India’s economic development: the socio-political context

Mythili Bhusnurmath Consulting Editor Economic Times

Welcome to India! Namaste!

Political dynamics
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A union of 28 states & 7 UTs Government democratically elected at state and centre on basis of universal adult franchise Present union government a coalition of 3 main allies & a no. of smaller parties Previous NDA government had 24 allies

Social dynamics
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Population 1.21 billion (2011 census) Multi-cultural, multi-religious, multilingual, multi-ethnic….. Hindus 80.5%, Muslims 13.4% others Christians, Sikhs, Parsis, Buddhists 2 official languages: English & Hindi

No national language; 22 scheduled languages & > 100 non-scheduled languages

Status of Women

Wide disparities in status Literacy rate (2004) : women 47.8% men 73.4 % High MMR; sex ratio adverse & declining 914: 1000 in 2011 census (927 in 2001)

Surfeit of laws to protect women India a signatory to The Covenant on Elimination of Discrimination Against Women, CEDAW

declining political party. Women most disadvantaged Woman head of ruling section of society. Pepsi CEO is an Indian.25 a day Woman president.A country of contrasts More billionaires than Japan & China 40% of population below poverty line of $1. a woman heads second largest bank Young girls are killed by their own parents and family members for daring to choose their own husbands 6 . 2 women sex ratio. female infanticide chief ministers Indra Nooyi.

plans to put man on the moon Wins 2nd-highest medals at Commonwealth games Not able to provide basic infrastructure – electricity. water .So how many India’s are there? Has just been elected a 80% of women without non-permanent member access to toilets.. education Has highest no. health. falling of UN Sec Council sex ratio Has capability of launching commercial Satellite . of malnourished children in commonwealth 7 .

Contrasts never seem to end • Ambani builds 26 storey house in Mumbai. but millions homeless • More people have cell phones than toilets • Produces some of the best and brightest doctors/engineers but unable to provide 100% primary education .

Highs and lows: Living cheek by jowl .

But there’s place for everyone! .

of demand & supply equilibrium • Great Theory  says each one acting in his/her own interest  maximizes welfare for all •“Not from the benevolence of the butcher.Economics vs Politics • Textbook economics talks of the invisible hand of the market. the brewer or the baker that we expect our dinner but from their regard to their interest” Adam Smith 11 .

also we need the very visible hand of the state to supplement the market – crisis in Europe is an outstanding example 12 . For markets to function you need perfect knowledge. also invisible hand of market is present and is unfettered Assumes there is no need for interference from government   True? Not quite.Economics  vs Politics Presumes perfect knowledge.

Economics  vs Politics Thus there is no question of free markets existing in a vacuum minus the state anywhere in the world Economics without politics is like religion without sin – it does not exist So what happens when economic dictates collide with political interests in a country like India?   13 .

protect sovereign interests 14 . invisible hand of market must be backed by visible hand of government to enforce property rights. promote competition. contracts. redistribute income.Economics    vs Politics Economics without Politics is a neat world But it is a world that does not exist In the real world.

Europe or INDIA The difference is the debate in India predates the crisis    . how much state Pendulum has swung from one extreme to another Whether in US.State vs Market  Issue really is how much market.

A peep into the real India .

State vs market not new in India  Why has the state vs market debate been part of India’s socio-political firmament even before the crisis? Reason is simple –we are home to a third or more of the world’s poor We are also a democracy which means you cannot ignore the poor   .

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so is a Three Gorges Dam Means unlike in China the government cannot ignore the voices of the poor Means growth alone will not suffice     Means equity – distribution of the fruits of growth is as important else growth will not be sustained .What does that mean?  Very simply: a Tiananmen Square is unthinkable Sadly.

In search of the Goldilocks answer  For almost 4 decades after independence we had too much state Result? We grew at the Hindu rate of 3-4%   Beginning late 1980s we began to shift to a market-oriented economy Growth trajectory changed: between 20034 to 2008-09 India grew at close to 9%  .

India at the time of independence .

90  1947: independence – fairly industrialized. growth rate of 3-4% Hindu rate of growth 25  . a conscious policy to see that growth was more equitable – hence central planning. poor Key strategy – accelerate growth rate to reduce poverty – focus was on job creation but not content with the ‘trickle-down’ strategy so went in for ‘pull-up’ strategy.India: phase 1 : 1950.

.India: Phase II reforms of 1991  Position at start of 1990s  Still desperately poor. inefficient industry. licence-control raj Trigger for reform: huge current a/c imbalance Forex reserves down to < $ 1 billion i. less than for 2 weeks imports  26 .e.

reforms slowed down 27 .Economic Reforms  Political situation : Minority government led by Narasimha Rao Government went ahead with pathbreaking reforms – 360 degree turn   not only survived the immediate crisis. once immediate crisis was over.1991 . but also completed its term  However.

Economics  vs Politics : India Thus most reforms took place in the first two years of Rao government. when politically its position was the weakest   Is this a contradiction ? Not in India! Subsequent governments: Politics has gained upper hand. pace of reforms has slowed down though direction unchanged 28 .

globally BRICS report: Dreaming with the BRICS: visions of overtaking China Rainbow coloured vision: India Shining?    .The Wonder years  2003-04 – 2008-09 were the wonder years for Indian economy Suddenly India was the flavour of the season.

March 2012 GDP growth down to 5.3%.5% (2011-12) Set to slow down even further –last quarter of 2011-12 ( Jan. the lowest in past 32 quarters) 30  .India: Phase III : Crisis and beyond   What is the position today? After strong growth in the 5 year period till 2008-09 and slight slowdown after growth has slowed to a markedly lower 6.

the state vs market debate always tilts in favour of the state – Hollande’s win in France. grinding poverty are unique to India  31 . collapse of governance & most important. Except our state is more venal – issues of corruption.Low hanging fruit has been plucked  We need to get on with more difficult reforms  But when economies pass through difficult times. Greek elections India is no different.

Tough Reforms needed  Labour – Restrictive labour laws eg Industrial Disputes Act Judicial Reform Infrastructure development – physical & social Raising the ceiling on foreign investment    .

because the present government has lost moral authority   .Does government have the political will   Yes ? No? Yes. even if they are poor & illiterate No. if you consider our track record…we act only when we have our back against the wall Yes. because you can’t fool all the people all the time.

my bet is on India.Yet. Why? Strengths and Opportunities  Demographic dividend  Large domestic market  Services – Outsourcing/IT  Democracy – plus and minus 34 .

India:  Threats Changing structure of economy at odds with population distribution – agriculture’s share in GDP 19% but pop dependant on it 60%. political  • Collapse of governance / corruption but civil society finds its voice 35 . Geo-political situation in region/terrorism/ domestic unrest –communal.

women left behind .Growth not inclusive.

Infrastructure bottleneck  Physical infrastructure is receiving attention. not so social infrastructure viz health and education Expenditure on education about 3% of GDP as against target of 6% .Right to education a fundamental right  .

India vs China Unending debate  Is China’s faster rate of growth due to its political system ie is India paying the price for its democracy? Contrast Three Gorges Dam. Gujarat. China & Sardar Sarovar. Beijing Olympics & Commonwealth Games Metro line held up by 1 man who went to court 38  .

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500 mw of power irrigate hundreds of acres. 153 towns and 4. 200 villages partly affected. provide drinking water 40  18. 1. consumed 19 counties.2  . irrigated thousands of acres m people.500 villages mega watts of power.Unending debate  Three Gorges Dam 1 million people dislocated.000  Sardar Sarovar  0.India vs China .

India vs China   No famines in democracies Amartya Sen Case of SARS epidemic – impossible to even think of such a thing in India Coastal areas and interiors – disparity in China. In India governments get voted out Beijing Olympics/Tibet? Indian problems out in the open – role of civil society   41 .

Recent political eco tussles in India Land Acquisition for industry  Tussle over Lokpal Bill to tackle corruption  Silver lining? Civil Society is finding its voice. forcing government to change stance eg anti-corruption legislation  42 .

Congress.Noisy democracy or chaotic democracy?   Lok Sabha/ lower house of Parliament: Total Seats 545. 27 parties Party Position  UPA (United Progressive Alliance) 262 (Congress 206)  NDA (National Democratic Allliance) 157 (BJP 116)  Non. Non-BJP 72 43 .

Democracy & Eco Progress?     Is the price too high? Economic reality? Political freedom? Face off with civil society on corruption What is the trade off? 44  .

So is everything hunky-dory?   Not at all ! But as long as democracy is firmly entrenched and civil society plays its role. India will be able to overcome the huge odds it faces today. .

Two views on India: Negative the British leave) India will fall back quite rapidly through the centuries into the barbarism and privations of the Middle Ages  ‘India is a geographical term. It is no more a united nation than the Equator.’ Winston Churchill  (When .

nothing overlooked. to make India the most extraordinary country that the sun visits on his rounds. nothing has been left undone.’ Mark Twain .’ Romain Rolland ‘So far as I am able to judge. it is India. Nothing seems to have been forgotten. either by man or nature.The other view:  ‘If there is one place on the face of  earth where all the dreams of living men have found a home from the earliest days when man began the dream of existence.

So which is the real India? And why is there hope? .

Because… • Democracy • Free Press • Civil Society • Demographic dividend 49 .

Merci Gracias Thank You Danke Grazie .

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