Thousands of families live in poverty and shelter under railway platforms in Calcutta, December 1, 1996.
Kamal Kishore / Reuters

The end of the Cold War presented India with a stark choice. It could persist in an inward-looking policy that slid it further into international irrelevance. Or it could take a hard look at developing countries that had achieved success through outward-looking policies and gained diplomatic gravitas.

India failed the first test in the Gulf War, one of the defining events for the post-Cold War order. India's confused response -- which included a unilateral peace initiative to Baghdad -- based on a faded image of itself as leader of the nonaligned nations, succeeded in alienating both Baghdad and Washington without winning any friends. Being bracketed with Cuba and Yemen in a U.N. Security Council vote at war's end calling for Iraq's surrender was less than edifying.

Five years later, India repeated the policy mistakes. Last September the U.N. General Assembly approved the text of the Comprehensive Test Ban Treaty, which India had campaigned against, by a vote of 158-3. Only Bhutan and Libya joined India in rejecting the treaty. The next month, the General Assembly voted to fill five non-permanent seats on the Security Council. India and Japan keenly contested the Asian vacancy. What was expected to have been a close vote, perhaps requiring several ballots, turned into a rout. Japan romped home, 142-40. The two defeats proved that, 50 years after independence, India is neither rich enough to bribe, powerful enough to bully, nor principled enough to inspire

THE SOCIALIST LEGACY

India's failure to match East Asian growth rates has diminished its international influence over the last three decades. Prime Minister Jawaharlal Nehru (1947-64), armed with socialist faith in an interventionist state and an aristocratic disdain for consumerism, tried to transform India into a giant of heavy industry. The achievements were genuine and substantial. India's economy grew three times as fast during the 1950s and 1960s as during British rule. The food security that Nehru worked for contrasts with recurring famine under the raj. In just 40 years, infant mortality was halved, life expectancy nearly doubled, and adult literacy almost tripled.

Even so, four decades of state-directed economic planning brought slow growth, rising unemployment, and growing dependence on imported capital goods and technology. Compared with developing countries in East Asia, India fared badly. Its share of world output and exports fell, and even quality- of-life measures on which a socialist government could have been expected to concentrate lagged far behind those of East Asia

A major balance-of-payments crisis in 1991 gave the government of P. V. Narasimha Rao (1991-96) the opportunity to overturn the Nehruvian consensus on central planning and Fabian socialism and institute economic reforms. The pace of reform was brisk from 1991 to 1993, but inaction since then is catching up with India. The government deficit hovers around 6 percent of GDP, as unproductive spending continues for debt service, market-distorting subsidies, inefficient public sector enterprises, and unneeded civil servants' salaries. India's competitiveness ranking, according to the World Economic Forum, slipped from thirty-fifth in 1994 to forty-fifth in 1996.

Palaniappan Chidambaram, finance minister in the United Front coalition government that assumed power last year, has taken East Asia, where selective state intervention in the economy has met with much success, as the benchmark for fiscal reforms and trade liberalization. The 1997-98 budget simplified, rationalized, and lowered personal, corporate, and excise taxes, and widened the tax base. The government repealed the Foreign Exchange Regulations Act. Top tariff rates were slashed from 50 percent to 40 percent, and the government promised to bring them into line with Association of Southeast Asian Nations norms by 2000.

But reform is incomplete. Privatization has not even begun; meanwhile, public sector share of GDP, less than one-tenth in the 1950s, rose to around one-quarter in the 1990s while absorbing about half of gross investment. Microeconomic reforms have yet to be tackled. Labor laws discourage firms from closing unprofitable divisions. Barriers to imports of consumer goods must be removed, the banking sector strengthened, and government regulation reduced.

Washington has identified India as one of the ten big emerging markets, but development will require enormous investment. Infrastructure is woefully inadequate -- congested roads, lethargic seaports, daily power failures, broken telephone lines. The energy sector needs an $80 billion infusion. Doubling telephone access nationally, to a modest two phones per 100 people, will cost $12 billion. Not all of this money can be raised in the country.

Yet foreign investment last year was only $2 billion, against a target of $10 billion; by comparison, China attracted about $40 billion. New Delhi woos investors with tax concessions, but its slow pace on developing business regulations and on allowing the price mechanism to determine resource allocation, along with many other obstacles, frustrates those attempting to get projects off the ground. The debate in the cabinet between free traders and economic nationalists has left analysts and prospective investors confused and wary.

The culture of subsidies remains entrenched. Loss-making state enterprises soaked up $459 million in subsidies last year, against the $190 million budgeted. The effective power subsidy to farmers this year is $6 billion, up from $5.3 billion a year ago. A reduction in oil subsidies, although economically necessary, is considered politically suicidal. The government instituted food grain subsidies for poor families in December after admitting that the poverty rate was probably more than twice the official 16 percent.

Annual GDP growth is still healthy, at 7 percent, but that level is unsustainable without further reforms. The government should launch a frontal assault on the cost of doing business in India to improve global competitiveness. Current compliance and transaction costs -- not to mention the necessary bribes -- are steep. And the country is a long way from offering a sophisticated financial and services center.

If instead of worrying about poverty reduction India concentrated on wealth creation over the next half-century, the poverty problem might just take care of itself. And since today's international balance of power is fundamentally determined by economics, if India became the economic and technological powerhouse it has the potential to be, it would not have to pursue the chimera of nuclear weapons.

POWER PLAY

India cut a sorry figure at the start of the 1990s, wracked by economic stagnation, political turmoil, and social ferment. The socialist legacies of the Nehru era were holding the country back. The V. P. Singh government (1989-90) pitted Indian against Indian with its policy of caste-based set-asides in government jobs and college admissions. Conflicts with Pakistan and China were debilitating preoccupations. The collapse of the Soviet Union left India alone on the world stage.

The Rao government accomplished much in addition to a few busy years of economic reform. It tried to repair relations with South Asian neighbors, moved toward more normal ties with China, made fresh starts with Russia and other former Soviet republics, and rebuilt bridges to the United States. As the United Front foreign minister, I. K. Guj ral (who was sworn in as prime minister in April) gave top priority to improving relations with fellow South Asian nations through both unilateral and non-reciprocal concessions.

India's obsession with the nuclear option, however, threatens to undermine that progress. Most countries have become convinced of the futility of nuclear weapons. Russia and the United States have reversed the nuclear arms race. In indefinitely extending the Nonproliferation Treaty in 1995, some 180 countries -- India not among them -- declared that nuclear weapons were a debased currency of power. Since then, Southeast Asia and Africa have adopted their own regional nuclear-weapon-free zones, so that virtually the entire southern hemisphere is covered by such zones. Japan is a world power without benefit of nuclear weapons, while nuclear brinksmanship wins North Korea no power, prestige, or friends.

Indians, however, having stood on the threshold of nuclear weapons capability for 20-odd years and still stuck in a suspicious, belligerent worldview, seem to regard nuclear weapons as the major coin of world power. India deeply offends many countries when it implies that everyone else has been duped by the nuclear powers. The Comprehensive Test Ban Treaty will end, totally and forever, nuclear weapons testing and the associated health and environmental risks. And it will stop the development of new generations of nuclear weapons. The verification system, which involves national intelligence capabilities, a global network of seismic monitoring stations, and international inspections, will ensure against violations.

Signing the treaty would not take away India's option of maintaining a rudimentary nuclear-weapons capability. It would rule out the development of a sophisticated capability -- which India could pursue only at the cost of a three-way nuclear arms race with Pakistan and China, among other repercussions. India's gravest security threats, moreover, are rooted in internal social and economic problems. Nuclear weapons are no use in combating terrorism by insurgents in Kashmir, Punjab, Assam, or Tamil Nadu.

Had India decided to acquire nuclear weapons after its first test of a nuclear device in 1974, by now the world would have come to live with it as the sixth nuclear power. Instead, it must bear the opprobrium of being a nonproliferation and test ban rejectionist without having acquired nuclear weapons.

PRINCIPLES LOST

Perhaps the most important role that India -- the world's most populous and the developing world's leading democracy -- has to play in world affairs is as an exemplar. The corruption scandals of recent years, which culminated in the May indictment of former Prime Minister Rao for vote-buying, have left Indian democracy soiled, its citizens disillusioned, and its image abroad tarnished. Yet it is heartening that the flaws of India's rulers were exposed by India's democratic institutions, particularly the press, the judiciary, and opposition parties; to that extent, constitutional government in the country has been vindicated.

Other principles underpinning India's authority and role in world affairs are also in question. Secularism is a necessary element of the Indian state and needs renewing, while non-alignment is completely outmoded and should be jettisoned.

SECULARISM

With the December 1992 destruction of the sixteenth-century mosque in Ayodhya by Hindu nationalists, India plunged into its worst outbreak of communal violence since partition in 1947. Almost 2,000 people were killed and 5,500 were injured, two-thirds of them Muslims. Thousands fled their cities. International investors had a fright. The convulsion was symptomatic of pervasive governmental decay: in a religious community with no history of zealotry, the appeal of fundamentalism had grown as the moral authority of the Indian state declined.

The British policy of divide and rule hardened sectarian divisions, especially between Hindus and Muslims. It was the British who introduced communal representation, elevating religious identity above all else. Leaders began to construct political coalitions along communal lines.

The partition of the subcontinent into an Indian and a Pakistani state did not solve the problem of religious minorities. Although Hindus accounted for more than four-fifths of the population of independent India, there were significant numbers of Muslims, Christians, Sikhs, Buddhists, and Jains. To protect the rights of religious minorities, secularism was entrenched in the constitution. There is no state religion in India. No religion is accorded special privilege or discriminated against.

In time, however, some parties began to attack Nehru's legacy of religious tolerance as appeasement of Muslims. During a period when the Rajiv Gandhi government (1984-89) needed to shore up Muslim electoral support for the Congress Party, new laws, constitutional amendments, and policies appeared that seemed to demand the Hindu community's adherence to secularism, but not that of other religious groups.

Riding the crest of Hindu revivalism and exploiting Hindus' sense of grievance, the Bharatiya Janata Party (BJP) has been the major beneficiary of the attenuation of secularism, increasing its seats in the federal parliament from two in 1984 to 162 in 1996. Polling data show that support for the party is strongest among educated, urban, upper-caste Hindus.

The BJP, however, has gone about as far as it can with its hard-line policy of Hindutva, or Hindu-ness. The challenge now is to broaden its appeal by moderating its policies without creating disaffection among core supporters. The challenge for the more centrist Congress Party is to regain the trust of the Muslims, lost after Ayodhya. The challenge for the Indian government, regardless of which party is in power, is to return to the inclusive vision of Nehru, which accommodates the legitimate rights and aspirations of Muslims without alienating Hindus. That will require policies that promote secularism without pandering to fundamentalist elements of any religion.

Indians of all faiths must accept the reality of their history and take care to preserve it rather than trying to rewrite it. Indian culture is an amalgam of the cultures of successive waves of invaders. Contemporary India and Indians would be unrecognizable if somehow Muslim Mughal and British Christian India could be expunged from the collective unconscious. If Muslims are not permitted to integrate into the mainstream, a major new terrorist movement will feed on the resentment of the country's largest minority. Separatist sentiment and geographically localized violence in Punjab and Kashmir have caused trouble enough for the Indian state. In addition, an unresolved Muslim problem at home will damage India's relations with Muslim nations near and far and undermine its standing as an exemplar of democratic pluralism.

NON-ALIGNMENT

To the extent that Indian foreign policy, often episodic and reactive, has any conceptual underpinning, it is to be found in non-alignment. India was a co-founder of the Nonaligned Movement in 1955 and has played an influential role since then. But after 50 years it is time to shed that magnificent obsession.

Non-alignment began as a prudent approach to India's foreign policy after independence, recognizing the need for mutually beneficial relations with as wide a circle of countries as possible. Its rejection of ideological blinkers averted domestic division and enlarged the portion of the world insulated from the chill of the Cold War. Non-alignment enabled Indian leaders to bestride the world like colossi, and imbued the Indian people with pride in a role befitting their country's greatness. The 1970s were the golden age of non-alignment and its accompanying agenda of radicalism at the United Nations.

The Nonaligned Movement was tied to the Cold War; great-power rivalry and conflict was its context. But now the threat of strategic nuclear war has abated, the superpowers have ceased their competitive interference in the Third World, and colonialism and apartheid have been vanquished. India is no longer a "new" country. Nor does it need to fear American pressure to declare itself once and for all on the side of the capitalist West, for the West has won the ideological battle, no doubt about it.

Far from seeking foreign assistance from non-Western sources for a growing public sector, these days India wants to prune a pampered public sector, attract foreign capital, and expose the formerly protected private sector to international competition. After decades of spurning multinational firms, India, like most Third World countries, wants to attract them.

Non-alignment distracts India from the real issues as it prepares for the 21st century: fostering regionalism in South Asia, normalizing relations with China and Pakistan, improving ties with the United States, building relations with the vast Asia-Pacific region, rebuilding relations with the successor states of the Soviet Union, and making its economy more market-friendly. The Nonaligned Movement may straggle along for some time, but it has lost even its nuisance value. It is simply irrelevant.

India's "principled" opposition to the Comprehensive Test Ban Treaty is likewise caught in a time warp. Whereas its argument in the 1960s that the Nonproliferation Treaty discriminated against the non-nuclear states was principled, and appreciated even by those who disagreed with it, India's hawkish position on the test ban -- insisting it be linked to a timetable for total disarmament -- is seen as sophistry and outdated power politics. The treaty meets many of India's long-standing concerns, and Indians' understandable irritation at U.S. hypocrisy in preaching nonproliferation while practicing deterrence should not be allowed to stand in the way of approval. India's signing of this universal and nondiscriminatory pact, every clause of which applies equally to all countries, should have been the crowning achievement of the campaign against nuclear testing that Nehru began in 1954.

THE FORCES CONVERGE

Following China's lead, India should explore ways to augment its market presence so as to expand its influence in world affairs. India has generally seen itself as a world power in the making and conducted its regional and international relations accordingly. It would do better to first improve its own economy and political stability. It must adopt economic policies that tap the considerable entrepreneurial flair of its people rather than impeding them, spurred on by the thought that nothing destroys the legitimacy of a political system like economic failure, while economic success reduces factionalism and helps keep politics and society on an even keel.

Regionally, the conflict in Kashmir is the main impediment in both India and Pakistan to cutting defense spending and converting defense industries to more productive civilian lines. (Almost 30 percent of Pakistan's and 15 percent of India's central government spending goes for defense.) Maintaining enmity toward China has also exacted significant opportunity costs. Improving relations with China would allow India to focus on Pakistan.

War-weariness in both Pakistan and India makes the time propitious for a resolution of the conflict in Kashmir. Pakistan's industrial and entrepreneurial class, the political constituency of the new Pakistani prime minister, Nawaz Sharif, is interested in economic ties with India. The new Indian prime minister, I.K. Gujral, is also an advocate of cooperation. Talks between the foreign secretaries, suspended for more than three years, resumed in March. Gujral and Sharif held cordial talks in the Maldives in May, the first meeting in four years between the prime ministers of India and Pakistan. Amicable relations would enable the two principal nations of South Asia to lead the way to regional prosperity, which in turn would help define the terms of the integration of South Asia with the rest of the Asia-Pacific and the world.

The economic crisis of 1991 forced India into much-needed economic reforms. The diplomatic crisis of 1996 should be turned to similar advantage. India should chart a radically new passage for the next 50 years, confident enough of its own worth not to scapegoat others, with the wit to grasp the new levers of power and the grace to deal sensitively with smaller neighbors. Prosperity, power, and principles will then converge.

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