the effort to modernize air force air and space inventories gathered momentum under mark welsh -- norton schwartz for the next aerial refueling tanker, k c 46 a. initial production of the f 35 joint strike fighter and initiation of a new bomber program. the distinctive accomplishments of general norton schwartz culminated a long and distinguished career in the

service of this country and reflect high credit upon himself and the air force and the department of defense. [applause] >> ladies and gentlemen, please be seated. general norton schwartz has been awarded the distinguished serve as metal from the army, navy, air force, and coast guard. and the distinguished service public award.

staycation to accompany the award of the defense distinguished public service award to susie schwartz who is recognized for distinguished public service in support of members of the armed forces of the united states from august of 2008 through august of 2012. she consulted and consoled thousands of military members and their families at home and abroad boosting air force family more out across the board. she had a need to provide support for families or nation's falling heroes. through her vision a campus was developed at dover air force base with $12 million in donations and includes fischer house and meditation provision and the families of fallen which provided support for 5,000 family members. and the education coalition, and meet quality educational experience for 280,000 children of service members affected by

mobility, family separation and transition. as ambassador to the white house joining forces initiative mrs. schwartz insured military support through communities and military spouse employment partnership information to military spousees for 346,000 job opportunities. this reflects credit upon herself and the department of defense. [applause] >> please be seated. she has been awarded the distinguished service award by the united states air force.

ladies and gentlemen, general in the norton schwartz. >> -- if the honor guard and the color guard, why don't you go to ceremonial as well. i still have that power.

[applause] >> thank you. secretary leon panetta, thank you for those kind remarks and your extraordinary leadership of the department of defense. thank you. for your exceptional leadership of our magnificent military people. you remain at the helm at a critical time in our history addressing the nation's rebalancing for the asia pacific and fiscal predicaments. and profoundly important matters. as i leave my post a remains supremely confident in the future of the department of defense under the very able leadership of secretary leon

panetta, chairman dempsey and especially my fellow joint chiefs. bonnie raitt and when the, john and darlene and craig and cheryl, extraordinary, extraordinary all. i have the privilege, singular privilege of being your wing man these last four years. also wholeheartedly cherish the friendship that susie and i have developed with you. your leadership of the nation's air force of turbulent change and uncertainty has been nothing short of extraordinary and on behalf of all ammon i thank you for your vision and your

exceptionally steady hand. i would like to thank my fellow air force four stocks, and past and present. i am grateful for the confidence that president bush and secretary gates and admiral mike mullins had in susie and me when we were asked to continue serving. on receiving a telephone call on our anniversary night in 2008 we almost instantaneously realized what would be the answer not withstanding the fact that our retirement paperwork had been submitted and approved. our lack of hesitation in accepting had nothing to do with

the few glasses of wine that we each enjoyed celebrating our twenty-seventh anniversary. it came down simply to this. who would or could decline the opportunity to continue serving with the finest, most skills and most respected airman in the world. not me and certainly not susie. indeed our happy night had become an even more profound celebration. so ladies and gentlemen, we immediately size up the opportunity and privilege it really was. growing up in new jersey and

around naval air stations that laid the foundation for my desire to fly and serve and it was our deep and sincere affection for our airman that was affecting our decision to stay. in the last four years since extended answer rests we revitalize the nuclear enterprise including the establishment of the air force global strike command exclusively to oversee our intercontinental ballistic missile arsenal and nuclear capable bombers fleet. we consummated the nation's next-generation air refueling tanker program and institutionalize remotely piloted aircraft including the

normalization of the remotely piloted aircraft, with these and other material and personnel efforts underway along with the ongoing development of the long-range strike family of systems and the battle initiating contest, mark welsh takes the stick at a pivotal time. we should be proud of the progress that we have made not only from a material perspective but also in caring for airman and their families. this includes the comprehensive -- and morales welfare and recreation programs that are relevant to a broader range of aaron and family needs. in the family support area we can be optimistic even as we look to improve further our exceptional family member program and enhanced service and

child development centers and programs among others. susie was particularly pivotal in this area. our air force family can be very thankful for the staunchest, most passionate and extremely persuasive advocate for apps and family support. above all others, i am grateful to susie whose love and support and certainly her candor has been unwavering through 31 years of marriage. she consistently brought caring to a higher level. always sharpening our sense of obligation to our service men and women and for that we can

all be grateful. [applause] through the years, very thoughtful, very capable individuals carefully skills and patiently cultivated or principles which have shaped my outlook and informed my actions throughout my career's. retired senior master sgt freeman, a combat controller, parachuting instructor at the united states air force academy and a certain cadet schwartz legally wealth of experience and knowledge beyond merely how to jump out of perfectly good airplanes. retired master sergeant's jean reinhardt talking about the backbone of our air force.

our enlisted corps and what they expected of their officers. incredible leaders like dick myers cited us in the joint staff through the unrelenting pace of operations of 2002-2003. among other things, names of well-respected leaders in our profession. mike ryan and pete shoemaker and joke breather were intellectual mentors to whom i owe so much. as we prepared to depart the stage in a few moments i salute the amazing young men and women who have volunteered to serve our military during a time of prolonged conflict. they are the next greatest generation. they have carried on the welland reputation of the u.s. military

as the most capable, most formidable, most respected armed force the world has ever known and as we proceed into even more uncertain times strategically and fiscally we would do well to remember that complex situation during lean times can unleash greater creativity and innovation, animating gust forge novel solutions to intractable problems. leadership, the kind that harnesses individual brilliance and collective genius and leverages individual efforts into team achievements. mark welsh is the man who can provide that leadership, who can further inspired the sort of innovation that is the hallmark

of our air force. as i hang up my blue uniform that i have worn proudly for 39 years i am heartened at the ceremony and other professionals around our u.s. armed forces will stand with mark and betty in providing leadership and confronting challenges that threatened interests and security of the united states. the losses are extraordinary and his ironclad credibility as an operator and the trainer and exemplary command experience. all of this has developed a highly regarded and effected yet humble centered and grounded leadership team that is mark and betty welch. with the welshes taking the

stick the world's greatest ammon confidently confront what is difficult and standing soldier to soldier with sailors and marines and coast guard. they will achieve what is noteworthy. i am completely optimistic about the future of the air force. susie and i have been privileged for several decades to have serve in the united states air force. for the remainder of our days we will always see in our hearts and every thought very proud airman with the deepest respect and admiration for those young men and women, officer, unlisted, civilian, guards, reserve and their families continuing to serve selflessly

and with distinction. the air force has given susie and me a home. including the air force academy and the class of 1973. susie and i are thankful that many of these patriots are here with us today. the air force has afforded us an honorable and a rewarding journey for the entirety of our adult lives. we remain grateful to nation and people who have been so generous. and now ladies and gentlemen, it is time for all of us to look forward and not back. to fulfill the high expectations of the people who we faithfully serve. as the stewards of their trust

we must always, always keep the promise. keep the promise. keep the promise. thank you. [applause] [applause] >> ladies and gentlemen, the passing of the air force chief of staff flag from general norton schwartz to general mark

welsh as he assumes position as 20th air force chief of staff. >> historically the passing of the flag was accomplished in one of the units so witness the changing of leadership. the flag is entrusted to chief master sgt of the air force james royce symbolically expressing special trust and responsibility of the enlisted members. the symbolic transition has survived through military history as general norton schwartz will pass the chief of staff flag to general mark welsh who hold position as the 20th chief of staff of the air force.

by direction of the president of the united states of america and general mark welsh is appointed as the air force chief of staff effective 10 august 2012. [applause]

[inaudible] >> ladies and gtlemen, please rise as a battle is retired by order of the secretary of the air force. general norton schwartz is advanced the retired list from active duty with the air force effective 10 august 2012 after 39 years of faithful and honorable duty. please be seated. general schwartz, we're pleased

to present you with the following letter and certificate of appreciation from our commander in chief. it read the your general schwartz. the lie senate since your thing from our great foundation for your many years of exemplary service in the united states air force. your patriotic devotion to duty in times of peace and war is inspiring and speaks volumes about your commitment to serving our country. in your career you look beyond your comfort and safety to protect the lives and way of life of those you may never meet. that spirit of sacrifice is the mark of the men and women of armed forces and their families. as you celebrate this milestone take pride in the accomplishment and contributions you have made as part of the greatest fighting force the world has ever known. michele and i spend our warmest wishes for a good retirement and sinew best of luck as you embark on the next stage of your life. sincerely barack obama. [applause]

>> secretary donnelly will present susie schwartz with a certificate of appreciation on behalf of the men and women of the united states air force. you have earned our appreciation for your own unselfish and devoted service. your unfailing support and understanding helped make possible your husband's lasting contribution to the nation. with deep appreciation we present this certificate of the remembrance of your years as a member of the air force family. [applause] ladies and gentlemen, please rise as general mark welsh is

sworn in as new chief of staff by secretary donna lee. mrs. betty welch will hold the bible from the chief of staff's pocket which is signed by each chief of staff since the air force chief of staff general carl spot.

>> you solemnly swear i will support and defend the constitution -- [inaudible] >> without any mental reservation. and i will well and faithfully discharge the duties of the office. [inaudible] [applause]

>> ladies and gentlemen please remain standing for posting of the colors. ♪ ♪ ♪

♪ ♪ [inaudible] >> please be seated. ladies and gentlemen, the 20th chief of staff of the united

states air force general mark welsh. [applause] >> thank you, everybody. thank you so much. most importantly for being here to honor general and mrs. schwartz. let me start by reminding all of you that somebody cleaned this hangar up. somebody but this floor. somebody drug these airplanes and those vehicles into the building and cleaned them up. someone set up the sound system in the stage and on that beautiful flag. they do these kind of things all over the world along with regular duties and i would like to say thanks to them. they are probably hiding behind the bleachers or back room waiting for something to go wrong or to clean up when we had done but they made this ceremony possible. thank you to each and every one of them. [applause] >> i think i need to thank

president obama for nominating me to this position and the united states senate for confirming me into it. i need to think secretary panetta and general dempsey for the trust and confidence they showed and for giving me the chance. i'm a lucky man to be standing here. i know ended by the people who could be talking to you right now. i wouldn't have made this choice but i will try not to make him pay for it. much, service chiefs and military and civilian leadership of our country who are active and retired thank you for everything you have given this nation. i am a big fan and it will be such a personal honor to serve beside you. thank you for being here today. for this honor guard in front of us, thank you for what you do to represent our air force, not just in ceremonies in washington d.c. but so many other places. thank you to the fans who supplement you perfectly and represent us in so many venues so proudly.

for those in the bleachers on each side of want you to know that not too many years ago i looked exactly like that. sort of. maybe not. but i always believed i did. i would like to add my thanks to general schwartz. on behalf of your airmass around the globe thanks for the steady hand, good leadership and constant care you have given our air force for the last four years and susie as has already been stated, there was never a more energetic, engaged an effective advocate for our families. thank you both. the air force and betty and i will miss you terribly. i was lucky enough to be born into an air force family. my brother and sisters are here today. we don't get to do this very often. their families are also with us. the highlight of our childhood was my mother was a saint and my

mom is also here. sitting in a purple dress on the edge of the second row. [applause] you probably don't know this but my mom was resonated as the next queen of the angels and pending senate confirmation. but she will be spectacular. ..

>> he served in three wars. he flew over 9000 hours in 19 contacts of aircraft. 7500 of those hours were in fighter aircraft. that's not likely to happen again. over 600 were in combat. he was highly decorated, eight major battle stars, ground combat with infantry in germany after he flew eighth glider. i'm pretty proud of him. and today, i think he would be proud of me. and any day a kid can make is that proud is a great day. thanks for joining us. my wife, is also here as our three of her sisters in account. and that he is hitting forth in from the right from the front row. you saw her a minute ago. she is a serious babe.

[laughter] she knows i love her. but she can possibly know how much. one of these days way down the road when i'm laying on my death bed, and i'm trying to decide whether not i won the game of life, the fact that was chief of staff of the air force won't even be part of the equation. but if she is still standing next to the bed, still holding my hand, i win. [applause] >> this day never would've happened without without you. there is a great looking young guy who's about to bring you beautiful flowers. i want you to remember they are from me. he doesn't need help getting dates. [laughter] [applause] >> our son and his wife and her

grandsons are also here today. this is a real privilege for us. ashley's parents are also here. my son is here accompanied by his beautiful wife and my daughter is a prebuilt one of our four children could make it is my son john and his wife. john giscard and orthopedic resume down in texas and they just couldn't break free. he was kind enough to call me this minute as he was headed into surgery to wake me up and to congratulate me. i have been thinking about him all morning. no parent anywhere ever has been prouder of the kids and grandkids than we are. in my humble opinion, no parents have more reason to be. when i became a squadron commander i felt excited. when i became a wing commander, i felt proud. when i became a major commander i felt privileged. and a little bit old.

today, being sworn in as chief of staff of the air force, i just feel humbled. humbled that we can continue to serve our nation. humbled to be given the honor of leading these incredible airmen, and humbled to serve with them for patriots i admire. there's a couple hundred of them sitting right there. if i could i'd like to say just a couple of things directly to the men and women of our air force. first, you need to know that i believe that in a hangar full of beautiful and talented women, my wife is the most beautiful and most talented. but i'll tell you, honey, glancing over at the joint chiefs, the competition is getting tougher. more important i guess for our airmen i believe in joint operations are the only way we'll succeed on the battlefield. if you plan to criticize one of our sister services, don't let me hear you. i believe the coalition operations are the only way we can be successful on the planet.

we need to be great at both. i believe our air force is an absolute essential contribute to joint teams, just like each of our sister services are. no one else can bring what we bring to the fight. and every real warfighters knows that. don't ever doubt yourself or the service. i do not believe anyone service is more important than another. when i am now the energy, so i will tell you on as i believe the future of the united states of america is in large part and airspace and cyber future. and without a well-trained, well-equipped, capable and credible air force, our nation will someday not be able to project or protect its power and interest in the future. our job is to make sure we can. i believe the air force remains the model of total force integration. in battle spaces all over the world, active duty, guard and reserve airman today operates

seamlessly to get the job done. and they expect us to do the same back here. and i commit myself to doing exactly that. i believe every member of our air force family is critically important to our success, and each of them deserved to be treated that way. when it comes to airman resiliency, the suicide prevention, the sexual assault prevention and response, i believe you're either part of the solution or you're part of the problem. there is no middle ground. i believe we need to stay consistently focused in three areas. number one, when the fight. today's fight, the one that starts next week, the one that starts next month or the one that starts next year. readiness and training are not optional. number two, we have to strengthen the team. that's the air force team, the airman family came, the joint team, the coalition team, the interagency team.

collectively, our mission statement is to fight and win the nation's wars. and if that's your job, your team will never be strong enough. and finally, we have to shape the future. and that will require innovative thinking and different approaches to problems, and it will require modernization. i believe success is all about people and pride and performance, and i will insist we walk the talk when it comes to taking care of the people we are privileged to lead. but we can never afford to be get that it's the only bottom line in this business is performance. no one will care how well we treated our people if we lose the next war. and, finally, you need to know i trust you. i know how talented you are. i know how well you served our nation and how proud you are of what you do, and who and what you represent. and you need to know that no

one, no one ever has been prouder to serve as your chief of staff. it's about time i got to work. before i do i'd like to ask to favors. the first it's of general schwartz. sir, would you mind stepping to center stage front. and the second is of the command of troops today. sir, i'd like to ask a map of the men and women of our force if you and your formation would afford one final salute. from his air force to general schwartz. [background sounds]

[applause] >> if i may go off script for just a second, please sit down. i have something for susie. it's not a small box. is a larger than a small box. but it is an adequate gift. to a great lady. thank you very much. [applause]

>> [background sounds] >> [background sounds]

>> the united states air force been an honor guard will not pass in review of honor of general welsh. the purpose is to inspect the degree of drill proficiency of airmen and their state of readiness. it is customary to receive the passing review. however, in today's ceremony secretary has deferred the honor to general welsh. as reminder, everyone should stand. military members should salute. once the colors have passed, you may be seated. ♪ ♪ ♪ they don't

♪ ♪ ♪ ♪ ♪ ♪

♪ ♪ [background sounds] >> ladies and gentlemen, the men and women of the united states of the air force are proud.

[applause] >> the united states air force band of ceremonial brass quintet will now put a special musical selection. the meat of the following the tribute the air force on will be played. it is appropriate for everyone to stand during the air force song. once it is completed please remain standing for the departure of the official party. ♪ ♪ ♪

♪ ♪ ♪ ♪ ♪

♪ ♪ ♪ ♪ ♪

>> letter today nuclear predatory commission chairman talks about her first month on the job and what the goals are while chairman. >> international economist arvind subramanian says india's economic model is unsustainable over the long term.

his comments came during an atlantic council event focusing on the country's economic challenges. he advises the indian government in a number of capacities including as a expert group on the cheap 20. this is an hour and a half. >> good morning, everyone. i'm the director of the south asia center of the united council. and him to have a president fred kempe my colleagues at the center of like to welcome all of you. thank you for coming in despite the weather. we are delighted to host arvind subramanian today to speak on india's economy. and unusual past and uncertain future. perhaps it's not as uncertain as the title suggests, maybe arvind will be able to spend some time helping us understand that, but i can't think of a better person to do this.

i'm delighted of course to welcome him also as a former colleague at the imf, but arvind is currently a senior fellow jointly at the peter peterson institute of international economics and the center for global development. he's the author of a book called eclipse, living in the shadow of china's transformation. china's economic domination. he also wrote india's turn, understand economic transformation in 2008. i should note that foreign policy named him one of the world's top 100 global thinkers in 2011. while india today magazine nominate him as one of the top quote 35 masters of the mind. over the last 35 years. that's a very heavy burden that i'm sure he is bearing extremely well. buddies been an assistant

director of the research of the international monetary fund, and he's also worked on the trade negotiations. he started the harvard university kennedy school of government, and johns hopkins school of advanced international studies in and he contributes weekly to the financial times and two other groups, and, of course, he's educated in the united states defense college and then at the institute of management, taking his masters and ph.d from oxford. i think with that background, we expect nothing but the best from him. so i'm sure that all of you will have many questions. i will request arvind to speak for about 20, 25 minutes and then will have a conversation with them. i would request the conversation is on the record, and i would request those of you who have

cell phones to please switch them off. we're also delighted to welcome the c-span audience because this event is going out live, and so we don't want any undue interruption. so with your help we should be able to begin and end on time and in an orderly manner. arvind, welcome and the floor is yours. [applause] >> shuja, thank you for the very kind and generous introduction. it's a great pleasure to be here at the atlantic council. august is generally not the most heavily trafficked month in terms of talks and events in d.c. i'm delighted to be here. i suspect some of the interest in india now is because of the blackout that we saw a couple of weeks ago, and i will kind of

talk about that in passing as well. let me quickly get, since i have only 20, 25 minutes and i have a rather large powerpoint, let me get -- this is an economist perspective on india. politics and security are basically -- not just economics but economics with some political economy background as well. i realized that the interest is more in what's happening now and what's likely to happen in the near to medium term. i do want to stress there's a certain continuity and in some sense the uncertainty and the challenges come from i think india's unusual economic past. for just a bit of self-promotion, that's my india

book. that's my recent china but. and in some sense the more i talk about india, but is this implicit kind of in edwards mind the kind of contrast to china, which i will talk about from time to time. i had a book on both countries, but i do want to emphasize there's an interesting contrast with china to thank -- languages been the first of talk about what i call the unusual economic model which i called precautions in the model. what i mean by precautions is india has been doing things that it is not meant to be doing at this stage of its developer. it should be doing things that countries normally do much more advanced in terms of development and is a plus i took but there's also a kind of drags it comes from this which is going to inform my assessment of the challenges going forward. and then we can talk about the

near-term challenge, the macro challenge. i do want is the couple of minutes on really the big picture on india. want to call the everything challenge. there's a lot going on here. but before, normally when i present something on india i began by emphasizing something that i think people overlook. this is a graph which shows india's gdp per capita. i think there've been three phases in india's economic growth and economic development. the first phase we called the hindu rate of growth which india grew at about 3% per year for about 30 years after independence. which is about 1.8% per capita. recall that the hindu rate of growth because we thought indians are not more upset with the hereafter than the here and, therefore, and that's what supposedly hindu teaches one. of course, that turned out to be complete nonsense because beginning in 1980 the economy turned around. i want to emphasize this because many people think growth

tually took off in india after 1991. it's certain to the reforms took off after 1991, growth actually took off in terms of accelerated on 1979, 1980 to india has had 30 years of fast economic growth. so the contrast within india and china is not that china begin in 78 any need to get a 91, but we both began from both country began at the same time except china did everything at twice the pace. so for about 22 years we had about five and a half, 6% growth. between 2002-2008, nine, 10, even 11 we had this rapid pace of take off, chinese a style of growth rate. that's what i think created this buzz about india in the last seven, a just. just. one could argue that now, which i'm going to later on, that now

the question is are we actually in a fourth stage which makes the third stage a bit like an aberration and any is actually doomed because of all that what it is been doing to i should slow growth rate over the medium term around other countries? so this is why, background i think the first aspect of the precautions any that if one knows and talks about but highlight, if you plot democracy against development in india is just a massive outlier. on the right side and china is just a massive outlier on the wrong side. given india's level. this is kind of broadly, recession hypothesis, given india's level of gdp, india never deserve to be a democracy but it has been for many, many years and this is one of the achievements. the interesting thing of course is china is right at the bottom, and all the states to the right of china are actually oil exporting country. china is an outlier.

india will rightly claim this as an achievement but this is something i think needs to be highlighted in terms of how precocious india has been in its political development. but the point i want to emphasize next is in terms of economic i think what has been unusual about him is it's been a skills-based model of development rather than an unskilled-based model of development. india like china has abundant labor supply, unskilled. it has not used its unskilled labor supply. instead it has intensively use it skilled labor, and that creates a number of complications. a number of the manifestations of this, it's not just india does more services than manufacturing which is to come and certainly much more services than china does. but within manufacturing, india does much more skill-based manufacturing than most countries. here's a chart i want to show. i wish i knew -- i don't know

where the pointer is, that i wish i could show you, the graph on the left is andy, the right is china. it's broadly on the same skill and you can see where manufacturing in india is way below that of china. you see services is way above china. so this is one example of the great coaches india phenomena. -- precocious india phenomena. what is unusual is i think what people, the most striking aspect of this skill-based economy of india is the fact that india exports skilled fdi international. if you think by the international division of labor, it was meant to be that the rich countries produce skills, technology, entrepreneurship and finance them and the poor countries provide the cheap labor and resources and that's of international patent of specialization is determined. but india has bee defined -- look at this chart.

countries like india and china are meant to import fdi. but india after exports much more fdi as a share of its gdp than china does. now, not only is that the case, chinese fdi is mostly, a lot of it is sent to africa. i call that normal fdi because it is downhill, it was a rich countries to poor countries. indian fdi is what i called up the fbi. it goes from a poor country, a lot of it goes to the advanced country, which is not meant to happen, and it goes to highly specialized and skill intensive sectors. so this was not meant to happen in the way we talk about world economy, but this is what is happening in india, which is, you know, this is very, very unusual. it shows and has comparative advantage to some the things gas

stations half-light skills, entrepreneurship and flown. so having said that india -- these are all aspects of what i call precocious indie. the other dimensions we can talk about in which either india is different or not so different from your average developing country. i don't want to spend a lot of time on that but i'm sure people will be interested. whether domestic demand-based model of development, not export. but that's not politically precocious. some poor countries do that, some richer countries do that but it is different. and also as a share of come in terms of integration, india is much will integrate and china although growing for rapidly in india found that the global financial crisis that it too was much were integrated on trade and finance in many countries, but many people to believe. it still lacks time substantially. on the social indicators india is not very bad on inequality. for its level of development india is much less unequal than, say, china. it's about par on life

expectancy, given what india's develop it should be. and it's horrible on child malnutrition. i'm saying all these things because of the social outcomes there is no consistent about any but it's good of some, not good at others and put on others. but these are just general characteristics, not characteristics of a precocious india. this is a kind of, i will skip this and come back to it later. so i think there are two major near-term challenges which is that at the moment, india's macroeconomic we very vulnerable. it's possible because the most most countries it has the highest and most consistently high inflation. inflation has been out, above all close for two years or more. its external pollution is becoming more potable. and it has very high fiscal deficit. i mean, these are the macro economic models.

the rupee has been under pressure, foreigners have been fleeing, and second, which leads to the second challenge of the slow down in growth. and i'm going to talk about that in a different context. now, inflation is very high. i can give you all these charts. they are -- the really interesting thing about india is aggregate fiscal consultant state and federal level is about 8% of gdp which is very high, almost u.s. levels of fiscal deficits. and the point i would make on the fiscal deficits was, it was a tragedy, almost policy catastrophe that ended years of high growth when india was growing at about -- [phone

ringing] i'm terribly sorry. the category really was in the rapid growth here, growth was very high, interest rates were very low, and yet he did consolidate. that was major policy air on the fiscal side. now, the rate -- the way i -- i want to go through the growth challenge i think is most interesting picture here. in some ways one could argue that in the last two or three course and he is growth has slipped from chinese style eight to 9% to about six, six-foot high percentage of the question in in is what's going wrong, what is going wrong, how do we respond to that? and one could make the argument that the fact, that, in fact, the 89% of the boom years with the adoration and in some ways, did not deserve to grow, given

all the things that india hasn't done. here's some -- something really important remember. any measure of policy reform for india and china, i did in absolute terms changes across time. india and china are laggards. the country that get the most policy reform are those in africa and latin america. and yet china and india grew much more rapidly than all these countries. i want to be careful here. it's not that india and china did not reform, but the magnitude of the reform and still have control and close their economies are, not compared with china in any and all these of the catch. so that's why it's my proposition that maybe india didn't deserve to grow so much in the first place. so the puzzle is not why it is slowing down the white grew so rapidly in the first place. and the fact that we have --

could be signaling a supply capacity in india is not keeping pace with demand. now, i would argue, and this is what i've spent a bit of time at the precocious india model, one could make the case that this is because india's precocious model is unsustainable. and what do i mean by that? we have developed based on skilled labor which is ashley very scarce. this myth that india has a lot of skilled labor is just not true. skilled wages have been growing in dollar terms at about 14, 50% for 13 years. we have a completely dysfunctional system of higher education which just is not a list of the supply that the economy needs. so factor that we use intensively is, you know, running into capacity. what we have it abundantly we don't use because of the labor laws, which we never used. there's very little chance going

forward that we will be able to use it. and then we have a situation where scarce social capital, we call them public institutions, call it corruption, whatever. that is actually getting eroded progressively. the big governance, which is a big important development, that is being undermined through corruption and criminality. and, of course, what is happening is that land which is meant to be relatively abundant has been corruption in india. so will have a situation where if you take these four factors of production from a development perspective, what we're using intensively is running out of, what we don't use intensively we have a abundant amounts of it, and important governments and land are becoming real sources of corruption and the problem. so, you know, there's a chart that people have been using a lot because i put it up on blog poster if you look at our losses

in india which is a kind of metaphor or a proxy for not just what is wrong with the power sector in india, but governance more broadly. india, this is transmission losses as a percentage of up to come in india is what above any emerging market country. india is about five or six times as inefficient and corrupt than china is, or brazil and south africa. so this is in the way a kind of metaphor for the governance problems in india. the way i like to put it is the medium-term challenge is actually, one can summarize it in kind, in terms of -- with fiscal -- we need to give away freebies in the form of subsidies. we have oil subsidies, food subsidies, our subsidies, fertilizer subsidies, and in the last about seven, eight years

the government also instituted a scheme. southern ocean that fiscal populism -- so we have a fiscal populism. it has a lot of attraction indian and that's a big problem. that's contributing to certainly the macro economic problems. but certainly i think what's also happening from the growth point of view is we move from one of india's great states, we've not heard of, a man called -- he said india was a perfect licensed quarter. he did not like the model but i think that some of those things have come down. we become i think what's called -- i said facetiously there are three kinds of rent. spectrum, allocations in absolute disaster in any. big source of corruption. the biggest scandal in the has ever had. land has become a source of

corruption. the allocation of land is a big source of corruption. extracting coal which in turn affects power and infrastructure and growth indirectly. then, of course, with subterranean rents which is a phenomenon in india where we cannot get access to call because the mining rights again are really a disaster. so in the medium-term in some ways fiscal populism and this rant is a serious impediment to growth in the medium-term. but then you wake up and say, well, it is the other side into as well. and i can make a case, how can you keep india down. i.e. that any will actual grow at about eight or 9% over the next 20, 30 years. and what are the counter arguments? simple contrast is india is to actually very, very poor. it is about 8% of u.s. per capita gdp.

and so catching up to the frontier is just enormous. you have to do very little to actually be able -- maybe india has crossed that threshold of having done the minimum and you have a big market and so on. so maybe we will have rapid growth going forward. everyone talks about the demographic dividend, which is a source of dynamism in terms of labor force. and then i think what is happening in india is that although there've been no reforms in india or no serious reforms, the way the indian economy is doing, has been doing well is because of what i call a growth be getting growth dynamic. because india has summoned manage to grow for 15, 20 years, said that it is becoming very attractive place. my favorite example is if you like at elementary schools in india, teacher absenteeism is on average about 50% to 50% of the india's -- indian teachers don't

show up. but what has happened the last 10 years is because of growth in demand for education has risen so rapidly that even in these rural areas, private schools have come up. not the best solution necessary but, in fact, exactly in those districts and states with the public education system is the most dysfunctional is where you see the most rapid rise of private schools in india. that's a response to growth and self. it's not that an independent reforms that growth begets reforms. and i think finally what i really think is where the promise of, for india lives, is twofold, is this combination of the dynamics of competition between states. you know, take power, for example. very bad on average but some states are doing very well. that creates the demonstration effect, and capital and labor moved in the way that puts

pressure on other, on our other states within india. but it's not just there is this dynamic of competition, but that is increasingly being combined with what i would call the most heartening phenomena is the politics at the state level is responding to economic governance and economic development. and so in the long run, you know, if politics, democratic politics could actually reward good economic governance, that these india's hope. now, unicom indians are very we spoke about oh, we wish we could have shiny centralize decision-making authority. i think that's nonsense because i believe in the rumsfeld rule, you go to that, not with the issue you wish you have the into one of the chinese political system, but if true democracy itself can overcome something economic governance problems, and in the last two or three election cycles you see more and

more, you know, broadly good governance been reported by reelection of the state level. and army examples which we can point to. so, you know, and all that translates into the fact that india's missions of hustler so private is doing well. you get this response of the skills. maybe unskilled labor, maybe you don't or even in terms of governance if you find this response in politics maybe some of us can be partially overcome. we have a vibrant civil society in india, and so that's kind of a positive spin on the medium-term challenge. i am completely agnostic about whether i believe in a pessimistic view in india, or this thing. we can talk about that in the discussion. i want to end, i think i am still in my time limit, speak about the long-term challenges.

i think, i mean, i've alluded to do so for. i think, i think there is a race between -- i don't know which one is going to win. i can tell you all the reasons why economic governance, economic institutions, political institutions are deteriorating in substantial and very disturbing ways, but i can also give examples of regeneration happen and hold democratic response of politics. as i said i'm a bit agnostic but i think in some ways this is a big long-term challenge but if politics can't respond, then there is some chance of overcoming what is a serious deterioration in economic institutions. the other way to think about india, very kind of broad picture sense, i think india, a historians is what is unique about india is that we have many, many more axes of

difference than your average developing country. you have the class axis but that's common to many, many countries around the world, and it's true that this is getting inequalities accentuating this social discord but that's not very interested because i think many countries have that. we can talk about inequality problem. but i think if you look at the other axes, language wasn't axis of discord a special in the earliest but i think india has by and large overcome this problem. this is not a serious issue anymore so that's a plus check for india. harbingers axis of discourse on historically, et cetera. but i would make the case that amongst these access, at least india is finding a way of overcoming this, because, because simple. electoral, you know, politics and numbers means that backward caste has political power. lots of cost to this, but they have also found economic

opportunity. they found a lot of subsidies and so on. but they have found a way of overcoming partially, you know, all the package that was put upon them by the historical, kiddies historical hierarchy in india. you know, talent, most famously they applied for many years. also, such as the numbers has worked in their favor. and while i don't mean at all to suggest the caste problem is a. all i'm saying is i can see the water level is rising. i think the two axes of discord we haven't resolved is religion and what i would call, you know, the geography and the tribal problem. if you look at indicators, i think the hindu muslim problem, i think the economic, economically i think -- are

seeing improvements instead of of living and opportunity him and so on. we don't sit in the same extent. and i think that is an axis i think is a potential of source of problem always in india. and, finally, i think, you, they pick one we have a crack is the tribal problem but i call it the geography ask is because most of these people live in a heavily forced to band -- kind of a band in eastern india what they're basically travel, they're actually not participate in the market economy, and, of course, it is the hotbed. and that is a serious source of security because people don't realize that it does not run in this part to 75 -- 20 to 25% of india does not run. these people are marginalized

out of the system and, therefore, always a source of the problem for india. now, and i think really it is, i had this big, you know, the security angle, the whole angle and an expert in combativeness. but i think a big challenge is resources, especially land and especially water which is becoming scarcer and scarcer. and so there's a whole geopolitical angle with china on this. there's a climate change and go. i think water will be a real source. so let me end by saying that, you know, you can wake up on any one day and put on the optimistic have about india, or the pessimistic out about india. and the usually in talks on india with my favorite quote from thi great book called the hindus, and she says, i think india is like a sanskrit word. every sanskrit word means itself

and its opposite. so john robinson famously said of india, everything and i was a star at the end of the sanskrit word, everything is opposite is also to about india. but every sanskrit word also represents a god and he position in sexual intercourse pics about i think in some ways is what i think about india, that it is both itself and not itself. thank you very much. [applause] >> thank you very much, arvind. as advertised and as promised i knew he would deliver. wide-ranging tal and i'm sure that are going to be tons of questions that i'm sure you'll have answers to. iphone -- i am just reminded after your last few comments

about whether the glass is half-full or half-empty, of the way a dear friend of ours, to use the ambassador in pakistan for the united kingdom, high commissioner, once described, he was talking about pakistan when we're discussing the future of the country, and he said, is not a question of what the glass is half-full or half-empty, the question him and he used his engineering background. he said the question is whether the class is too big and so i'm wondering what the glass in india is growing too fast to keep up with. what i've had one of the points you mentioned at the beginning was the fact that india has relied on domestic growth model rather than an export led growth model which is what international organization have been prevented the world, particularly the developing world for decades. and i'm wondering what you see

as the one or two key elements in that? will need to be a greater infrastructure investment? will need to be an opening up of our direct investment in india? what are the prospects? >> so, you know, india has shown that, india, a country can grow rapidly without being a manufacturing export-led model. i think the big difference in india and other countries, as i said, that we've used skilled labor. we've not done manufacturing exports as much as other exports but by and large it's not been based on foreign direct investment and not based on heavy reliance on foreign markets. now, i think that this model is sustainable. i mean, i think going forward is

not the case that we necessarily need lots of foreign investment into one. but i think, let's take infrastructure which actually a good example, and take power in particular. now, it bothers me that routinely people say oh, india's needs are 500 billion in foreign resources for the infrastructure, in resource for the infrastructure sector and that most of it has to come from abroad. i don't agree with that because for one thing, china has shown that all its infrastructure in the public sector and it's not been base and getting foreign settings. in the infrastructure, basically domestic. now, the reason i get a little bit he did with that because, you know, one plays into this conventional washington consensus view that all, we need more globalization and more foreign investment would affect the problem of infrastructure and especially in india is simply a governance problem. i mean, let me make it very,

very simple. you know, people don't pay for power in india. that's the bottom line. and give people could be, private investment, domestic and foreign would come rushing in. and at the moment, when foreign investment can send it guarantees because people don't paint and the boards are very badly run. we had to hold -- we had the whole enron thing and it all the pics i think it's basically a domestic governance and the political problem where the whole, the notion that every politician of any stripe retaining the first thing he will promise when he gets elected is free or subsidized power. and the conundrum is this, that why people who buy this quick because the history of this promise of free and subsidized power is a history of no power and interrupted power. interrupted power.

so why do politics not change? and as i said, what i see now is as more and more states, as they start delivering, you know, power with payment and people then say well, it's a much better model. and effect one of the really interesting experiments now is there are, farmers have the choice of two sources of power. you know, cheap power, no guarantee on liability, more expensive power, guaranteed. and we shall see. i think it looks like more and more farmers will offer the black option. succumbing back to your question, i don't think it is globalization and inadequate globalization that is holding back. growth, infrastructure. i think it's fundamentally a political governance issue. the solutions to which are entirely domestic. >> rising out of this, a lot of

people say that india has an insatiable appetite for energy, and they need every ounce of energy it can get. particularly and the near to medium term, if india is unable to make this shift in governance that you're suggesting, is there a possibility of taking a regional approach, having a very to a set relationships regarding water with its neighbors, all around courts not just to the west, not just to the north, but the east as well. >> i think that's an excellent point because i don't think that on energy and power, i think apart from whatever india needs domestically, just to give you an example, the fact that we have power subsidies in india has meant that water table has basically, is dropping tremendously, and i do think that a regional solution which china, india is not, pakistan,

china, you know, and all the countries there, i think one has to regional solution. i mean, for two reasons. one of course is that china controls the water table, and increasingly they control the water table, water is becoming scarce. so i think that element has to be. and then the other element of course is many of these states in pakistan have, you know, a big potential impact of a star which i think india should use an substitute for its own coal face. so both the climate change problem, the security problem and for the water problem, i think we need a much more regional, originally cooperative solution to this problem. >> thank you, arvind. i'm going to open up to the audience and i request you to be patient. i will recognize you as icq. and if i miss you, please be patient with me.

please wait for the microphone, identify yourself and then ask your question. >> thank you. i am from brookings. i wanted to actually extend the first question that shuja asked about the appropriate model for india's future economic growth. you suggest that the precocious india model may not be sustainable. i think reading between the lines of your presentation you also suggest that the conventional model where you start with agriculture, then graduate and flip-flop to textiles may not be adequate for a country of india's size, although textiles certainly has been an important sector. are we looking at a time when india is going to need to experiment with different approaches? or perhaps more fundamentally, follow the logic of what works

in an economy where the private sector has already begun doing more, and use that to drive india's future development while concentrating on things like governance and education? >> i think i would separate your question into two, two parts. one is, you know, the sort of private sector with governments led approach. and others more the kind of skill-based versus unskilled base model. those are two analytical testing questions and they both are extremely very important and very good questions. let me take the latter one first. might view is that india has a top of this unusual to coach was model for a number of historical policy choices, you know, right? would be desirable to go back

and use our unskilled labor more intensively? i think undoubtedly it would be because i think that's where the needs are, employment and so when. isn't going to happen? i don't think it's going to happen because, you know, the pattern of specialization is like a titanic. it's not easy to change that. just to give an example, routinely now if you go to manufacturers in india, you will find the situation where the their thinking of substituting robots for labor. los..

>> that's just a sad, inevitable corollary of this pattern of development. so my plea would, therefore, be of course we should improve our labor laws to encourage hiring of unskilled labor, but given a choice i would focus much more on getting skills in the economy, improving our higher system of education because that's where the demand is going to be going forward. so that's on the economic analytics of this. on the other private sector versus market-based model, goth-based model -- government-based model, here's my, you know, slightly controversial take on this. i think people forget that, you know, growth requires a healthy public sector which performs all

these basic functions and a dynamic private sector. india has achieved or is in the process of achieving the latter, and the prospect is very dynamic. the problem is the public sector is a drag on india. the reason i feel pessimistic is because i feel that in the long run history and experience, the history of economic development teaches us that it's much easier to create a private sector than it is to create and maintain an efficient public sector that delivers basics, the basics of maintaining law and order, the basics of maintaining property rights, the basics of stabilizing the economy and the basics of legitimizing the economy by our, you know, transfers, etc., etc. these are all very demanding attributes but very important attributes. western europe and the united states took a long time, but they achieved that, and that is in some ways the basis of prosperity. i often say, you know, there's as much entrepreneurship in

mumbai as there is in california. that's not the problem. if you read the book on the mumbai slums, there's markets for flesh, for, you know, waste, you name it. but you don't want to live in the mumbai slum because the basic infrastructure that governments provide, law and order, etc., is miss anything mumbai. and i think that is eroding in india, and it's much more difficult to reverse. so that's where we stand. the private sector will do very well in india, no problem. i have no problems with the private sector at all. as it will do if any part of the world. but it's that basic essentials that the public sector has to provide that i think is a much bigger sense of worry. >> interesting. in my visits to both india and pakistan when i've talked to entrepreneurs, the one thing that they say in both countries is that whatever they've achieved, they've achieved in

sweet of government, not because of government. >> right. >> they want the government to step out of the way. >> but, you know, i think that that -- you see, i -- to be, to be totally candid, i find that a little bit, you know, self-serving, what they said. because they rely a lot on what the government does and does not provide. the government does not provide social stability, for example, or law and order. these guys are not going to invest. so i think that's exactly the kind of discourse and conversation that i think bothers me about what's happening in much of the region. oh, government's the problem. yeah, sure, government's the problem. of course it's the problem, and in the past government has been overbearing and intrusive, but the response is not that government should get -- government should do a few things but do them really, really well, and in india that's not happening. if you look at the traditional system, for example, the backlog of cases in the state courts are, you know, 30 years, you

know? >> thank you. we have a question here. >> thank you. um, on this issue of governance, which i agree is the key issue in india today and tomorrow -- >> could you identify yourself for the audience please? >> oh, i beg your pardon -- [inaudible] american university. wouldn't you say that the discourse in india today is, in fact, focusing on these things, that there are a lot of people, i can name them, they're friends of mine, who are, who are recalling the provisions of the constitution, who are recalling what was achieved by government in the 1950s in the face of enormous tragedies and challenges. and so as you pointed out in your talk, the demand for good governance is growing. and i agree with you that the

whole discourse on private versus public, i mean, one only has to go back to -- [inaudible] >> see, that's why i think, i say there is a race between rot and regeneration. i think the rot one can see. i think the regeneration is partly because of what you said that, you know, the demand -- governance is a superior good. the demand for governance increases as people become richer and demand more. i think the other reason, other reason for being hopeful about regeneration is that, you know, the fact that india is so open and transparent and you have really vibrant society that at least the more egregious problems that all these things come to light, nothing's ever done about them, you know? enforcement never happens in india. so i think there is a lot going on. and as i said, you know, as more and more good governance gets

rewarded, so that's, i think, the regeneration part. but as i said, both are happening in india. >> thank you. i'm sorry, i missed the lady at the back. and i'll get to all the others i recognized, don't worry. >> polly, independent consultant. i wanted to ask two questions. one is, to what extent do you think the export of investment by the high-end indian companies is a function of push rather than pull? obviously, they calculate their relative opportunities in economic terms, but to what extent is there a governance issue here? it makes more sense for them, it's more secure and predictable in other venues. that's been going on since the '70s -- >> right. >> -- with some of india's best corporations. the second part of my question which relates to gore nance is -- governance, is what role do you see for popular

anti-corruption movements in the transformation or, we hope, future transformation of governance in india? >> um, again, both meant questions. excellent questions. on the export of fdi, it's true that, and this is something that's actually happening now in china where, you know, because of uncertainty about the domestic regime, the notion that, you know, capitalist fleeing as sort of insurance and push. i think it's only partly true for india because period over which this actually surged, this phenomenon, was the period in which india was growing rapidly, and foreign capital came flooding into india. so i think what this export of fdi until recently, i think now things are changing to some ec tent because of all the uncertainty in india, but until recently, a ten-year period, most of it was because indian

entrepreneurs and indian management showed that they were capable of running world class companies not just nest chi, but internationally. so i would say that the push factor has been relatively muted until recently. and, therefore -- on the popular anti-corruption, i am not an expert on this and, certainly, above my pay grade. but i think the pattern is that i think what, i mean, the fact that there's so much mobilization and consciousness raising, i think, is unambiguously good. the point is how did it get channeled subsequently, and that's always been a problem even with the latest, you know, in the hazari movement, the whole thing, you know? the fact that we don't actually see a concrete manifestation of that is a bit discouraging. and, you know, the fact that now he's started a political party,

people are not sure that's the way forward. i often say that in india you get episodic accountability. you don't get ongoing accountability in india. and these movements give you these episodic bouts of accountability. i wish it would get translated more into, you know, basic structures and institutions changing in a way that we get more ongoing accountability. >> thank you. question here. >> good morning. my name is walter jurassic, i am member of atlantic council. is quite interesting debate. i wish i could have more time with you to discuss. >> sure. >> the question for you is -- question and comment -- global village and corporate control, and then you mentioned many times separation between skilled and unskilled work force. why we have to concentrate on that? because i do not believe it.

every individual have some skills. so we should go through the transition from unskilled work force to skilled work force. not everybody is going to go to college, obviously, but maybe they would have an interest to go to college. and other comment and question for you, why we cannot create stronger private/public partnerships in those countries, including india, which is very critical? thank you. >> you know, i mean, i don't wish, mean to, you know, in some ways say that, you know, make a kind of judgment about, you know, skilled is good and unskilled is bad. i just think that the way the modern economy functions and the way that india's economic state has traveled that, you know, the demand in the economy is for skills, not that much for

unskilled people. so the question is, how do you address that? i mean, it's just a practical question, how do you address that? one way is to do what china did which is to actually, you know, the pattern demands more unskilled labor which is what the country has in abundance. i was trying to say earlier that the choice is, do you make the ship of state move, you know, turn around and move towards unskilled specialization, or do you upgrade skills? and i think in india's case, i think one would have to upgrade skills. but it can't be done easily, and the same governance problems we have in the infrastructure sector we have in the higher education sector. so skill upgrade in higher education is not easy to do either. skilled and unskilled -- [inaudible] you know, all public/private partnerships, um, it's become one of these terms that, you

know, or things that, it's become almost a fad, you know? i don't really know what it means. what does public/private partnership mean? every damn thing is a public/private partnership. you know, and in the indian case essentially what it's become, especially in the infrastructure sector, is basically the government saying, look, we'll give you land, and we'll look after the land problems that we have, and, you know, the rest is yours. now, if that's a way of going forward, i'm all for it. but certainly in the indian case, it's not been that successful because the whole allocation of land has become such a source of corruption that sometimes you wonder whether, you know, this is desirable in the first place or not. so i'm all for ppp or whatever that means, i just don't know what it means. >> in many ways this is the government wanting to continue the represent seeking. >> exactly, yeah. >> keeping it hand on the tiller and in the till.

>> exactly. >> maybe that's the way to describe it. the gentleman in the striped shirt. i'll come to all the others also. >> good morning. >> if you could identify yourself, please. >> yes. my name is munir sheikh, i'm ex-executive director of -- [inaudible] in pakistan. i'd like to draw your attention to the electricity sector. blackout is on everybody's mind. was it an accident? was it expected to happen? in the region and knowing about the electricity problems in india, i knew for a long time that integrity of the electricity grid was an issue. there were large frequency oscillations from getting the power from east to the west, and um, it was alarming. and so where do you if you were to -- there was a need for infrastructure development to

support high voltage network, and it didn't happen. where do you assign the blame, or where do you think the problem occurred? looking back at the california power crisis and new york power crisis, we find out that it could have been easily fixed, and there were some problems, we just never paid attention to it. so could you, please, comment on the blackout in india? >> frankly, you know, i'm not an expert on the, you know, the technical aspects of the power grid in india, so what i -- i mean, i don't have much to say by way of -- i only know as much as you know in terms of the proximate causes for this problem which seem to be some states overdrew because of the drought and because of the fact that the water table had come down, the monsoon has kind of partially failed this year, so the demand for power had gone up, and the supply of power had come down. and clearly what had happened, you know, the government's

problem comes back here in the sense that technically there are limits to how much states can draw from the grid. those were flouted, and probably in cofive advance with public figures. so apart from -- that's all i know, and, you know, i don't know very much more about the power sec for in india. to me, the much bigger problem, actually, as shuja was saying while we were talking, i mean, the amazing thing was it got fixed so quickly compared to the problem we saw of -- well, i didn't have power for five or six days. that, i don't think, is the real issue in india. the real issue of power is the chronic undersupply, and i think that is the big problem of power in india. >> thank you. gentleman in the white shirt over there. >> yes. i am dr -- [inaudible] with the american league. the answer was very simple to

the power shutdown, you can just say it was a controversy, and it would be much easier for you. [laughter] anyway, you mentioned so many things that was very enlightening for me. how far successfully india is managing its population, because the pressure, public pressure on the infrastructure can become very burdensome. and it gives tremendous difficulty to a nation to take off. and the other thing is what is the number of people in india who are below poverty line? and the national security is nothing but a reflection of your economic strength. and the defense budget of india a policy of reconciliation with

neighbors adopted in india redirects a softer -- reflects a softer image, won't it be helpful in diverting resources to improve the quality of life and future of future generations? thank you. >> let's take these in order. population pressures, you see, you know, the world over there's been a big shift in the conversation on population, right? that in the '60s and '70s we spoke about population being a problem. and then, you know, and then you had family planning, birth control, all these things and then suddenly, you know, with the east asian miracle and thereafter, the whole question became, you know, can a certain structure of population actually be a source of dynamism? so the focus was shifted from the level of population to the structure of population, and that's the fence in which now, you know, people are saying that india has a demographic dividend

ahead of it because it has a young and growing labor force which, you know, will save more, keeping it competitive. and that's what happened in east asia, that's what happened in china, and conversely aging is a burden, you know, even though you may have a smaller population, but if it's an old population, it's actually a problem. and that's what looms ahead for china. and i think in india so we have the same situation where i think that going forward i do believe now that there's a huge source of buoyancy coming from india's -- the fact it's going to be a younger population. but that's not a statement about what's actually going to happen because the fact that you have the capacity for dynamism doesn't mean that they'll have the opportunities to actually, you know, pursue that. so i think the government still has a big challenge ahead to convert, you know, opportunity into -- capacity into actually, you know, jobs and employment

and so on. but nevertheless, i do think that it's a source of pressure, a source of dynamism. the other thing that's not recognized about india is that india is actually very, very different demographically within india. many southern states are now, in fact, heading towards aging, you know? much to of the demographic is gg to be the hinterland which is the most popular spot of india is what is going to generate, you know, the biggest increase in this young population, and the other states are actually going to start aging soon. so india is a very interesting mix even in terms of demography. poverty, i mean, the two things i would say is, you know, india's poverty has come down a lot, you know? it's a very controversial subject, the numbers. i would say the current estimate is something like, you know, about 20-25% of india is under the poverty line which used to be about 50% in 1983.

it's a substantial reduction, but it is not as big a reduction given how much india has grown and given comparable experience in china. so india has lagged behind, and the experience of the '90s and the 2000s has been not as good as the experience of the '80s when, actually, poverty came down much more because it was much more agriculture based. on this whole, i think, defense and development question, i mean, i think in an ideal world, yes, you know, if all countries could do, could convert, you know, swords into plowshares, you know, everyone's better off. but we don't live in the real world and, you know, there's a whole question of, you know, what is the external environment, what are the biggest, you know, security issues in the region. and also can you do this unilaterally, or can you do this, you know, whether you have to do this in concert with other

countries? i mean, i would certainly be -- of course, you forgot the problem in india just to be a little bit controversy is, you know, in india the big strategic thinking is now on the defense side is about the threat posed by china and the need to kind of keep up with that. so i don't suspect -- i don't expect indian defense spending to decline over the next few years. quite apart from the india/pakistan issue which has its own history and baggage, you know? the big question is whether china in freezing its defense -- increasing its defense budget to rival that of the united states and therefore, you know, there is going to be collateral effects on india. so i'm not optimistic about -- much as i would think, i would hope that that's the way all countries would go, i don't think india will go in that direction. >> thank you. >> hi, i'm robert donor from the treasury. i agree that governance is really important, but i think it's a decades-long process and

as much an output of growth and development as it is an input. and we're all in the policy business, and i wonder if you'd talk a little bit about what importance you think episodes of policy change have in spurring growth and also retarding growth in india, and if policy episodes are important, what is the scope for policies that could lead to sustained growth over a reasonable period of time? >> you know, since you're from the treasury, you know, let me be provocative. is that, you know, it's often said that, you know, when u.s., you know, often even, for example, you know, the imf, the world bank, the united states, they go to developing countries and say, change policy. policy reform, very important. it's kind of what i call the

nike approach, just do it. [laughter] but then when you talk about equivalent reforms in the usa, well, you've got to understand we're a very complicated political economy here, congress is this, and this is that. you know? all those issues are raised. and my response is in a country like india, you know, those are absolutely and equally true in a country like india. so while i do, i'm a complete believer in the need for policy reform, i think just as you said governance is androgenous. and i think the way it happens, you know, democratic politics has to make policy reform electorally popular and positive. and i think, you know, to some extent it's happening in some parts of india, to some extent it's not happening. so i take the view that, you know, just as you said governance is androgenous, i think politics -- or to put it

differently, the degree of maneuver or the degree of maneuver for, you know, leaders in india to kind of unilaterally and kind of just from top-down institute policy reform is not as great as, you know, outsiders might think. and that's, i think, the understanding that people will have to have about a country like india, or even like china, you know? much as it's more top-down, centralized decision making, even china's now subject increasingly to public opinion and so on. so i think it really is a complicated business policy reform or at least it's as come by my candidated in india as -- complicated in india as it is in the united states. >> i'll be provocative. >> yeah. >> there are countries where growth accelerates, and there are countries in which growth slows substantially. i'll go out on a limb and say it seems to be associated with episodes of policy change, and the real question for all of us in this business is how do you

get there. >> yeah. >> i mean, how do you get to a period where you raise the growth rate, the development rate and sustain it over time? and what are the levers? it may be that policy is an dodge now, but if it is, i really despair of your ability -- one's ability to change things. >> i mean, again, there is no doubt in my mind that, you know, policy reforms are associated with, you know, growth. i think that's unobjectionable. you know, the question is, you know, how many independent levers do leaders have to pull? and you can either despair because of, you know, what is happening which is, you know, and i think there is a reason for despair, or you could say, you know, as i was trying to say that, you know, as more and more states in india, more and more state-level leaders start getting reelected because they're doing better governance and delivering, you know, that's

positive. and i think that's the source for change. and the common straight effect from that -- demonstration effect from that, not only the demonstration effect from that, but india being a common market, labor and capital can move. so that, i think s the endogenous source in india, not this nike just reform do it, you know, change this and change that, you know, which i am less and less sympathetic to. >> i think you're pointing to the nexus between political science and economics -- >> exactly, yeah. >> the gentleman behind the, behind mr. shay. >> [inaudible] from the india today. i came to listen to you because i, you know, you do point out some very thought-provoking things and, actually, my questions are based on what you said. you said notion of hustlers.

i found it quite degrading because what is in india is surviving on today, and that same thing would have been called here innovation, and then somebody would have pat patented it, and it's just a way of looking at it. so is jabbar not a form of -- [inaudible] and then the second thing that got my attention was you in a way downplayed and ridiculed the role of azare. is india not a democracy unlike some of its neighbors? and india cannot accept a man in the state making or proposing laws. so the man has to get into the political system. thank you. >> so on the point about, you know, you don't like the use of the term hustler, i mean, again, i was trying to use it in a completely descriptive sense.

, many people would use the same term to characterize, you know, the history of the united states after the civil war to, you know, throughout 1940. you know, the u.s. was a nation of hustlers, and that has both the positive side and the negative side. and i think the thing to remember about jugard. i believe they should not have reason to overcome all the obstacles placed by government or the environment, but given that those obstacles exist, you know, people are creative enough to overcome them. so i don't mean it in a pejorative sense at all. i mean, i think hustling is, you know, is a good thing, i mean, whatever -- even some dimensions or aspects to it. and i didn't mean to down play the azare thing.

the nice thing about india is if people want to form political parties, you know, all power to them. my only answer was, you know, in trying to respond to whether i think it's going to be effective, that's my comment, you know? as i said, you know, great we have this, but will episodic, you know, shedding of the spotlight on these problems be useful? yes. but, you know, it becomes, you know, sustainably useful only when it gets translated into changes in structures and institutions. and by the way, and all that i've said i, you know, place all my hopes in democratic politics in india because that's the only game in town. whether it's through policy reform or corruption. >> thank you. the gentleman who has his hands raised. thank you. >> thanks. thank you for a very entertaining and illuminating