Labor Laws Hindering India’s Growth

“Deadly labor wars hinder India’s rise,” wrote The Wall Street Journal last month. In spite of Prime Minister Manmohan Singh’s efforts to reform India along free-market lines, the country’s long history with socialism continues to keep it from truly embracing capitalism.

Battle lines are being drawn in labor actions across India. Factory managers, amid the global economic downturn, want to pare labor costs and remove defiant workers. Unions are attempting to stop them, with slowdowns and strikes that have led at times to bloodshed.

Workers are so passionate because they feel that India’s newfound prosperity has hardly made their lives any better. Companies blame union leaders for enflaming such discontent for political reasons while decade-old labor codes are in desperate need of reform. “We can’t be a capitalist country that has socialist labor laws,” says the president of the Automotive Component Manufacturers Association of India.

India’s economy has experienced a steady 8% growth rate during the past several years. Its middle class had widened and its domestic consumer base, in both cities and the countryside, has grown with it. But the country’s manufacturing sector, after producing an impressive growth rate of 7 percent until last year now feels the effects of the global turndown and must make some unpopular cutbacks. “The unrest serves as a reminder that India has far to go before it stands alongside the world’s other economic powerhouses,” according to the Journal.

Thomas Barnett shares this sentiments and adds that that other rising power, China, has very much the same problem, “for all the same reasons plus the added burden of heavy corruption.” No matter how fast both countries have grown over the last decade, they still have to do away with the remnants of socialism to clear the path to becoming economic giants.

Fareed Zakaria Explains Why India Matters

In the wake of Indian prime minister Manmohan Singh’s state visit to the United States this November we opined last week that India matters. President Obama recognized that when he declared the country “indispensable” in the building of “a future of security and prosperity for all nations.” Nevertheless, in India, there is doubt about Washington’s sincerity.

Obama Administration officials publicly questioned the nuclear deal that was struck with India under George W. Bush — a deal that India considered the greatest recognition of its great power status in years. There is also worry that the United States is leaning too much on China and Pakistan in its attempt to successfully end the war in Afghanistan. And India dreads the prospect of American protectionism.

Writing for Newsweek, Fareed Zakaria neatly outlined once again why India is of much greater importance to American interests in the region than China, let alone Pakistan.

India matters in Afghanistan. Its economic potential is literally a hundred times greater. As the Taliban were forced out of power, “the cuisine, movies, and money that flowed into the country were, naturally, Indian.” With $1,2 billion in aid, India is the world’s fifth contributor to the reconstruction of Afghanistan, investing much more than China is. After all, it stands much to lose should the United States and NATO abandon the country. Pakistan might succumb to total chaos with terrorism dripping over the border into India.

American policymakers do not seem to grasp in full that India’s objectives in Afghanistan, unlike Pakistan’s, are perfectly aligned with their own — “to defeat the Taliban and to support the elected Afghan government.” Islamabad, on the other hand, “has long argued that it has a right to see a pro-Pakistani government in Afghanistan,” lest “India reign” in the word of one Pakistani general.

Zakaria concludes with the following wise words on why the United States should pursue the alliance with India above anything else:

Obama must keep in mind that South Asia is a tar pit filled with failed and dysfunctional states, save for one long-established democracy of 1.2 billion people that is the second-fastest-growing major economy in the world, a check on China’s rising ambitions, and a natural ally of the United States. The prize is the relationship with India. The booby prize is governing Afghanistan.

India Matters

Reaffirming American relations with India was one of the few foreign policy successes of the Bush Administration. A nuclear power with an impressive but stable economic growth, India is already the South Asian superpower and likely to become more than that. It works with Brazil and Russia and even with China (the so-called “BRIC”) to strengthen its international position and it plays a pivotal, albeit an oftentimes overlooked, role in the Middle East.

President Obama was wise to invite his Indian counterpart Manmohan Singh for the White House’s first state dinner on November 24 — a clear sign that the current administration also intends for India to be part of its “multilateral” strategy. According to the president, India is “indispensable” in the building of “a future of security and prosperity for all nations.”

Singh, as finance minister during the first half of the 1990s, broke with India’s past of moderate socialism and instituted a series of reforms that carried the country out of recession. As prime minister, he continues to promote privatization and free trade while while investing generously in a massive campaign against poverty. Obama recognized these achievements when he declared that, “[a]s leading economies, the United States and India can strengthen the global economic recovery, promote trade that creates jobs for both our people, and pursue growth that is balanced and sustained.”

In another one of the president’s crusades, bringing proliferation to a halt, he also acknowledged the importance of India. “As nuclear powers, we can be full partners in preventing the spread of the world’s most deadly weapons, securing loose nuclear materials from terrorists, and pursuing our shared vision of a world without nuclear weapons.” Both countries have known the “pain and anguish of terrorism,” the president spoke, so they must stand together to “promote the development and prosperity that undermines violent extremism.”

Prime Minister Singh responded in kind when he opined that India and the United States are “bound together” by common values and a shared dedication “to meet [the] challenges of a fast-changing world in this twenty-first century.”

There is an elephant in the room that neither leader spoke of. America is investing in Pakistan to support its war on terror at a time when India and Pakistan are accusing one another of involvements in terrorist attacks in their countries. After fighting three wars the two countries are still engaged in something of a nuclear cold war. Pervez Hoodbhoy notes however on the New Atlanticist, that most of India “would like to forget that Pakistan exists.” Fast on its way to become a true superpower, India “has no need to engage a struggling Pakistan with its endless litany of problems,” according to Hoodbhoy.

That’s not how Pakistan sees it. Islamabad is by no means comfortable with India’s newfound American approval. The Obama Administration will have to carefully balance its commitment to Pakistan against its relationship with India. It needs the first to bring the war in Afghanistan to a successful end but once that’s done, India is really the onle country in South Asia that matters.