India and Indonesia

Twins Under the Skin

pallavi aiyar is an author and journalist based in Jakarta. Her latest book is Punjabi Parmesan: Dispatches from a Europe in Crisis. chin hwee tan is a founding partner in Asia of Apollo Global Management.

Published July 27, 2015.

pallavi aiyar on Twitter

The discourse on Asia’s so-called rise is dominated by comparisons of China and India, countries whose vast populations and buoyant economies have captured the imagination of international investors, journalists and policy analysts. Indeed, the India-China comparison is a virtual industry, born aloft on a river of books and reports that rely on florid bestial analogies featuring casts of tigers, elephants, dragons and tortoises. 

"Chindia"-scented rhetoric abounds with catchphrases that state the obvious, but whose import is less so. China has the hardware, India the software; India needs China's roads, China could do with India's political inclusiveness. Given how fundamentally different India and China are, though, these kinds of "lessons learned" (complete with PowerPoint presentations) are of limited value. An apple cannot become an orange simply because a McKinsey or Deloitte report asserts it would be beneficial for it to do so.

Even relatively hard-line Islamic political parties have been known to hold wayang performances to boost their electoral fortunes.
Two's Company

The more relevant comparison in Asia – and one with enormous implications for the global economy – is between India and its civilizational sibling, Indonesia. These two eclectic democracies have more in common than India and China, yet they are rarely hyphenated.

While China's per capita GDP in 2013, adjusted for purchasing-power parity, was $9,600, the equivalent for India was a mere $4,000, putting it much closer to Indonesia's $5,200. China's investment in fixed capital in 2013 accounted for 46 percent of its GDP, compared to only 30 percent in India, a figure that is again more comparable to Indonesia's 33 percent. China is the global leader of merchandise trade, boasting well over a 10 percent share of the world total, while India's share is only 1.6 percent and Indonesia's is 1.0 percent.

On parameters of human development ranging from sanitation to malnutrition, India and Indonesia are once again closer to each other than they are to China. For example, around 37 percent of children under the age of 5 in Indonesia and 39 percent in India are stunted (that is, shorter than the World Health Organization’s reference population) from malnutrition and related factors, compared to less than 10 percent in China.

A list of the fundamental challenges confronting India today could just as well be Indonesia’s. On the economic front, both nations need to boost manufacturing competitiveness to create the millions of jobs required to ensure their young and growing populations become a demographic dividend, rather than a Malthusian disaster. Both have governments that must attract foreign investment and fix creaky infrastructure, even as they assuage protectionist lobbies and battle entrenched corruption. Weak governance plagues both nations, as both Delhi and Jakarta continue to struggle to balance power between the center and provinces.

"Bhinekka Tinggal Ika" (multiple but one), the Indonesian national motto, is in essence identical to the Indian catchphrase of "unity in diversity," and they underscore the nations' comparable accomplishments in having managed to sustain national identities in societies fractured along ethnic and religious lines. Nonetheless, ensuring the rights of minorities remains a fraught undertaking for both countries.

China's problems are, for the main part, of a different nature. The country already boasts world-class infrastructure. It is an established manufacturing powerhouse and became the world's largest recipient of foreign direct investment in 2012. China's demographic problems look more like those of highly industrialized countries with their aging populations, low fertility rates and contracting labor forces.

With a single official language (India has 23), standardized written script, one major ethnic group, and political tendency (both past and present) toward imposing uniformity, China is also a more homogeneous nation in ethnic and religious terms than India or Indonesia. While China does not have a national motto, tianxia ("all under heaven") is a dictum long associated with the Middle Kingdom that stresses the complete political sovereignty of the Chinese emperor over all the land "divinely" ordained for him. It illuminates the strong centripetal tendency that has been, and still is, fundamental to the Chinese polity.

Unlike India or Indonesia, contemporary China is preoccupied with foreign policy issues and the pressing of territorial and maritime claims. Economically, it needs to move up the value chain from a manufacturing hub to a services leader and an innovation center. Politically, China’s leaders are focused on "stability" – a euphemism for ensuring the Communist Party’s monopoly on power.

Both countries face major challenges in ensuring that democracy does not turn into the tyranny of the majority.

An Indian's first reaction to China is often bewilderment. The language is wholly alien in sight and sound. The scale of the architecture seems outlandish. The highways are impossibly smooth, and the winter cold frighteningly desolate. Despite the fact that the days of everyone dressing in identical Mao suits are long over, there is an underlying uniformity to the physical and intellectual lives of the Chinese that is unfamiliar to Indians. Every big Chinese city has identical glittering glass-and-chrome malls. Smaller towns use bathroom tiles as their construction material of choice. The heated political debates that are par for the course aboard Indian trains are absent; the pageantry of street demonstrations and strikes is missing. Calls to prayer and the ringing of temple bells are rarely part of the aural backdrop.

Indonesia, on the other hand, is immediately familiar to an Indian. Regular demonstrations, featuring protestors who range from workers clamoring for a higher minimum wage to religious hardliners demanding the cancellation of beauty pageants, cause massive gridlock on the roads. Little retail shops selling everything from candy to talcum powder shelter in the shade of the extravagant malls. The call of muezzins punctuates the day, while the smell of moist earth emanate from gardens.

Everywhere – embedded in the language, on street signs, in political commentary and on bus advertisements – are references to the Hindu epics of the Ramayana and Mahabharata. An enormous statue of Krishna leading Arjuna into battle dominates the roundabout in front of Monas, Jakarta's main nationalist monument. Even Indonesian Muslims are commonly named after Hindu gods and goddesses. Among the country’s favorite forms of mass entertainment, particularly on the populous island of Java, is wayang kulit, shadow-puppet theater that features tales from the Indian epics.

Consequently, it remains common in both countries to express values like courage, strength and honesty with allusions to characters from Hindu stories. Even relatively hard-line Islamic political parties like the Partai Keadilan Sejahtera (PKS) have been known to hold wayang performances to boost their electoral fortunes. At a party convention held in Jogjakarta in 2011, for example, the PKS staged scenes from the life of Bima (a Mahabharata hero) to claim the need for a Bima-like entity (the PKS itself) to fight corruption.

The explanation for this affinity (it was not wholesale but tempered and modified by indigenous culture) is that for centuries, Hindu-Buddhist kingdoms ruled over large parts of the Indonesian archipelago. And Hindu cultural norms continued to infuse indigenous mores, even after large-scale conversion to Islam in the 16th century.

Colonial rule – British in India’s case and Dutch in Indonesia's – disrupted many of the direct links between Indian and Indonesian kingdoms. Long established trade routes along which textiles, spices and ideas had travelled for centuries were gradually taken over by European powers from the 17th century on.

India and Indonesia both gained their independence in the late 1940s, but the turn toward economic isolationism that characterized decolonization in both only cemented the colonial disconnect. As a result, Indians and Indonesians today are generally unaware of their strong cultural ties. Yet, the India-Indonesia hyphenation is a reality that finds present-day resonance not only in value systems, but in language. A large percentage of the vocabulary of Bahasa Indonesia, a standardized form of Malay, derives from Indian languages, including Sanskrit, Tamil and Urdu.

Conceptually, both nations are works in progress, rather than polished accomplishments. But this only underscores how germane their experiences are for each other.
Similarity in Diversity

China has long been a more territorially coherent entity than India or Indonesia. The geographical boundaries of China over the centuries have been mutable, but what we call "India" and "Indonesia" arguably did not even exist as political entities until the colonial period. Well into the second half of the 20th century, many Western commentators believed that post-colonial balkanization was inevitable for both, given their eclectic mixes of languages, ethnicities and religions. India, the world's largest democracy, is a Hindu-majority country – but is home to almost as many Muslims as Pakistan, in addition to substantial numbers of Christians, Sikhs, Buddhists and Zoroastrians. Contemporary currency notes have the denomination written in 15 languages.

Indonesia's remarkable diversity is less widely understood. With 250 million citizens, it is the world's fourth-most-populous nation and third-largest democracy. Superimposed on the map of Europe, the Indonesian archipelago would span the distance from Ireland to the Caspian Sea. It is home to 719 languages, spoken by people from over 360 ethnic groups (although, unlike India, it does have a national language: Bahasa Indonesia).

Seven out of eight Indonesians self-identify as Muslims, implying that more Muslims live in Indonesia than in any other country. The state, however, also recognizes five other religions: Hinduism, Buddhism, Protestantism, Catholicism and Confucianism.

India and Indonesia have grappled with secessionism on their peripheries for decades, but have nonetheless survived decolonization almost intact. They have consequently defied the European concept of the ideal nation, in which a single religion, language and ethnicity is assumed to be the "natural" basis for a sustainable political state.

That India and Indonesia have not only endured but are among the fastest growing economies in the world today is a testament to the fact that it is possible to create a strong, common identity out of seemingly irreconcilable multiplicity. That they are able to calibrate such diversity within a democratic political system (Indonesia has been a democracy since the downfall of military dictator Suharto in 1998) is an achievement that sets them apart from China.

However, both countries face major challenges in ensuring that democracy does not turn into the tyranny of the majority. Narendra Modi (India’s current prime minister), who is widely hailed as an economic reformer, also stands accused of doing little to stop the 2002 religious riots that took place under his watch as chief minister in the State of Gujarat. More than 1,000 people, mostly Muslims, were killed.

Modi denies that he was complicit and has been cleared by the courts; nonetheless, many civil-society groups continue to hold him culpable. Modi's political party is also closely affiliated with the right-wing Hindu organization, the Rashtriya Swayamsevak Sangh, whose objective is to establish India as a Hindu nation. Thus India's pluralism cannot be taken for granted.

Indonesia's new leader, Joko Widodo (popularly known as Jokowi), has stronger credentials among his country's minority communities. When he ran for governor of Jakarta in 2012, for example, he chose Basuki Tjahaja Purnama, a Christian of Chinese descent, as his running mate. Yet, minority Muslim groups, including Shia and Ahmadiyah, continue to protest discrimination at the hands of the majority Sunni Muslims. Christian groups have also complained about difficulties in acquiring permits to build churches.

India and Indonesia eschewed theocracy as the basis for nation-building. Nonetheless, unlike in secular Europe, religion has an active place in the public life of both. As a result, they constitute important experiments in developing a third way for countries in which religion remains a central part of the identity of most citizens, but where the more intolerant aspects of religion are held in check.

The preamble to India's constitution asserts that it is a secular state. However, neither the constitution nor its laws define the relationship between religion and state. Instead, secularism is understood as respect for all religions.

Indonesia's constitution leaves out the word secular altogether. The founding doctrine of Pancasila, which forms the basis for the constitution, professes a "belief in the divinity of the one God." But by leaving out any reference to a specific God (in the face of opposition from Islamists who had wanted a concrete mention of Allah), the Indonesian constitution also protects freedom of religious belief and practice.

As India and Indonesia feel their way forward into the new millennium, there is inevitably confusion about their founding ideas. Conceptually, both nations are works in progress, rather than polished accomplishments. But this only underscores how germane their experiences are for each other.

Religion remains a political force in each, even as development and fighting corruption have emerged as vote-winners. If the economic growth promised by the new governments in Delhi and Jakarta fails to materialize, it is possible that leaders, especially Modi, will fall back on stoking religious rivalries as a strategy aimed at the next elections. It is unclear, though, how voters would respond to such tactics.

india indonesia 04

Unleashing Growth

Although India initiated economic reforms in the early 1990s, more than 20 years after Indonesia's liberalization under the military dictator Suharto, the countries share a variety of similarities on the economic front.

Over the past decade, both have managed sustained growth in spite of slowdowns in the wake of the 2008 global financial crisis. The average real growth for India was 7.7 percent, while Indonesia grew at 5.5 percent. Both have made considerable strides in opening their economies to global forces, with exports now amounting to one-quarter of GDP. The median age in India is 27, close to the 29 in Indonesia and considerably more youthful than the corresponding 37 in China.

In 2013, the two countries were part of the so-called Fragile Five, a term coined by Morgan Stanley to identify emerging economies with large trade deficits. But since the elections of Modi and Jokowi in mid-2014, investor sentiment has improved. And many analysts argue that both nations now have a window of opportunity in which tough reforms taken by their popular leaders could translate into long-delayed structural changes that open the door to more-rapid growth.

Ben Bland, then the Indonesia correspondent for The Financial Times, listed "endemic corruption, woefully inadequate physical infrastructure, uneven law enforcement and underinvestment in health and education" as the main factors holding Indonesia back. The lack of ease in doing business in Indonesia and the need for smoother coordination among government ministries and between the central and local governments are the other challenges cited.

It is possible to substitute India for Indonesia and end up with a similar inventory. The World Bank's Ease of Doing Business Index ranks Indonesia 114th out of 189 countries, while India is 142nd. Health care expenditures as a percentage of GDP are a low 4 percent in India and an even lower 3 percent in Indonesia. According to Transparency International’s 2014 corruption rankings, India placed 85th out of 175 countries, while Indonesia comes in 107th – major drags on productivity, innovation and capital formation.

Both countries, moreover, urgently need a boost in manufacturing to absorb the underemployed labor flooding into cities in search of jobs. Getting from here to there won’t be easy for either, however. The success of Modi and Jokowi in achieving this goal will depend in large part on their skill in balancing protectionist lobbies and subsidy-habituated state-owned enterprises with reforms aimed at opening up to foreign investment, cutting red tape and taking on entrenched elites.

The tumble in global crude oil prices has helped ease the fallout of Indonesia’s decision last November to cut fuel subsidies, raising the prices of petrol and diesel by more than 30 percent. The move could save Indonesia $8 billion to $10 billion this year. India, too, stopped subsidizing diesel prices (last October) and raised fuel taxes.

But the way the savings are redirected will be crucial in determining whether there is a positive impact on economic growth. Given the high incidence of poverty in both countries – particularly in India, where more than half the population lives on purchasing power equal to less than $2 a day – using the extra funds to benefit the poor would serve the cause of growth and political stability. Part of the money might go to health, education and transportation. But some ought to be allocated as direct cash payments to poor households, thereby reducing opportunities for corruption by middlemen.

It will not be easy for either country, however, to confront the endemic problem of corruption. Jokowi has already run into trouble over his nomination of Budi Gunawan, a powerful general, as police chief. Gunawan is a former security aide to Megawati Sukarnoputri, who heads Jokowi’s political party, and he is known to be close to her. Three days after his nomination, the KPK, Indonesia's anticorruption agency, named Gunawan as a suspect in a corruption probe. The police then arrested one of the KPK's five commissioners on perjury allegations relating to a five-year-old case.

In the process, Jokowi's reputation took a battering. The president suspended Guna-wan's nomination, but did not drop it until more than a month later. Consequently, he alienated both popular opinion, which saw him as buckling to the old guard, and many of the political elite who viewed Gunawan as an ally.

How this will all play out for Jokowi’s reform ambitions is unclear. But it underscores how tough it is to curb the influence of the corrupt elite in Indonesia.

The Indonesian president's troubles are deepened by the reality that his party, the PDI-P, is a minority in Parliament. Worse, he cannot even rely on the support of his own party, which is controlled by Sukarnoputri. In contrast, Modi enjoys a strong majority in the Indian Parliament. Nonetheless, his party, the BJP, was trounced in state assembly elections in Delhi earlier this year, winning only 3 of 70 seats.

Moreover, the big winner was the newbie Aam Aadmi Party (AAP), which is led by a former anticorruption activist who ran on a platform of increasing market-distorting subsidies for electricity and water. It is not easy for any government, even one with a strong mandate at the center, to enact structural change in a country like India, where voters tend to respond to short-term sops.

The difference in temperament and policy inclinations of the two leaders is what will make the India-Indonesia comparison so interesting to observe in the coming years.
Contrast in Leadership

Compared to India, Indonesia is a new democracy. General Suharto's three-decades-long dictatorship was dismantled in 1998. However, the two countries are already political doppelgangers. A multiplicity of parties, noisy rallies, demanding trade unionists, and a free and assertive press are part of the public landscape in both nations – a far cry from the annual meetings of China's National Peoples Congress that are usually orchestrated into rigor mortis.

Last year's elections saw the elevation of a new breed of popular leader in both countries. Voters were clearly disenchanted with traditional elites. Modi, whose family ran a tea stall, has risen from near the bottom of India's caste and class hierarchies. Jokowi is from a similarly underprivileged background. The son of a carpenter, he was a furniture seller before becoming the mayor of Solo, a midsized city in central Java.

These similarities should not obscure trenchant differences in temperament and policy inclinations that divide them. But it is these divergences that are what will make the India-Indonesia comparison so interesting to observe in the coming years.

As a leader, Modi is dominant and combative, while Jokowi is consensual and conciliatory. In his long reign (2001-14) as chief minister of Gujarat State, Modi acquired a reputation for governing with a firm hand as he pursued an aggressive, pro-business agenda. And since taking charge of the country, he has concentrated power in the prime minister's office. Ministers are left with little elbow room.

In contrast, Jokowi is unassuming in manner. As governor of Jakarta (a post to which he was elected in 2012) he avoided the tangible trappings of power like fancy cars and security details. He often walked around public markets listening to people's concerns firsthand, and was known for attending popular city events like rock concerts and marathons.

While Modi's reputation in Gujarat was built on the back of large infrastructure projects, Jokowi's derives from his stint as mayor of Solo, during which he transformed a formerly crime-ridden city into a center for regional arts and culture. It was there that he demonstrated his mediation skills in relocating street vendors from a park in the city center.

Modi is an economic reformer with capitalist instincts. His achievements in Gujarat included attracting substantial investments into manufacturing and power projects. He introduced business-friendly policies aimed at cutting red tape and making land acquisition easier than in other parts of the country.

As prime minister, he has yet to make any dramatic announcements on the reform front, but he has made a raft of more modest proposals, including relaxing foreign investment rules for insurers, military contractors and real estate companies. A broad tax overhaul is also underway. And in recent months, India’s growth has matched China's for the first time.

Jokowi, on the other hand, is a communitarian. In Jakarta, as in Solo, he made societal welfare a consistent priority. His sympathies lie with small-business owners, like the street vendors of Solo. As governor of Jakarta, his flagship projects included free health care and education funds for the poor, the shifting of thousands of squatters out of flood catchments into low-cost apartments, and the restarting of a much-delayed public transport overhaul. As president he has widened the policy of smart cards for accessing free health care and education for the poor.

Through a Glass Darkly

Analysts have forecasted six-plus percent growth for India and five-plus percent growth for Indonesia this year. Although faster than the recent norm, growth at this level is not enough to be truly transformative for either nation over the medium-term – China's growth at this stage of development was in the range of 10 percent. New Delhi and Jakarta must lift millions out of poverty, a task that will require them to innovate and invest on a much larger scale.

Some of the prerequisites for the sustained growth needed to reach upper-middle-income status are clear: openness to foreign investment; suppression of corruption; regulatory streamlining; and reforms in education, health and infrastructure. But there are a variety of imponderables – among them, rising income inequality, ethnic conflict, helter-skelter urbanization, air and water pollution and climate change – that will complicate navigation from here to there. Both India and Indonesia seem poised to make up for lost time, but the road to success is bound to be long and tortuous.