes into India and water is becoming more scarce I think there I think there is a sense in which China plays a part in the consciousness in terms of determining those sets of policies similarly I think and I've always I have said we've had this discussion that I don't know whether TPP will get passed or not assuming it does I think but if China were to make a gambit to enter TPP I think that would have an impact in India in terms of galvanizing action but whether the rise of China per se is going to impact domestic policy and providing this Philip as Ashley said that I think is a more open question I think that certainly as I can make out I've not seen that direct connection being made between wow in order to deal with the rise of China we need to reform more and therefore you know that's the way it's not yet entered the consciousness as such I'm not saying that it shouldn't or it wouldn't be a useful catalyst Ashley I do think let me say I do think that the imperative to deliver high growth is I think becoming more and more important than India yeah I think there's no question and you know even Millen's own work showing that you know the states that governments and state governments deliver more rapid growth on average not always not all the time tend to get re-elected and you know so performance is is rewarded failure is punished that kind of dynamic is becoming more now if we get the sense that you know in order to deliver that we need to you know say do more rapid exports or whatever I think that will very much be be part of the consciousness I think I think that's going to be and that's one of the I think the positive developments in India now that you know if you you slip anywhere but below six percent six and a half percent there's the actual sense of oh my god alarm and anxiety about what's happening and again I know this is not exactly the question that you asked but I think it was implicit in what you were asking I also think that on the optimism side of the ledger that I would add is this you know competition between states dynamic that so true if Bihar doesn't want investment you know maybe the central government can do very little but that investment will go to some other state and the government of Bihar will have to take notice that it's foregone all these opportunities because other states are performing better doing better doing stuff to attract investors more so this competition between states dynamic I think is a very powerful agent for change in India and one reason I'm actually quite optimistic that you know even though as Devesh reminds us that you know state politics in India you know we can have a whole discussion on that on the nature of state politics but I think this you know a competition between states combined with being you know being rewarded in the political process I think that creates a really powerful dynamism for change in India so Ashley we're at time do you want to take another questions or should we so let me give Devesh a chance to to have the last word so there is this debate about competitive federalism if you have the state competition are you going to produce better outcomes yet we know on a range of issues states are often the problem not the solution how hopeful are you Devesh that that this paradigm of both cooperative federalism right which is having New Delhi work with the states in conjunction right towards a common vision of development as well as setting the states against one another and competing for for jobs for investment dollars and so on is going to produce the kind of dynamic that that the prime minister would like to see well I think you know it's interesting one of the challenges that India faced relative to China if you look at China's model of reforms it was always a spatial model they would try and experiment in one part of China if it sort of worked it would expand India because of the nature of this political it couldn't really try that right you had to do it for all of India which of course raised the barriers to do doing something they were much higher that I think is changing because of what Irwin said and a classic case what Rajasthan is doing you know labor reforms were very very hard now that was strange because labor land are two key areas of reforms that everyone knows India needs to do much more but somehow even though these are in the constitution they are concurrent subject which means the states can undertake those actions as long as the center does not veto it and if the center has an accommodative stance which it now has so Rajasthan is done labor it's done land the last week which I think very significant reforms and what you're seeing is some other states are beginning to see right but I think that dynamic will work only when investments flow into Rajasthan as a result of that states begin to realize that unless you undertake these actions you'll be left out of the race I do think that what Irwin has said is really more significant than what we might think you know 20 years ago if you looked at Indian papers about growth you wouldn't hardly see any stories about growth you know now when growth falls below 6 percent I mean it is all over as if it's a major crisis less you know previously growth ever came above 6 percent that was seen to be just something like a big miracle so it has completely so now we have to ask 6 percent really 6 percent well I think we even embarrassed him enough so sweetly leave him after that one but still you know you know there are fewer questions about the quality of growth but at the political you know level the need for politicians to explain why they are not growing at 6 percent plus that seems to be undoubtedly having taken root now whether that leads to a more rapid competitive federalism that Irwin believes and we all hope should happen that I think yep it's all remains to be seen so we're a few minutes over I know many of you had questions I'm sorry we couldn't get to them I hope you all on your way out pick up a copy of Ashley's paper and read it and send him your thoughts and Irvind where we miss you across the street but you're doing serviced India and we're all cheering you on from afar and the Vesh we'll pick a more optimistic subject for you to come back and then talk to the rest of us about please join me in giving them a round of applause thank you my friend