India’s economy ‘more durable’ than China

By James Lamont, Alec Russell and Amy Kazmin in New Delhi

Published: March 31 2009 17:26 | Last updated: March 31 2009 23:20

Manmohan Singh

Democracies have a far better chance of sustaining economic reform than one party states Manmohan Singh, India’s prime minister, has told the Financial Times in a rare top-level assertion of his country’s stance over neighbouring China.
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The architect of India’s market liberalisations and a well-respected economist, Mr Singh has placed the long-term success of the world’s largest democracy over the potential fragility of the fastest growing large economy under Communist party rule.

“The Chinese have certain advantages: the fact that it’s a single party government,” Mr Singh said in an interview with the Financial Times before travelling to the G20 meeting in London on Thursday.

“But I do believe in the long run in the fact that India is a functioning democracy, committed to the rule of law. Our system is slow to move but I’m confident that once decisions are taken they are going to be far more durable.”

Mr Singh’s comments come as China is asserting its leadership among emerging markets of the global economic policy debate. His remarks come as a tacit reminder to China that it lacks one of the key credentials to contribute to the global policy debate – democracy.

His defence of India’s, often cumbersome, democracy is intended to address concerns of local businesspeople and foreign investors, who often weigh the ability to formulate and implement policy in the world’s two fastest growing large economies. Indian executives often speak in awe of China, struck by its fast improving infrastructure and what they see as forthright policy-making from the centre.

India, meanwhile, faces criticism for its overburdened infrastructure and squabbling politicians as it has strived tries to match the, now diminished, double-digit economic growth of its neighbour.

On the eve of hotly contested parliamentary elections, the 76-year old Mr Singh said India’s financial reforms, which transformed India’s economy when he was finance minister in 1991, had been carried forward by successive governments in New Delhi, regardless of their composition, and did not face the threat of major reversals in the future.

“We’ve seen since 1991 there have been four or five governments in our country and none have dared to reverse the path of reform that we started,” Mr Singh said. “Democracy has its problems. It’s slow moving. The decision making process is slow. But once decisions are taken they are far more durable.”

Mr Singh was critical of neighbouring Pakistan for its response to the devastating terror attacks on Mumbai, India’s financial centre, last year that left nearly 200 people dead. He said ”no effective action has been taken to control terror” and accused Islamabad of either being ”unable” or ”unwilling” to crack down on militant groups like the one blamed for the atrocity, Lashkar e Taiba.

As he prepared to travel to the G20, Mr Singh voiced support for a group of experts, possibly outside of the International Monetary Fund, to assess efforts made by major economies to revive their economies from the ravages of the global financial crisis.

To avoid worsening the damage to emerging markets, he said major economies had a responsibility to assist in the “clean up” of the banking system’s balance sheets and encourage the resumption of credit flows.

Mr Singh warned against financial protectionism, saying that the withdrawal of capital resources from developing countries by large banking institutions was “worrisome”.

“The phenomenon of industrialised countries pressurising their banks to give preference to lending at home does present a problem. It is a form of financial protectionism which should be avoided,” he said.

The Indian prime minister was cautious about a Chinese proposal that the world should switch in to establish a new reserve asset in place of the US dollar currency. He said it was too early to discuss this at the G20 and described it as a complicated issue that would be determined by the power balance among nations.

“The power to issue money is an indication of the power of a country and no-one gives up power voluntarily ... There are virtuous technical solutions but I don’t see these are the issues that can be resolved through technical analysis.”

In an effort to moderate expectations about what the G20 meeting would achieve, Mr Singh said many of the issues before world leaders concerned the redistribution of power among nations and could not be solved in a short period of time.

“If you are talking about global reform, it requires a lot more work,” he said.