Tag Archives: Prime Minister Narendra Modi

Will India Play Constructive Role in Climate Talks?

IPCC Climate Change 2015 Synthesis ReportThe Intergovernmental Panel on Climate Change (IPCC) published its Fifth Assessment in 2014, summarizing the work of thousands of scientists across the world.  The message was, in the panel’s own words, “unequivocal”.   Climate change will exacerbate poverty in most developing countries.  This is due to a complex range of factors, but particularly food price increases.  It notes that, in the years since its previous report in 2007, there have been rapid food price increases, following climate extremes in key producing systems.

A similar picture emerges on health.  A study, by The Lancet and University College London, stated that climate change is the biggest global health threat of the 21st century.  Climate change influences disease patterns, food, water, sanitation, extreme events, shelter and human settlements, which in turn affect health outcomes. Infant mortality is closely linked to under nutrition and food insecurity, both affected by climate change.

Reducing carbon emissions will help to mitigate these effects; meanwhile, there are economic, health and social opportunities in low carbon development pathways.   Decentralized low carbon energy, for example, such as solar and wind, can provide electricity for the 70 per cent of sub-Saharan Africans who currently have no access.  Growth in off grid solar has given 2.5 million households in Kenya access to energy.

Paris 2015 COP21 CMP11The Paris Summit in December 2015 provides a crucial opportunity for India to lead, aligning development goals with action on climate change, and given the discussions around the Sustainable Development Goals.   196 countries will meet to sign a new climate change agreement, which needs to acknowledge the importance of climate change mitigation to development and the necessity of finance, both to adapt to climate change and to invest in low carbon economic pathways.  But how likely is it that it will be meaningful and make a difference to climate action on the ground?

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).

Incentivizing Trade and Investment

The U.S.-India Business Council (USIBC) hosted President Barack Obama and Prime Minister Narendra Modi for a first-ever joint address to the U.S. and Indian business communities on Monday, January 26 in New Delhi along with the Government of India’s Department of Industrial Policy & Promotion (DIPP), the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce & Industry (FICCI).

The New Delhi Deal

U.S. President Obama and India's PM Modi wave towards the media during a photo opportunity ahead of their meeting at Hyderabad House in New DelhiThe New Delhi Deal initiated by U. S. President Barack Obama and Indian Prime Minister Narendra Modi last week has emboldened India’s economic reform agenda and deepen U.S. – India bilateral relations.  The two countries reached agreement on a series of measures designed to reinvigorate commercial trade, restore the confidence of investors in India’s vast market, and resolve differences over the liability of suppliers to India in the event of a nuclear accident and U.S. demands on tracking the whereabouts of material supplied to the country.

  “Chalein saath saath; forward together we go.”

 – India-U.S. Delhi Declaration of Friendship

Trade and Investment

Under President Obama, trade between the two countries has increased by about 60 percent to nearly $100 billion a year (White House, 2015).  Speaking at a U.S.-India Business Council Summit in New Delhi,  President Obama announced a series of steps that will generate more than $4 billion in trade and investment with India while supporting thousands of jobs in both countries:

  • The Export-Import Bank will commit up to $1 billion in financing to support “Made-in-America” exports to India.
  • OPIC will support lending to small and medium businesses across India that will result in more than $1 billion in loans in underserved rural and urban markets.
  • The U.S. Trade and Development Agency will aim to leverage nearly $2 billion in investments in renewable energy in India.

Climate Change

The President and Prime Minister Modi pledged to enhance U.S.-Indian cooperation on our mutual climate and clean energy goals. The new deal ranged from financing initiatives aimed at helping India use renewable energy to lower carbon intensity.  The progress made on combating climate change, include the U.S.-India Partnership to Advance Clean Energy (PACE) umbrella program and technical work on emerging technologies.

The agreements include:

  • Enhancing bilateral climate change cooperation to achieve a successful and ambition agreement in Paris this year.
  •  Cooperating on Hydro-flurocarbons to make concrete progress in the Montreal Protocol in 2015.
  • Expanding PACE-R, the U.S.-India Joint Clean Energy Research and Development Center, to extend funding for research on solar energy, energy efficiency, and advanced bio-fuels.
  • Launching air quality cooperation to help urban residents reduce their exposure to harmful levels of air pollution.

More than 80% of electricity generation in India comes from fossil fuels and the power sector consumed nearly 70% of the coal the country produced in 2011, according to the International Energy Agency (IEA, 2014).

Human Rights

President Obama addressed an audience of 1,500 at Siri Fort Auditorium in New Delhi on the final day of his trip.  In a pointed message, the President pressed India on the need to address wider social challenges, including human trafficking and slavery, the status of girls and women in society, religious and racial tolerance and the need for programs to empower young people (Baker/Barry, New York Times: 2015)

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.

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.

Thinking About Thinking About A Bali Deal

U.S. Secretary of State John Kerry (L) shakes hands with Indian Prime Minister Narendra Modi at the Prime Minister's residence in New Delhi August 1, 2014.India has blocked a landmark trade treaty, the first global trade reform since the creation of the World Trade Organization 19 years ago.  This collective action problem demonstrates the constraining character of previously dominant political and economic games.  Policymakers everywhere are seeking to restructure the state so that it can play new roles in the future (Cerny, 1995) of global governance.  India, included.

On the one side, a firmly held conviction that the decisions that ministers reached in Bali (2013) cannot be changed or amended in any way — and that those decisions have to be fully respected.  And on the other side of the debate some believe that those decisions leave unresolved concerns that need to be addressed.

U.S. Secretary of State John Kerry, who was on a visit to India, told Prime Minister Narendra Modi  that India’s refusal to sign the trade deal had undermined the country’s image.

A labourer spreads wheat for drying at a wholesale grain market in the northern Indian city of ChandigarhIndia says it is willing to sign a global trade deal, but just not yet.  The country’s unresolved concern is food security.   India’s new nationalist government has insisted that a permanent agreement on its subsidised food stockpiling must be in place.

My view is that the multilateral trading system is important not just to support economic growth and development, but also to deal with global issues of governance.  However, domestic politics matter, for either side.  The reality is Indian incomes are increasing rapidly, but not as rapidly as one would infer from official labor income data and growth statistics (Piketty, 2014).  Food security is a supreme national interest.

The possibilities for collective action through multilateral regimes have increased, but these operate at least one remove from democratic accountability (Cerny, 1995).  As Putnam (1988) puts it, it is fruitless to debate whether domestic politics really determine international relations, or the reverse.  Think about it.  The answer to that question is clearly, “Both, sometimes.”