Sep 6, 2007

Stratfor India Forecast for 2005-2015

I was going through Stratfor's archives and read some of their old forecasts regarding India and her neighbours. It was quite interesting. So I thought flagging some of them.

Here is one of their forecasts for India made in July of 2001. Looking back, I am impressed with their accuracy.

India is a major country to watch during the third quarter and the next few years. India is effectively an island, with swamp and jungle to the east, the Himalayas to the north and the economic and political wastes of Pakistan and Afghanistan to the west. India's economy is strong, with a growing base in technology, and its domestic politics are at least resilient, if not stable. With a navy that is growing and challenged by no one except the U.S. Fifth Fleet, India is fast becoming the predominate power in the Indian Ocean basin.

India is already being wooed by Russia, which offers arms, and the United States, which offers technology and investment. As it has the potential to control the gates to the Red Sea, as well as the straits of Hormuz and Malacca, India will spend the next few quarters choosing between suitors, rather than seeking them out. The United States, with more to offer, may emerge as New Delhi's partner of choice.

Stratfor also publishes "Decade Forecasts". In 2005 they published forecasts for the decade 2005-2015. Here is their forecast for South Asia.

As this forecast was done before India's manufacturing boom became visible, Stratfor missed taking into account the benefits accruing out of this sector.

In our 1995-2005 decade forecast, Stratfor correctly said that India, as South Asia's leading player, would be contained by regional forces. India might continue to claim the title of regional hegemon, but the last 10 years have demonstrated New Delhi's inability to overcome social and political impediments to achieving superpower status. Furthermore, as the global hegemonic power of the early 21st century, the United States will undoubtedly extend its influence -- already felt in Pakistan -- into the Indian subcontinent.

As India enters the next decade, its center of gravity will be the economy. Economic growth is the key to a country's success or failure, and India is fully aware that it has the potential to create a position for itself among the world's leading nations. Though the popular message in international media is that India is on the brink of explosive growth and is following the path of its eastern neighbor, China, Stratfor holds a slightly more pessimistic view of India's future.
India has grown at an average annual rate of 6 percent during the past decade and will be able to sustain a strong level of GDP growth at rates reaching as high as 6 percent to 8 percent in the coming decade. However, India will not be able to reach China's current level of economic growth in the next 10 years.

On the surface, India has several factors favorable to rapid economic growth. With a population of more than 1 billion, it has a massive and highly-educated labor pool from which to draw its resources. In addition, India does not face the language barrier China has, since English is prevalent throughout the country. This significantly contributes to its fast-growing software development sector by facilitating communication with India's Western trading partners.

India will continue to occupy the profitable niche of value-added services driven by the information technology (IT) and telecom sectors. The states that have most benefited from these industries include the "Silicon Valley" cities of Bangalore and Hyderabad. However, the economic successes of these pockets of "Shining India" are not easily replicable and have not been adopted by India's other state governments. Even if these successes were to be replicated at the state level across the country, it would take at least another 20 years and a more diversified economy for India to reach economic growth levels comparable to China.

To a large extent, India faces the same immense developmental obstacles it did at the beginning of its cycle of economic liberalization in 1991. On a basic level, the poor conditions of roads, railways, ports, airports and power supplies illustrate the enormity of India's task of modernizing its infrastructure to attract more FDI and allow businesses to operate more efficiently. While India's IT-driven states require only minimal levels of infrastructure, particularly in fiber-optic networks and electricity, the rest of India is largely underdeveloped. Thus, India is not in the position to become a highly industrialized country.

The India-China comparison has become common discourse, but is not an easy comparison to make. China began its economic reforms in 1979 under an extremely focused and strategic "period of readjustment" that has been successfully implemented through the effective central control of China's authoritarian regime. In contrast, India is arguably a highly diverse, massive and fractionalized democracy lacking the central control necessary to put policy reforms into action. No democratic country comparable to India in terms of size and diversity has succeeded in implementing wide-scale democratic reforms to achieve rapid economic growth.

Though India's current government is economically focused, actually getting state governments to implement reforms is a chore. In addition to rampant corruption and bloated bureaucracies in the Indian public sector, the Indian government's democratic structure and competing views of India's openness to trade and investment allow the states' chief ministers to ignore government policy reforms and pursue each political party's agenda, which is usually designed to garner votes through populist appeals. An important distinction to make is that while FDI is strongly sought after and encouraged in China, it is merely approved of and often resented by state governments in India. These differing attitudes toward reform define the contrast between the Chinese and Indian approach to economic development.

With about one-fourth of the population living in absolute poverty, India has a significant number of voters who are not interested in FDI or global competition; the average voter is more concerned with where his next meal is coming from. This poverty is a developmental issue that must reach a manageable level before ruling governments can think past elections and toward long-term economic reforms. However, as local governments are forced to leverage poverty reduction and economic liberalization, the downward trend of poverty levels and upward rate of liberalizing India's markets will counter each other, thus preventing a rapid pace of economic development or poverty reduction.

Given the number of developmental constraints on its economic potential, India still has a long way to go before it can catch up to China's current economic growth rate. The good news for India is that its economy is in a stronger position than the Chinese economy as we look into the coming decade. Stratfor has forecast the burst of the Chinese economic bubble, signaling the inevitable halt to China's unprecedented growth trajectory. Combined with a massive and highly-skilled labor force, India's vital sectors provide a solid foundation for the country to pursue policy reforms at a strong yet gradual rate.

On the geopolitical front, India will view Russia's disintegration as an opportunity to build its strategic alliance with the U.S. superpower. Although China will slow down economically, the East Asian giant will continue its attempts to tilt the balance of power on the Asian continent in its own direction, providing more reason for India to align with the United States and become part of the "winning" team in the global arena. India also will use this alliance to counter its historical opponent to the west -- Pakistan. India realizes the United States values the Indo-U.S. alliance in the long-term over its short-term alliance with Pakistan, which was primarily built in the last half of the previous decade because of the U.S.-led war on terrorism.

The dispute over Kashmir is the driving factor of Indo-Pakistani relations. Domestic constraints in India and Pakistan lead Stratfor to believe the issue of Kashmir will not be resolved in the coming decade. However, New Delhi and Islamabad will continue the process of normalization and will likely reach a point by 2015 at which the two states will begin implementing a "road map" solution.

The United States' final battle against al Qaeda will be fought within Pakistani territory early in the coming decade. Stratfor has been forecasting a U.S. incursion onto Pakistani soil targeting al Qaeda militants with or without Pakistani President Gen. Pervez Musharraf's cooperation. We expect the operation to be successful for the United States but costly for Musharraf, as domestic instability will rise in opposition to U.S. forces in the region. With the Pakistani government centered around Musharraf's leadership, political instability in Pakistan will continue to loom over the horizon.

Regardless of the domestic upset Musharraf is bound to face when U.S. troops enter the region, Stratfor expects the current military regime in Pakistan to stay in power until 2007, given that there are no viable opposition forces strong enough to unseat Musharraf. The balance of forces among the military, bureaucracy and centrist political groups ensures the survival of the state, despite any instability that occurs at the regime level.

After 2007, Musharraf probably will reach a deal with his regime to step down as military commander of Pakistan, enter a civilian role as the elected president of Pakistan and assume leadership of the ruling Pakistan Muslim League.

The centralization of power around Musharraf does not suggest that the Pakistani government would collapse in his absence. In accordance with historical precedent, the military and bureaucratic establishments would reach a consensus and Pakistani politics would shift back to increased civilian control until the domestic situation settled.

Pakistan will undoubtedly be influential in the nation-building effort in Afghanistan, given the large presence of ethnic Pashtuns in the two Pakistani provinces -- Northwest Frontier and Balochistan -- located along the Afghan-Pakistani border and the fact that Pashtuns account for at least 40 percent of Afghanistan's population.

The United States also will maintain its military presence in Afghanistan as part of its operation against al Qaeda. Opposition to U.S. forces in Afghanistan is significantly less than in Iraq, and the U.S. presence in the region will allow for much-needed stability to aid Afghan President Hamid Karzai's emerging state. The Taliban movement has collapsed and evidently splintered into at least three different factions, one of which wishes to lay down its arms and become part of the developing political system. As a result, the Taliban will be unable to make a comeback in the next decade.

However, Karzai's government does face effective opposition from Afghan warlords, Uzbeks and Tajiks, all of whom have a vested interest in representing their respective communities in the government. Stratfor expects a consensus to be reached among the key players of each major ethnic community to work toward extending Kabul's influence to the 29 Afghan provinces.

1 comment:

Rama Kant said...

Excellent analysis of Indian situation. I hope the predictions may come true.