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No Change on Lanka but What About the Economy How Much Can Modi Change Policy

No Change on Lanka but What About the Economy How Much Can Modi Change Policy

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Published by Thavam Ratna

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Published by: Thavam Ratna on Jun 08, 2014
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08/14/2014

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Mahinda with Modi-
June 7, 2014
Kumar DavidIn several essay in the last three weeks about the outcome of the Indian elections I argued five  points. In the voluminous outpouring in the global, Indian and even local media about expectations for Modis term of office, there have been no sharp differences in respect of three of the five. In respect of the fourth many have adopted a different emphasis from that which I intend to press in this piece. !he fifth item pertaining to "anka is no longer open ended# Modi has committed himself to continuity and to $%&. I will comment on this, but my main topic today is Modi-'()s economic options.& summary of the points, without repeating the reasoning in previous essays, is*-a+ Indian democracy is secure despite the election of a right-wing party with extremist partners  and hiv ena+ and a prime minister with an authoritarian reputation. b+ !here will be no horrific anti-Muslim witch-hunt despite the triumph of /indutva nutcases, give or take isolated incidents sparked by hiv ena.c+ 0oreign policy to attract 1estern investment capital and a core security orientation to sustain and strengthen the strategic link with the 2nited tates will remain basic.d+ a+ to c+ are 3no change predictions, but d+ is where I see a difference from the outgoing 4ongress government. Modi-'() will aggressively push forward Indian style neoliberalism,  promote a business and investor friendly stance, and curtail populism cutting subsidies and welfare. !his will engender mass opposition# not slowly but as soon as austerity is imposed.
 
e+ 0inally I suggested that Indian policy towards ri "anka will remain unchanged.In respect of a+ to c+ there seems to be no disagreement. & few commentators have expressed 5I hope you are right about the Muslims5 reservations and a few have said relations with )akistan and 4hina may be strained. 6xpectations of a growth and institutional reform oriented strategy are universal, but no one has contested my suggestion that austerity for the masses, and7or concessions to 1all-Mart etc which hurt small shopkeepers, will engender a backlash. 1hile I agree that there will be pro-business changes, I now go further# I now opine that a ma8or transformation of the Indian economy is not at hand. /ence I partially retract d+ as stated above and amend my case in the section subtitled 5Modis economic options5 below. 0inally the Modi-Mahinda meeting in Delhi has settled prediction e+ in the affirmative.1hy Modi will not embrace Mahinda!he many reasons for the new government not changing Delhis "anka policy add up to a single bottom line. 1hats in it for Modi and the '()9 1hy antagonise !amil :adu, not (ayalalitha alone but everybody including allies9 !he bureaucrats in the outh 'lock have a settled policy, why should Modi dump it and drift without anchor9 )ost-;eneva <=$>, would Indias the new government want to cut loose from the 1est and go a separate way ? where to9 If Modi co@ied to 4olombos pariah reputation, would the '() not play into the hands of 4ongress waiting for anything to hang on to9 'etrayer, traitor to the memory of $,A== 8awans, turncoat against !amils, imagine the chorusB!he '() never opposed Delhis policy dolts like ubramanium wamy aside+ previously, and the Caypayee ;overnment of $E to <==>, to the best of my recollection, stuck to the same line. It is true that Indias "anka policy was crafted by 4ongress, not the '(), but the '() has  been content to go along with it. &re there reasons now, from Modis narrow or Indias wider  benefit point of view to undertake a radical policy shift9 I cant see any.&t the same time, local !amils hallucinating that /indu Modi will empathies with saffron ivites across the )alk trait are dreaming atop Mount Kailash. )ersonal styles differ, Modi is a street fighter, Manmohan ingh was a gentleman# but policy will remain intact.Modis economic optionsI disagree with the deluge of 1estern commentators and salivating bourgeois think-tanks. 1e have been flooded by both for two months. !hey slobber that Modi will cut to a brave new universe. )reviously I did opine the likelihood of Indian neoliberalism, but re-examination  persuades me that Modi-'() will retain the mixed-economy. !here will be some change but no $E=-degree policy reversal is possible. Margaret !hatcher style counter-revolution is out of the Fuestion in modern India.Indian economic policy from <==A to <=$$, compared say to 4hina, has not been a failure. 0ig $ shows that Indian growth tracked 4hina, recovered from global capitalisms ;reat ecession
 
in a healthy upswing in <==, and remained buoyant up to G<-<=$$. )erformance was upbeat compared to the 6uro@one, &merica and 2K throughout the last $A years and remains so today despite an election losing downturn in <=$<-<=$%. !he mixed-economy based model has not failed# consciously or otherwise 4hinese experience is affecting all developing nations. )olitically, Indian democracy, pluralism and secularism are strong# they cannot be reversed by /indutva obscurantism. 1ithout an ideological overturn repression and far right socio-economic strategies are not doable.0ig $. India is on the right track !he growth polygon in fig < shows that the ;D) growth-rate shrank all over the world in <=$< compared to <=$= the <=$< polygon is entirely inside the <=$= polygon+ but India did better than the other 'I4 economies except 4hina. :one of the 1estern economies even crossed the %H circle in <=$<. !his informative graphic is from the web, but I cant locate the 2" now+. 1hat I am emphasising is that the mixed-economy model has not failed despite setbacks in the last two years./owever, certain serious but contingent circumstances undermined the 4ongress government. 1hat were the reasons for the setback9 I would assert that it was not the model per se but contingent factors such as snowballing high-level, high-visibility corruption, inflation, a fall in the exchange rate and the impact of Manmohan inghs image as a eunuch and ineffective leader. !he fall in currency value and inability to control the fiscal deficit contributed to inflation. ut-of-control corruption of the politically powerful hit the headlines. :on-governance issues such as weak long-term investment planning, retroactive taxation, absence of dollar investment bonds and coalition partners pulling in different directions, derailed the government. (ettisoning of the mixed-economy in favour of a full-blooded turn to neoliberalism is not a course that Modi-'() should, can, or I believe intends to take. 1hat we will see is a more robust and muscular style of leadership, some whip cracking against big time corruption,  but I expect only a carefully managed turn away from populism and subsidies, towards  business friendly policies and neoliberalism.0ig <. !he 'I4 economies have maintained their advantageModi versus the masses!here is however one structural feature from which there is no getting away. 0igures %a and %b are based on IM0 numbers <=$%+ and forecasts <=$E+.0ig % J b. 'ased on IM0 statistics#taken from the ''4 websiteIndia is not the worst among debtors and like the others in the graphic the future, looking ahead five years, is grim for all. It is in fig %b, the IM0s forecast of fiscal outlook prepared before the <=$> elections, that sinks India. It is the only country in the sample, with the exception of

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