Emerging giant

JAIPUR, INDIA: The word here is that India will be a major powerhouse of the global economy in the next decade, rivaling, if not exceeding, China’s bursting economy.

That might not seem readily evident, especially when driving past crumbling palaces and through the dusty backroads of India’s northwest.

That is certainly not evident trekking uphill through an impoverished village to get to the Namreena Fort Palace Hotel, an old fortress guarding the pass into Rajastan. But inside the Fort, there is opulence and elegance invisible from the outside.

The streets of Jaipur are as chaotic as any in overpopulated Asia. But tucked within a very large, and very lush garden, fenced in from the misery around, is the Rambagh Palace Hotel. The opulent palace was tastefully rebuilt into what should be a 6-star facility with every convenience known to civilization.

In a way, these two sited are metaphors for the whole of India. This is a country emerging from the stagnation and decay of state control and moving into the energetic luminosity of a truly free market economy.

The transition is in no way evenly occurring.

Crossing state lines into Rajastan, every traveler pays a toll at the border. This is so like the former Soviet Union, whose dying days I caught in the eighties. In the old Soviet Union, a visa was required to cross into another republic. Political boundaries stifled not only trade with the rest of the world but domestic trade and movement as well.

They say here that India, by most objective standards, is more socialist that China.

Nobody calls China by that disreputable name anymore – except Beijing’s own official documents. India, like its equally gargantuan northern neighbor is emerging from the quagmire of nationalization, state monopolies and protectionism.

The evidence of that emergence is visible everywhere to the naked eye.

The massive state bureaucracy created during the period when India enclosed itself to the rest of the world is still in evidence – although only in the same sense as the carcass of a dinosaur is.

The large regulatory bureaucracy has largely lost its function and sits as an idle monstrosity every now and then getting in the way of progress. The large regulatory bureaucracy with its army of under-skilled and poorly motivated clerks and checkers is very much like the Namreena Fortress that has lost its value as an edifice of defense a long time ago.

A small number of policy reformists – such as Dr. Ashok Desai, former advisor to the finance ministry – have transformed have transformed the paralyzing thicket that was India’s heavily regulated policy architecture into the simplified, liberalized and streamlined procedures that today help unleash the creativity of this nation’s great people.

From 1977, the Indian government relaxed controls on trade and investments. The initial phase of liberalization produced a, industry-led economic boom that lasted 12 years before being briefly interrupted. In the 70s, India averaged 3.5 percent annual GDP growth. In the eighties, propelled by economic liberalization, GDP growth perked up to 5.5 percent.

After a brief fiscal and debt crisis in the early nineties, India resumed its aggressive liberalization program. From 1993-96, after abolishing its archaic policy requiring state approval for manufacturing ventures, India’s industrial sector began growing by 12 percent annually.

As India eliminates what remains of its old system of economy controls, the second most populous country in the world is visibly stirring. We all heard of the software powerhouse India has become. As this country renovates its policies to become a fully open, fully trading economy, new potentials are being uncovered every day.

To be sure, India lags behind the Philippines in the Economic Freedom Index – a comprehensive measure put together by many economists across the globe over the past several years. But this country is moving fast and furiously to engage with the new global economy.

It was the Economic Freedom Index that brought me here. This time each year, the economists and policy analysts working on the Index meet to compare notes. In Jaipur, this week, the collaborators from all over Asia are convened.

The Index ranks 123 countries on a comprehensive set of measures. After years of refining it and compiling information, we of the Economic Freedom Network have discovered quite a few things of interest. Economies that rank higher on the Economic Freedom Index also tend to grow faster, pay better wages, have higher life expectancies, tend to be more democratic and by and large tend to be politically stable. Economies that are not free, on the other hand, tend to stagnate, bring misery to its own people and stand vulnerable to political shocks.

I think a decision was chosen for us to meet in India this year to observe first hand the results of an economy that is liberalizing at a fast clip. True there is much to be done in the world’s second largest country, and there are old bureaucratic habits that need to be calmed. But India could not have achieved the dynamism it now enjoys had it remained within the old protectionist and heavily regulated economic framework.

The optimism is evident among the Indian economists and policy-makers who joined us for this meeting. It is an optimism that seems to be matched in contagiousness only by that demonstrated by the economists from China who are here too to share their experiences with economic freedom.

There is much to learn from the experiences of India and China that might be used to continue the renovation of the economic policy architecture in the Philippines. Unlike these two economists that have embraced the wisdom economic liberalization, policy reform in the Philippines seems to be moving at a slower pace.

Unless we make reform part and parcel of the political debate in the Philippines, we are in immediate danger of losing the comparative advantages we enjoy over countries like India and China that are emerging from behind the ramparts of nationalization and protectionism.

If the most massive and most ossified bureaucracies such as those in India and China could be transformed, there is no reason why the Philippines could not do the same. We cannot sit idly by while the economies in the region rapidly adapt to the realities of the new economy.

If we stand still, we will be overtaken. Here are large and well-endowed economies preparing to mark their turf in the global stage.

A smaller economy like ours will have to be more nimble, more focused and more determined if we are to prosper.