Can the Indian Diaspora help India overtake China?

Sunil Prasad, 

President, GOPIO Belgium

The Indian Diaspora is the largest in the world to-day after China and has roots in every country in the globe. The celebration of the First Pravasi Bharatiya Divas from 9 -11 January 2003 in this respect was a historic occasion which marked the beginning of a new chapter between India and the Indians abroad. This was an effort by the Indian government to win the help of overseas Indians to build economic future of India. Although the global Indians are being noticed and recognized in every corner of the world for their success, there exists a gap between the Global Indian Society and India. Since its foundation in 1989, the GOPIO International is engaged in bridging this gap by bringing the global Indian Diaspora under one banner and supporting various economic and social development initiatives to bring investment in India and to other countries with PIO connection.

Recently Indo-Asian News Service quoting Foreign Policy Journal reported that the Non Resident Indians could help India to catapult it into a higher growth thus overtaking China in future. The report is neither misguided nor confusing; it is based on the factual economic figures and emotional determination of the Indian Diaspora to take India to a new height. With appropriate conditions, can the Indian Diaspora provide India the necessary capital flows for sustained and rapid economic development to overtake China? The answer is yes!

Strong bond prevails between India the Indian Diaspora

Since the economic reforms began in 1991, there has been structural change in India which is allowing it to grow at a healthy rate. Non Resident Indians have played a major part in foreign investment but its contribution to the Indian economy has only lately been recognized. When India faced its worst balance of payments crisis in the early nineties, its foreign exchange reserves were dwindling and it was coming perilously close to defaulting on meeting its international payments obligation, India turned to its “National Reserve Indians” and it was NRI deposits that helped India to come out of this crisis. In India’s 55 years of history this was the first imprint of the important role the Indian Diaspora can play in building Indian economy. When India conducted nuclear tests in 1998, the Indian Diaspora stood by India.

Taking a cue from Chinese Diaspora

There would have been no Chinese economic miracle without the help of the overseas Chinese.  The Chinese Diaspora which numbers 55 million contributes almost 60 per cent of China’s total foreign direct investment, while Indians with 20 million contribute less than 10 per cent. But the cultural-economic gap between India and the Indian Diaspora is narrowing. Although one would have welcomed faster economic policy changes, however, the Indian government is on the right track with all economic parameter in right place. The economic hope generated during the PBD will further get a boost when the next PBD takes place in January; before which the government is likely to come up with more initiatives to strengthen the Diaspora connection.

China has some distinct advantage that India does not have. China started its economic reforms in 1979 whereas India’s reform started in 1991. With 0.7 per cent of share in the world trade against China’s 3.3 per cent, India needs its export oriented growth policy more effective. China’s foreign reserve is about $194 billion and the FDI is about $44 billion against India’s $5.16 billion in 2002. Of late, India’s manufacturing sector is showing extraordinary growth. Indo-China bilateral trade has grown from $338 million in 1992 to nearly $5 billion in 2002.

India respects democracy and human values

India may well have paid an economic price for democracy and may do so for some time, but that is the only political system that can define this Republic and our nation. India is India because it is a pluralistic, secular democracy. It can not be denied that China is making far more economic progress than India but India’s democratic rule of laws and human values are bigger and stronger component that will drive India towards marching ahead. China is a pure authoritarian regime where methods do not matter and where a man is dispensable if the state so desires. Neither its judiciary is free nor the press. Labour laws are not affected through methods and Parliament approved laws. China is not trusted by peace loving countries. It has violated its own promises and exported technology to unsettle peace in the Indian sub-continent.

Not a long way to catch the dragon

In spite of these facts India has certain strength which China will require another revolution of the short to attain. China will not be able to sustain economic growth if it insists on delaying political reform. China is using authoritarianism as its strength where as India’s strength lies with democracy. The greatest asset India has among the Indian Diaspora is not their capital but the abundant reservoir of scientist, professionals and intellectual talent. India can compete with China and even overtake it, provided the Indian government has appropriate policies for the NRIs/PIOs.

Although official FDI figures point to $47 billion investment to China in 2001 with India only $3 billion, but the race could be actually closer. According to the international Finance Corporation the whole issue of FDI in China could be overestimated due to “round-tripping” where mainland funds leaving China return as foreign investment to gain tax and other incentives. The World Bank thinks that that as much as 50% of China’s FDI could actually be domestic cash cutting its 2001 total to about 2% of the GDP. India according to the IFC, underestimates FDI because of incomplete data and may have received up to $8 billion; 1.7 per cent of the GDP in 2001. (Far Eastern Economic Review, December 2002). Venture capitalism is leading the way investing serious money in India against much hyped China.

Can India catch up with China? In terms of purchasing power parity, India is the fourth largest economy, after the US, China and Japan, in that order; it recently overtook Germany. By 2010, India is projected to overtake Japan. Many economic observers believe that in the next 20 years India's real GDP can potentially grow at 10 per cent if it pursues reforms vigorously. This should reduce the percentage of the population below the poverty line to less than 15 per cent. If India concentrates on producing a significantly accelerated growth in agriculture, information technology, and exports in these 20 years, it may get closer to China. Many Indian companies are setting up shops in China to take advantage of the growth.

China and India have pursued radically different development strategies. India is not outperforming China overall, but it is doing better in certain key areas. That success may enable it to catch up with and perhaps even overtake China. Should that prove to be the case, it will not only demonstrate the importance of homegrown entrepreneurship to long-term economic development; but it will show the limits of the foreign direct investment (FDI) dependent approach China is pursuing.

Need for more policy initiatives

India could attract more Foreign Direct Investment if procedural delays are cut down. Conducive climate has to be created in India for investor’s confidence. The expertise in management, financial, corporate, trade and banking sectors of the NRIs should be tapped in for economic rejuvenation of India. Through a decree passed on 18th August 1990, the Chinese government has offered special rules and regulations for overseas Chinese to encourage investment. There is no such incentive to investment in India by its Diaspora. How many NRIs/PIOs know about the investment rules in India? It is only recently that the Indian government has started to put its action in right perspective. Simply reconnecting India with the Indian Diaspora with some policy decisions such as dual nationality and few economic sops may not be sufficient to lure them in the Indian market. Opportunities and potential return on investment will determine how successful India’s new fond love with the Indian Diaspora is!

Diaspora makes India proud

India receives almost $14 billion a year in official remittances and this money has played a significant role in-India’s $80 billion foreign reserve. According to the latest Balance of Payments data of the Reserve Bank of India, remittances during April-December 2002 alone were $10.8 billion.

Seven Indians made it to the global billionaires list while India emerged third among the Asian countries, whose people found a place in the elite club. Most of them have made their fortunes through India's booming information technology sector. Increasing number of Indian companies is being listed in the New York Stock Exchange.

There are 200,000 Indian millionaires in the US (Merrill Lynch figures). The world is aware of India’s telecom revolution and its ongoing world’s largest highway project. India’s image has changed because of success of Indians.

India has a distinct advantage over technology and more particularly in the information technology field. Today, India is one of the most exciting emerging markets in the world. Skilled managerial and technical manpower that match the best available in the world and a middle class whose size exceeds the population of the USA or the European Union, provide India with a distinct cutting edge in global competition.

To-day the overseas Indians particularly from developed countries are seen as potential resources of the country owing to their success and achievements in the countries of their adoption. With 20 million persons of Indian Origin in 110 countries, India is no longer restricted to the sub-continent, it straddles the world. They may be just over 2 per cent of India’s population but their estimated collective income is at about $160 billion, almost one third of India’s gross domestic product.

The Indian Diaspora particularly the Non Resident Indians would appreciate the Indian government to fasten the economic reforms and allow the participation of private sector in the development process. To achieve the desired pace of reforms, the government needs a strong political conviction and a firm economic policy, and the Diaspora is prepared to give its input.


The author, Sunil Prasad is an Economist with International Confederation of Free Trade Unions (ICFTU) and is President of GOPIO-Belgium.