Category Archives: Governance

Why Modi Matters

Time Magazine Cover Why Modi MattersIn his first year as Prime Minister, Narendra Modi has seized the global spotlight with global media coverage.  Two authoritative weekly newspaper articles published in the past week, Time Magazine and The Economist respectively, offer two important reasons why the world needs both India and the prime minister to step up as a confident global power.

Economic Reforms (Fast and Far)  

First, the outlook for the Indian economy has improved over the past year, though that’s not entirely due to Modi’s efforts.  Modi’s “pro-business orientation” is unlike its predecessor.  The government has taken steps to further liberalize India’s economy by, for example, opening up key sectors of the country’s economy and pushing through long standing proposals to increase foreign direct investment.  On whether economic reforms have gone far and fast enough, Modi told TIME editor Nancy Gibbs, “This time last year, nothing seemed to be happening in the government.  There seemed to be a complete policy paralysis. …There was no leadership.  My government’s coming to power should be viewed in the contexts of the developments of the 10 years of the last government vs. 10 months of my government (Time, May 18, 2015).”

Modi’s Pledges 

Modi's Many Tasks The Economist Special Report May 23 2015Second, Modi is a superb taskmaster.  The Economists has compiled a list of 30-odd official pledges announced in the past year to outline the government’s ambitions (see left).   Around half the tasks are means to be completed by the next election, 2019.   The article(s) were published in Time magazine, May 18, 2015; The Economists May 23-29, 2015 (US Edition).




The Superior Financial Powers of Modi’s Fiscal Roadmap

One of the key features of the Modi administration’s fiscal roadmap is the move to increase disinvestments to include both disinvestments in loss making units, and some broader strategic disinvestments.  The government plans to raise 695 billion rupees ($11.2 billion) in the year starting April 1, an amount crucial to its efforts to narrow the budget deficit.

The sale target includes stakes in central public sector enterprises, holdings in non-government companies, strategic disinvestment and Specified Undertaking of the Unit Trust of India (SUUTI).  In an interview with Bloomberg News (March 3), Disinvestment Secretary Aradhana Johri  reported India’s divestment receipts in the current year ending March 2015 was at 254 billion rupees.  The government is looking to raise 285 billion rupees through sale of its holdings in SUUTI, Bharat Aluminium Co and Hindustan Zinc Ltd.

The scaling up of disinvestments is ambitious, and highlights an important characteristic of Indian federalism: Central government possesses superior financial powers.

Part of the revenue levied at the Central government is of course redistributed among states, on the basis of advice of the organizationally independent Finance Commission or through the National Institution for Transforming India (NITI Aayog), and constitutes a significant source of income for them.  However, the impression that is thus created is one of profligate states, and a more careful and sophisticated Central financial management (Mitra/Pehl, 2012).

Since the liberalization of economic policies and the decentralization of policymaking to states from the early 1990s onwards (and even before then), states have been able to exercise some autonomy in regulating their own development trajectory (Mitra/Pehl, 2012).  However, the picture today is one of differentiation among India’s states in terms of their fiscal capabilities as well as their developmental potential, and a need for reform of inter-state mechanisms of coordination and equalization (an issue NITI Aayog promises to address).

The government is firm on achieving a fiscal deficit target of 3% in 3 years.  The fiscal deficit targets are 3.9%, 3.5%  and 3.0% in FY 2015-16, 2016-17, and 2017-2018  respectively.  But that journey has to take account of the need to increase public investment.

Economics for the Common Man

AAP chief and its chief ministerial candidate for Delhi Kejriwal waves to his supporters in New DelhiAam Aadmi (AAP), or Common Man Party ran a  simple but formidable campaign, beating back the Bharatiya Janata Party (BJP) ambitions to gain political capital in a Delhi state election.    The message was simple, “Never underestimate the power of the common man.”

Economics for the Common Man  

Aam Aadmi Party Common Man Political Cartoon published on AAP website 10 February 2015

The rise of the AAP’s Arvind Kejriwal, Delhi’s new Chief Minister and former tax inspector provide important insights into the nature of politics at the grassroots level in India.  On the one hand, ‘pro-poor polices and clean government’ is the narrative for the ‘common man.’  Politicians functioning as intermediaries with the state acquire influence and amass political capital (Krishna, 2012).  On the other hand, a great deal of hard work is required to mobilize non-caste based political entrepreneurs who can deliver economic benefits and provide avenues for greater political participation (Krishna, 2012).  From this vantage point, it is imperative that the ruling party remain focused on redistributing wealth from the more advantaged to the less advantaged.

The Challenge for Economic Reforms 

In October 1929 Sir Basil Blackett characterized political unrest in India as an economic phenomenon of the middle class, the “outcome of discontent and maladjustment” (Foreign Affairs, October 1929).   Today, the challenge for economic reforms in India is inclusive growth.  Social unrest and protests similarly runs deep in resource-rich areas of central and eastern India, where rapid economic growth has been accompanied by rapidly growing inequality (HRW, World Report: 2012).

Prime Minister Narendra Modi swept to power with the biggest national election victory in three decades, promising to revitalize India’s economy, fix governance and push through reform legislation by executive decree.  However, economics for the common man is systematic.  The strategies and processes that create, break down, and recreate social coalitions in the party system require calculated tactical alliances (Swamy, 2012).   Institutions in the economic system must distribute rights and realize solutions.  When these transaction are taken into account, it turns out that the existence of firms, the structure of the financial system and even fundamental features of the legal system can be given a relatively simple explanation (see Coase, 1960).

There is a Great Deal of Variation in the Conditions of Life and Labor of the Indian ‘Working Class’

One of the consequences of economic liberalization in India, as elsewhere in the world, has been to encourage the informalization of labor, so that the share of organized, formal employment in the labor force as a whole has been declining (Harriss, 2010).

India’s labor laws, many conceived during British rule, have stifled manufacturing and hindered job creation.  Companies with more than 100 employees must obtain government permission to fire workers, a provision that discourages companies from expanding and hiring.  In 2012, about 84 percent of manufacturers in India employed fewer than 49 people, keeping a large majority of the work force in the informal sector with little job security and few benefits (16, October 2014, New York Times).

Development and Job Creation

The national program, ‘Make in India,’ is designed to transform India into a global manufacturing hub.  The reforms include plans to streamline labor laws and make scrutiny of factories transparent to curb harassment by government inspectors, cut red tape, develop infrastructure and make it easier for companies to do business.

Prime Minister Narendra Modi was elected on a platform of development and job creation.  “For the success of ‘Make in India,’ ease of doing business should be given priority,” said Modi at the event launch in September 2014.  Labor regulations are among the biggest challenges to setting up manufacturing in India, which fell to 134th place this year in a World Bank index of countries for doing business.

Aligning India’s Labor Strategy 

There is a great deal of variation in the conditions of life and labor of the Indian ‘working class,’ and it cannot be expected that a common political class consciousness can be at all easily developed (Harriss, 2010).

At the India Economic Summit (2011), delegates sought to align India’s labor strategy with the evolving global context as well as the development priorities for India and South Asia.  The success of ‘Make in India’ also depends on realizing youth potential, with added improvements in the education system, infrastructural investments, and an agenda for equitable distribution of opportunities.

India Had the Third-Largest Number of People Living with HIV in 2013

World AIDS day 2014According to the Joint United Nations Programme on HIV and AIDs, or UNAIDS, India had the third-largest number of people living with HIV in the world at the end of 2013, and it accounts for more than half of all AIDS-related deaths in the Asia-Pacific region.  In 2012, 140,000 people died in India because of AIDS.

The Economics of HIV/AIDS

One argument is that the scale of the HIV/AIDS epidemic is so great and so threatening to overall social and economic development that it constitutes an emergency that requires a direct response (Canning, 2006).  The Indian government has been providing free anti-retroviral drugs for HIV treatment since 2004, but only 50 percent of those eligible for the treatment were getting it in 2012, according to a report from the World Health Organization.  This strategy has been effective in delaying the decline in the immune system, the onset of opportunistic infections, and death (Canning, 2006).    However, the reach means stronger prevention measures are required, now.

Ethical Arguments 

world aids day india

National human rights institutions have become increasingly engaged in addressing HIV-related human rights issues (UNAIDS, 2013).  Stigma and punitive environments continue to have a negative impact on the rights of key populations at higher risk and other vulnerable groups. If the goal is to maximize the health benefits produced, developing-country governments and international institutions should focus their health spending first on the prevention of HIV transmission, before moving on to treatment (Canning, 2006).  However, emphasizing treatment before prevention in financially-constrained environments comes at the highest cost, deaths.

Is India Better (or Worse) Off Increasing Competition in the Banking Sector?

asifma-annual-conference2014-header564x185At the Annual Asia Securities Industry & Financial Markets Association (ASIFMA) conference in Singapore, Deputy Governor of the Reserve Bank of India Shri R. Gandhi explained why India would be better off increasing competition in the banking sector.  The opening of branches in un-banked and under-banked centers, he said, would increase the flow of credit necessary for equitable development, diversify risks and help to tap latent opportunities.  “On the one hand channelizing foreign investments; on the other hand boost competitive spirit amongst the financial sector entities, thereby, raising the efficiency bar of the domestic players,” he continued. (Gandhi, 2014)

These statements are a powerful reminder of the transformational role foreign banks play in influencing the host country economies.  However, let us also consider the implication of policy preferences of various socioeconomic groups toward further financial integration.

First, foreign banks account for less than one per cent of total branches of commercial banks in India.  Out of the total of 318 foreign bank branches, 315 are in urban and metropolitan areas (RBI, 2014).

Second, over the long Photo taken by Sophia N. Johnson Chandigarh Punjab Sector 25. 2008run, international financial integration has historically favored capital over labor (Rogowski, 1987; Frieden, 1991).  In the shorter run and in terms of politics and policies, financial integration favors capitalists with mobile or diversified assets, and disfavors those with assets tied to specific locations and activities such as manufacturing or farming (Frieden, 1991).

Third, its true an important explanation for the current stability and growth of India’s financial sector has been the role of the Reserve Bank and the Ministry of Finance (along with other institutions like the Securities and Exchange Board of India (SEBI) that were set up by them in the 1990s), (Kapur, 2010).  However, international capital mobility changes the pattern of lobbying over national policies in developing country economies.  More specifically, it tends to shift the debate toward the exchange rate as an intermediate or ultimate policy instrument, thereby driving a wedge between those more sensitive and those less sensitive to exchange rate fluctuations and between those who favor currency appreciation and those who favor depreciation (Frieden, 1991).  This tracks a division of the economy between producers of tradable goods on the one hand, and international investors of producers of non-tradable goods and services on the others.

Nobel Peace Prize Awarded for Advancing the Rights of Children

Aldred NobelThe Norwegian Nobel Committee awarded Indian child rights campaigner Kailash Satyarthi and Pakistani child education activist Malala Yousafzai the Nobel Peace Prize for their struggle against the suppression of children and young people, and for the right of all children to education.

Kailash Satyarthi, 60, maintaining Gandhi’s tradition of non-violence, has headed various forms of protests and demonstrations, all peaceful, focusing on the grave exploitation of children for financial gain.  He has also contributed to the development of important international conventions on children’s rights.

Malala Yousafzay, 17,  has shown by example that children and young people, too, can contribute to improving their own situations. This she has done under the most dangerous circumstances.  She has emerged a leading spokesperson for girls’ rights to education.

I applaud the Committee’s decision.  My view is that the labor dimension of economic development has long been neglected, while policy and research focused on improving the ‘real’ side of the economy.  It has been calculated that there are 168 million child laborers around the world today.  It is estimated that there are 21.6 million children, aged between 5 and 14 years, working in South Asia out of a total of 300 million children in this age group (International Labor Office, 2004).  The factors that generate child labor include parental poverty and illiteracy; social and economic circumstances; lack of awareness; lack of access to basic and meaningful quality education and skills, and high rates of adult unemployment and under-employment.

Announcing the prize in Oslo on Friday, chairman Thorbjorn Jagland said it was also important for “a Hindu and a Muslim, an Indian and a Pakistani, to join in a common struggle for education and against extremism.”  South Asia has the world’s largest working-age population, a quarter of the world’s middle-class consumers, the largest number of poor and undernourished, and several fragile states of global geopolitical importance.  “In conflict-ridden areas in particular, the violation of children leads to the continuation of violence from generation to generation.”

Modi: Development and Growth-Oriented Employment is the Government’s Responsibility

PM launches global initiativeThe process of trade and investment liberalization in India suggests the importance of history and process in a political explanation (Pierson 2004: 54-78; Mukherji 2010: 492).  Prime Minister Shri Narendra Modi’s ‘Make in India’ global initiative allows a reconsideration of economic geography, that is, it’s time to attempt to incorporate the insights of the long but informal tradition in India (Krugman, 1991).

Modi’s approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale.  Meanwhile, consumers demand a varied supply of goods.  As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another (Krugman, 1991).

The Prime Minister has urged investors not to look at India merely as a market, but instead see it as an opportunity.  “Development and growth-oriented employment is the government’s responsibility,” he said.

Krugman’s theories have shown, that these processes enables specialization and large-scale production, just what the Make in India program hopes to achieve.    However, scaling economies also require attention in areas such as: tax policy, climate change, outsourcing, intellectual property rights, ‘ease of doing business’, ‘effective’ governance and skilled labor for manufacturing and other issues.

States, Not Markets, are Responsible for Economic Security

Kashmiri demonstrators clashed with Indian police during a protest in the northern city of Srinagar Jammu and Kashmir Feb. 28. Tauseef MustafaAgence France-PresseGetty ImagesThere is good reason to think that the internal and external security problems across India have much to do with the social effects of market-oriented reforms.  The beneficiaries of reforms, the argument continues, should bear the cost of negative externalities.  However reforms, when properly governed, is in fact a powerful force for social good (Bhagwati, 2007).  States, not markets, are usually held responsible for security (Leander, 2008).

The economic security of the state is significantly weakened with abuses by the police and security forces.  The most significant human rights problems in India include extrajudicial killings, torture and rape, as well as corruption at all levels of government (India 2013 Human Rights Report).  According to the report commissioned by the U.S. Congress and published by the State Department separatist violence, life-threatening prison conditions, sex trafficking of children and an atmosphere of impunity resulting from the overburdened judicial system is endemic.

Smaller acts of human agency thus matter.  On the basis of available evidence, such acts can be divided into three categories: movement politics aimed at electoral politics, nonelectoral civic interventions, and initiatives led by local administrations (Varshney, 2002).  How lasting the effect of this political shift depends on what kinds of civic institutions are put in place.

Trust, Confidence and Making Local Government Work

It is of course only an illusion to think that any government will strike a perfect policy balance between government and governance. Power in the Indian political system, for example, has historically emerged from coalition formation at the lower levels, everyone engaged in it has had a vested interest in keeping the “democratic” game going, though, once again, the stakes are not the same for everyone. (Mitra, 2001). The true challenge lies in devising a scheme where local democracy, elites, and experts can play complementary roles.

“I believe government has no business to do business. The focus should be on Minimum Government but Maximum Governance.”
– Prime Minister Narendra Modi

Prime Minister Narendra Modi propose the judicious use of local government. “Simplifying and streamlining the administrative rules and procedures to make them people-friendly” is certainly a good start. Local government is at its most effective when local institutions enjoy the trust and confidence of local elites and are simultaneously accountable to the local electorate (Mitra, 2001).

Drawing on survey data relating to popular attitudes towards local government and the analysis of case-study and interview Mitra (2001) finds that the experimentation in local democracy has been the least successful in those regions where no autonomous empowerment of subaltern social groups has taken place. Accordingly, the judicious use of local government will infuse new political resources into the political system and enhance the resiliency and legitimacy of the state.