India may be in the midst of an expansion that would position it as one of the three largest economies in the world. The challenges to sustained, rapid Indian growth are being broadly understated, though, especially during the national election season. India's young population is a clear long-term economic strength and projected population growth over the next two decades will all but guarantee a decent rate of economic growth. "Decent," however, does not translate into a meteoric rise up world rankings, nor will it satisfy voters' very high expectations.
To meet these expectations, India must use its burgeoning labor force properly. This makes basic education and training needs even more pressing. There is already a pronounced shortage of adequately skilled workers. In addition, constant state interference curbs property rights and places firms and industries at a competitive disadvantage, suppressing employment.
The new Indian government, and the next several governments, should therefore make education and liberalization the highest economic priorities, even above clearly needed infrastructure development. Otherwise, the oncoming demographic wave will lead to large-scale underemployment, rather than innovation and rapid growth. Political parties will be blamed for a flawed development agenda rather than credited for leading India to the economic pinnacle.
A strong India is important to America for many reasons. First, a vibrant Indian economy would benefit the US and all of Asia. Second, India is an indispensable partner in security issues in South Asia. Third, its political example is a model for the universality of democratic values--an appeal that constitutes America's greatest foreign policy strength. India's rise is a new dynamic factor in a geostrategic equation most prominently featuring China.
Although the US plays a smallish role in the Indian economy, it can do more to help India fulfill its promise, benefiting the US in the process. The Bush Administration established a sound diplomatic and institutional basis for extending the US-India partnership.
The Obama Administration should build on this by using the US-India Education Foundation—or a new organization—to assist India with basic education and training for its expanding labor force. In addition, US government agencies should offer to assist their Indian counterparts in identifying the elements of market-oriented reform most effective for unleashing the Indian economy. The private sectors in both countries should be core participants in these discussions, which should focus on efficient use of capital and other resources to complement labor abundance to achieve sustained rapid growth.
Two Possible Futures