Speech by External Affairs Minister Shri Yashwant Sinha at Harvard University

Members of the Harvard faculty,
Distinguished guests and friends,

The Latin American crisis of the 1980s and the Asian crisis of 1997 taught India the virtue of maintaining healthy foreign exchange reserves. These currently stand at around US$ 90 billion and are going up by a billion dollars every two weeks. At 28%, for the five-year period up to September 2003, India has had the highest cumulative annual growth rates in reserves accumulation in Asia. This provides India a self-insurance against the vicissitudes of the international financial systems, as also flexible options for exchange rate management. Besides, India has a healthy current account surplus. Short-term debt has declined steadily during this period. India’s external debt to GDP, at 17%, is substantially lower than Asia’s average. India has paid back its IMF loans ahead of schedule and has also prepaid some World Bank and ADB loans. In fact, India has now become a net lender to IMF. In the last six months, India contributed US$ 355 million in cash to IMF, which was in turn lent by IMF to Brazil and Burundi.

The successful management of the external sector has, in turn, led to the stabilization of the Rupee. Lower inflation, in the low single digit, has led to a decline in interest rates. From a ‘ship-to-mouth’ existence in the mid-1960s, India is now a food-grain exporter, with national buffer stocks at over 30 million tones, despite a bad monsoon year in 2002. We exported, in the current year, close to US$ 7 billion of agricultural produce and our assistance to Afghanistan includes a million tones of wheat, being supplied in part in the form of high-protein biscuits.

It is interesting that Indians are also now investing abroad. We have invested in oil fields in several countries including Russia, Sudan and Vietnam. Aggregate Indian investments in the United States in the past three years, according to some estimates, is close to a billion dollars, almost keeping pace with U.S. foreign direct investment into India since the year 2000, which has averaged only about US$ 300-350 million each year.

Two areas of special concern to India are the fiscal deficit and elimination of poverty. The consolidated fiscal deficit, at 10% of the GDP, is unsustainable. The Fiscal Responsibility and Budget Management Act will help government bring down its borrowing in phases and buttress government efforts to raise tax revenues. The recent gains in poverty reduction, by pulling up 60 million people from below the poverty line in a period of six years, requires to be accelerated both by promoting growth and improving the implementation of special schemes directed towards poverty elimination.

We are heartened by the optimistic prognostication of two young Cambridge-based scholars, Yasheng Huang of the Harvard Business School and Tarun Khanna of MIT, published in Foreign Policy last month, that while India is not outperforming China overall, it is doing better in certain key areas, and that such success may enable India to catch up with and perhaps even overtake China. It is true that a number of Indian companies compete internationally with best that Europe and the United States have to offer and that India has the potential of becoming the world’s technology lab. India’s 250 universities, 1500 research institutions and over 10,000 higher education centres produce 200,000 engineers and 300,000 non-engineering post graduates every year, including 5,000 doctors of philosophy (PhDs), besides over 2 million undergraduates.

India’s comparative advantage in knowledge-driven areas of economic activities has made it both attractive for outsourcing of IT enabled services and an R&D hub. 190 Fortune-500 companies already outsource to India. The IT segment of the Indian economy is expected to grow from US$ 1.5 billion in 2002 to US$ 17 billion in 2008, according to a recent NASSCOM-McKinsey study. Export of software services from India grew by 26% last year, and together with electronics hardware exports, account now for 18% of India’s total exports. Efforts are on to replicate this achievement in the areas of biotechnology, biogenetics and pharmaceuticals.

Development of high technology, such as satellite applications, have led to a telecommunications revolution and the establishment of long-distance telephony, TV broadcast, radio networking and bringing connectivity to remote parts of the country. Data and voice carrying capacity in India are increasing exponentially as also are phone and internet-connections. The meteorological cameras on INSAT have helped us monitor cyclones and save lives and property, while the IRS remote-sensing satellites have helped us build a national natural resources management system, including crop monitoring and wasteland mapping for reclamation. Other achievements in high technology include our success in indigenously building super-computers and the complete nuclear fuel-cycle facilities and to placing geo-synchronous satellites in orbit. Prime Minister Vajpayee just announced, during the course of his Independence Day address on 15th August, that we shall send a Spacecraft to the Moon within the next five years.

A similar transformation is taking place in the areas of roads and ports. The turn around time in Indian ports has been halved in the past few years and further improvements are under way by upgrading existing facilities and building new terminals ports. India is now executing the world’s biggest single project, in 13,000 kilometers of four lane roads linking the four corners of India as also its four major cities. The project is already generating daily employment for quarter million construction workers and 10,000 supervisors and engineers. This is supplemented by equally important rural roads development schemes to improve the infrastructure of India’s interior. Another large infrastructure project for the moment at a conceptual stage, is on linking of India’s major rivers as part of an effective long-term strategy to prevent droughts and floods and to better harness India’s fresh water resources for irrigation.

The primary impulse for this has to come from within the Asian countries themselves. But others, including the United States, have a strong stake in it too. If all major powers in Asia and beyond work together, in a spirit of cooperation rather than competition, to smoothen its fault lines, combat terrorism, counter proliferation of weapons of mass destruction and advance free commerce and political freedoms, we would create a basis for a stable and prosperous Asia that will have a salutary effect on the rest of the world. Guided by this vision, India is working vigorously to strengthen its relations with its Asian partners - with China, Japan, Southeast Asia, West Asian countries and Central Asian neighbours. We have a similar vision of South Asia unshackled from historical divisions, and bound together in collective pursuit of peace and prosperity.

India seeks to promote in Asia in general, and in South Asia in particular, its ethos of pluralism, tolerance, democracy and human rights and by promoting the idea of societies that are multiethnic, multilingual, multi-religious and multicultural.

Eighteen years of the existence of the South Asian Association of Regional Cooperation (SAARC) has so far failed to catalyse significant exchanges among its constituents in the social or economic domains. To shake SAARC from this relative torpor, earlier this year I called for a movement toward a South Asian Union. I believe that a South Asia, with one currency, one tariff regime and free movement of goods, services and people, is well within the realm of possibility. South Asia should emerge as a region with comprehensive air, rail, road and sea linkages. Movement in this direction would lead to softer national boundaries, and eventually, the seven South Asian countries can constitute a single economic space within one system and a single market.

Reaching beyond South Asia, East and Southeast Asia have remained a natural focus of India’s foreign and trade policy. China is a contiguous country and we share land or maritime boundaries, not just with our South Asian neighbours and China, but also with several ASEAN countries such as Myanmar, Thailand and Indonesia. Our historical and civilizational ties also extend to Japan.

In the past, India’s engagement with much of Asia, including Southeast and East Asia, was built on an idealistic conception of Asian brotherhood, based on shared experiences of colonialism and of cultural ties. The rhythm of the region today is determined, however, as much by trade, investment and production as by history and culture. That is what motivates our decade-old ‘Look East’ policy. Already, this region accounts for 45% of our external trade.

The first phase of India’s ‘Look East’ policy was ASEAN-centred and focussed primarily on trade and investment linkages. The new phase of this policy is characterised by an expanded definition of ‘East’, extending from Australia to East Asia, with ASEAN at its core. The new phase also marks a shift from trade to wider economic and security issues, including joint efforts to protect the sea-lanes and coordinate counter-terrorism activities.

Last year, the first India-ASEAN Summit was held at Phnom Penh, Cambodia. The Prime Minister of India suggested in this meeting that India and ASEAN should enter into a free trade agreement. It is a matter of great satisfaction to us that the Framework Agreement for this purpose has already been finalized between India and ASEAN and will be signed at the Second India-ASEAN Summit at Bali in a few days from now. This major breakthrough should contribute significantly to an increasing integration of the India-ASEAN economic space over the coming years, including a free trade agreement. India is simultaneously negotiating an FTA with Thailand and a Comprehensive Economic Cooperation Agreement with Singapore. Both these negotiations are well advanced. These, along with measures to improve physical connectivity and transportation links such as the India-Myanmar-Thailand trilateral highway and the Delhi-Hanoi railway line, as part of the Ganga-Mekong project, will improve India-ASEAN linkages even further. With ASEAN engaged in parallel negotiations on free trade arrangements with India, China, Japan and South Korea, we are now perhaps at the threshold of an Asian economic community.

India’s relations with China are following a positive course. Both sides have made a steady effort to overcome past differences and build a forward-looking relationship. Our bilateral trade has shot up from under US$ 200 million in the early 1990s to nearly US$ 4.5 billion in 2002, and current trends might carry this figure to US$ 6 billion this year, with the balance of trade markedly in India’s favour, which is not the case with many other of China’s trading partners. The apprehensions of Indian business in dealing with Chinese competition is slowly withering away. Our trade with Japan, a country that accounts for 40% of Asian GDP, is at a disappointing $ 3.6 billion, but the two sides are now taking pro-active steps to spur our commercial and economic interaction.

The Gulf region and the wider Middle East is of great importance to India. It is a major source of our energy supplies. Some 3.5 million Indians are employed in the region, over 1.5 million in Saudi Arabia alone. Iraq in the pre-1990 days once provided 30% of our oil imports and was home to 100,000 Indians. Given the growth trends, India’s dependence on energy supplies from the area is only going to increase.

We also have traditional links with Central Asia and are exploring new trade and transportation connections to provide a strong economic dimension to our relations with countries of the region. The Central Asian republics could be an alternative source for India’s energy supplies. India is actively engaged in the reconstruction of Afghanistan. Besides food support, we have provided buses, civilian aircraft and human resource training in a variety of areas through our $270 million assistance programme, which extends also to agriculture, irrigation and the education and health sectors.

It is estimated that by 2010, 60% of the world’s population in the 20-35 age group will be Asian, contributing a vast pool of producers of goods and services and driving global demand. Together with strong growth in India and China, and favourable trends in demographics and increasing intra-Asian trade, Asia is set to contribute over 50% of global GDP by 2025, surpassing the GDP of North America and Europe combined. By virtue of their population, size and growth rates, India and China will play a significant role in the demand and use of technology, FDI flows and in the new equilibrium of economic power. Asia will thus be the fulcrum of economic activity in the twenty-first century, which is seen by many now as an Asian century.

This, however, is predicated on an environment of peace, predictability and security. India has, therefore, not only an interest but a stake in the stability of Asia, which is what we share with the United States. It follows that we, therefore, also have a common interest in dealing with any potential threats to Asian security, whether prompted by non-State actors or by adverse political or economic developments in the region.

What are the most important threats facing Asia today? Terrorism continues to stalk Asia as never before. The bombings at Bali and Mumbai testify to that. Terrorist networks have spread across many Asian countries. Al Qaida and Taliban have regrouped in Afghanistan and Pakistan, aided and abetted by elements within the State structure in Pakistan. The intersection between weapons of mass destruction and terrorism is another major threat, again fostered through dangerous and deliberate nuclear and missile transfers in the region.

Peace, thus, is under the greatest threat in Asia. From the stand-off in North Korea to the violence in Philippines and Aceh in Indonesia to the renewed threats to the Karzai regime in Afghanistan and the senseless violence in Iraq and Middle-East. These threats to peace will have to be dealt with and dealt with effectively and quickly so that violence subsides and peace reigns. I have no doubt that this will happen and that Asia shall fulfil its destiny in the 21st century for the betterment of its people and the rest of the world. India will play an ever increasing role in this journey.