Am­bi­tion into Re­al­ity

Modi’s dilemma is that he is seen as the leader of the right wingers who are more in­ter­ested in cul­tural na­tion­al­ism than in devel­op­ment.

Southasia - - CONTENTS -

Modi’s eco­nomic devel­op­ment agenda is am­bi­tious but there are se­ri­ous caveats.

Prime Min­is­ter Naren­dra Modi’s agenda of devel­op­ment mainly em­pha­sizes in­fras­truc­tural im­prove­ments like up-gra­da­tion of road and rail net­works, im­prove­ment of ports as well as re­forms in tax­a­tion, in­sur­ance, la­bor, public bu­reau­cracy and health. The ‘Make in In­dia’ pro­gram – launched just be­fore PM Modi’s maiden visit to the U.S. – is

By Jamil Nasir the re­it­er­a­tion of his prom­ise to turn around the econ­omy of In­dia. It prom­ises a new FDI ap­proach by of­fer­ing in­vestors a string of mea­sures aimed at re­duc­ing the reg­u­la­tory bur­den.

Ac­cord­ing to an of­fi­cial state­ment about the pro­gram, “the gov­ern­ment is com­mit­ted to chart out a new path wherein busi­ness en­ti­ties are ex­tended red car­pet wel­come in a spirit of ac­tive co­op­er­a­tion. In­vest In­dia will act as the first ref­er­ence point for guiding for­eign in­vestors on all as­pects of reg­u­la­tory and pol­icy is­sues and to as­sist in ob­tain­ing reg­u­la­tory clear­ances.” The pro­gram ba­si­cally en­vis­ages boost­ing man­u­fac­tur­ing, jobs for youth and cap­i­tal­iz­ing on low-wage costs. It cov­ers sec­tors

like au­to­mo­biles, chem­i­cals, IT, phar­ma­ceu­ti­cals, tex­tiles, ports, avi­a­tion, leather, tourism, rail­ways, hos­pi­tal­ity, etc.

The re­vival of man­u­fac­tur­ing, which is at the heart of the pro­gram, is not go­ing to be as easy job as man­u­fac­tur­ing has con­sis­tently lost its share in the GDP of the coun­try. The ser­vice sec­tor has re­mained the pri­mary driver of eco­nomic growth in In­dia for the last few decades. The in­dus­try’s share is said to be stuck at 25 per­cent. The share of small en­ter­prises in man­u­fac­tur­ing em­ploy­ment in In­dia is es­ti­mated at 84 per­cent com­pared to 25 per­cent in China. In the words of Gita Gopinath, Pro­fes­sor of Eco­nomics at the Har­vard Uni­ver­sity, “The fact that In­dia has moved from an agri­cul­tural econ­omy to a ser­vice-driven econ­omy with al­most no growth in in­dus­try is not a virtue; it is an out­come of poli­cies that have ham­pered man­u­fac­tur­ing and min­ing.” The ‘Make in In­dia’ ini­tia­tive is ba­si­cally an ar­gu­ment for the new eco­nomic growth model based on ex­port-ori­ented man­u­fac­tur­ing which sim­ply means en­cour­ag­ing do­mes­tic en­trepreneurs to man­u­fac­ture goods for ex­port and at­tract­ing in­ter­na­tional com­pa­nies to re­lo­cate their pro­duc­tion in In­dia.

A num­ber of or­di­nances are on the agenda for trans­lat­ing the devel­op­ment plan into re­al­ity. They in­clude re­forms of com­mer­cial laws for speed­ier ar­bi­tra­tion in com­mer­cial dis­putes, rais­ing the for­eign di­rect in­vest­ment cap in the in­sur­ance sec­tor from 26 per­cent to 49 per­cent for the pro­mo­tion of for­eign di­rect in­vest­ment, open­ing the min­ing sec­tor to the pri­vate sec­tor and eas­ing land ac­qui­si­tion by ex­empt­ing key public and pri­vate sec­tors like de­fense, ru­ral in­fra­struc­ture and heavy in­dus­try from costly and com­pli­cated so­cial and reg­u­la­tory pro­cesses. Thus the Modi gov­ern­ment has em­barked on an am­bi­tious devel­op­ment agenda by press­ing ahead with re­forms and mak­ing fu­tur­is­tic in­vest­ments in in­fra­struc­ture, high-speed rail and smart cities.

Modi also an­nounced abol­ish­ing of the Plan­ning Com­mis­sion, which has re­mained at the heart of cen­tral­ized re­source al­lo­ca­tion and has pro­duced Soviet-style five year plans. Arvind Pana­gariya, Pro­fes­sor of Eco­nomics at Columbia and a pro­po­nent of free trade and dereg­u­la­tion, has been ap­pointed the vice-chair­man of the Na­tional In­sti­tute for Trans­form­ing In­dia – Aayog – a new agency es­tab­lished by PM Modi to work as a high-level think tank on pol­icy ad­vice to the gov­ern­ment.

Un­doubt­edly, Modi’s devel­op­ment agenda is am­bi­tious and may un­lock the growth po­ten­tial if it goes smoothly. But there are se­ri­ous caveats. First of all, In­dia’s tax and reg­u­la­tory en­vi­ron­ment is highly com­plex. How swiftly Modi man­ages to make it sim­pler and eas­ier re­mains to be seen. An­other chal­lenge will be the fi­nanc­ing re­quired for the growth model. The suc­cess of the East Asian growth model owed it­self to high in­vest­ment rates. Whether such in­vest­ment will be forth­com­ing in the near fu­ture is not clear. Con­fronting the devel­op­ment chal­lenge will re­quire co­op­er­a­tion from state gov­ern­ments. How they will sup­port the cen­tre is un­cer­tain at best.

But the most daunt­ing chal­lenge for In­dia will be communal har­mony. Af­ter all, this is the ba­sic pre-req­ui­site for devel­op­ment. The grow­ing communal in­ter­ven­tions of the Sangh Pari­var and Modi’s si­lence are not good signs. His track record as the chief min­is­ter of Gu­jarat is also du­bi­ous with re­gard to the fun­da­men­tal rights of the mi­nori­ties. “Since Modi came to power, the en­tire Hin­dutva has re­turned to the cen­tre stage of In­dian pol­i­tics. At the heart of that agenda are communal vi­o­lence, in­flam­ma­tory state­ments about the re­la­tion­ship be­tween Hin­dus and other re­li­gious groups (es­pe­cially Mus­lims), mo­bi­liza­tion over Ram­janamb­hoomi/ Babri Masjid, re­peal of Ar­ti­cle 370, re­li­gious con­ver­sion and, most im­por­tantly, dis­rupt­ing and re­work­ing the ed­u­ca­tion sys­tem,” says a blog­ger writ­ing for the Times of In­dia.

The pro­po­nents of Hin­dutva think that com­mu­nal­ism will unite the ma­jor­ity com­mu­nity, i.e. the Hin­dus and once the other com­mu­ni­ties think that the Hin­dus are united they will join the main­stream as con­verts or ju­nior part­ners. Such as­sump­tions are largely mis­placed. By alien­at­ing the mi­nori­ties, it will be­come dif­fi­cult to guar­an­tee communal har­mony which is con­sid­ered the sine qua non for sus­tain­able devel­op­ment. Can schemes like Ghar Wapsi (home com­ing) bring so­lace to the mi­nori­ties of In­dia? Can the pro­mo­tion of such schemes give con­fi­dence to for­eign in­vestors? Cur­rently, a tug of war be­tween cul­tural na­tion­al­ism and devel­op­ment seems to be tak­ing place in In­dia and Modi’s dilemma is that he is seen as the leader of the right-wingers who are more in­ter­ested in cul­tural na­tion­al­ism than devel­op­ment.

“Modi rose to power as the head of a fam­ily of rightwing or­ga­ni­za­tions that largely do not share his eco­nomic pri­or­i­ties and are ob­sessed with the so-called cul­tural na­tion­al­ism, which is es­sen­tially repack­aged as Hindu chau­vin­ism. The ten­sion be­tween Modi’s avowed eco­nomic re­formism and the cul­tural na­tivism that an­i­mates his gov­ern­ment’s elec­toral base is a ma­jor im­ped­i­ment to progress – Modi has found him­self in an un­en­vi­able po­si­tion vis-à-vis his own sup­port­ers: he can­not live with them, and he can­not live with­out them. Un­less he can find a way to re­solve his po­lit­i­cal dilemma, hope for a ‘Modi mir­a­cle’ in In­dia’s econ­omy will ebb as rapidly as it rose,” writes Shashi Tahroor.

The chal­lenge at hand is not the am­bi­tious plan it­self, but to trans­late it into re­al­ity and make it sell­able to the In­di­ans as well as for­eign in­vestors. The writer is a grad­u­ate of Columbia Uni­ver­sity with a de­gree in eco­nomic pol­icy man­age­ment and a Chevening Fel­low­ship on Eco­nomic Gov­er­nance.

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