To start with, I want to reaffirm that India needs economic reform, and
lots of it. Reforms should strengthen governance institutions as well as
the working of markets. An increased role for markets and competition
will, on the whole, benefit the Indian economy. If reforms are done
well, they can promote inclusive growth. With all that clearly stated, I
want to question some of the reform rhetoric around FDI in multi-brand
retail, and argue for making a different set of reforms a priority if we
want to improve the supply chain, whether farm to fork (or fingers,
really, for India), or for manufactured goods.
Certainly, Western retailers such as Walmart and Tesco can
bring in knowledge that comes with vast experience, as well as large
dollops of capital. If we can have McDonald’s in India, bringing in new
ideas, high standards of customer service and process efficiencies, why
not foreign retailers too? Certainly, it will help to increase
competition and innovation in retailing. But some of the arguments being
made seem to have shaky foundations.
More....
Friday, June 15, 2012
Reading the Budget Entrails
This year I happened to be in New Delhi the day the Union Budget was
presented in Parliament. I was at the India Habitat Centre for an
academic conference, but much of that complex was turned into a media
circus, with TV stations offering live coverage and instantaneous
commentary from pundits scurrying from room to room. The next day’s
newspapers overflowed with examinations of the still warm body of the
Budget speech and its accoutrements. By now, anything I say will seem
like reading the entrails. The hot news moment has passed.
Many reactions from academic and industry commentators that I have read have been very critical of the Budget. I read them before I had a chance to read the Budget speech itself. Perhaps as a result, I was somewhat pleasantly surprised when I did so. In any case, given the political events that preceded the Budget, I was not expecting too much. Finally, having studied the evolution of the Indian Budget over several years, I have come to expect that the Budget speech has moved away from being a vision statement, focusing instead (properly in my view) on setting out revenue and expenditure policies and estimates. Of course one can infer some important things from these policies—a bit like reading entrails.
More....
Many reactions from academic and industry commentators that I have read have been very critical of the Budget. I read them before I had a chance to read the Budget speech itself. Perhaps as a result, I was somewhat pleasantly surprised when I did so. In any case, given the political events that preceded the Budget, I was not expecting too much. Finally, having studied the evolution of the Indian Budget over several years, I have come to expect that the Budget speech has moved away from being a vision statement, focusing instead (properly in my view) on setting out revenue and expenditure policies and estimates. Of course one can infer some important things from these policies—a bit like reading entrails.
More....
Lessons from India's Voters
In my last column, I wrote about learning from China. The experience of
other countries, especially those that share key characteristics with
India, is obviously important as a guide for policymakers. But there are
important lessons from India’s own experience. Democratic voting allows
the individual experiences of citizens to be articulated, albeit in an
aggregate and imprecise manner. Drawing the right lessons from India’s
latest elections is vital.
The stock market seemed to conclude that the outcome in Uttar Pradesh was a bad one for India’s economic future. Since the UP state assembly election did nothing to consolidate the political position of the ruling party’s heir apparent, it may be that uncertainty and jockeying for position at the Centre will continue, both within the ruling party, and in the wider coalition. Capricious coalition partners and powerful ministers may continue to block or divert needed and potentially beneficial economic reforms.
More....
The stock market seemed to conclude that the outcome in Uttar Pradesh was a bad one for India’s economic future. Since the UP state assembly election did nothing to consolidate the political position of the ruling party’s heir apparent, it may be that uncertainty and jockeying for position at the Centre will continue, both within the ruling party, and in the wider coalition. Capricious coalition partners and powerful ministers may continue to block or divert needed and potentially beneficial economic reforms.
More....
What Should India Learn From China?
Arguably, China’s successful embrace of one form of capitalism (“to get
rich is glorious”) in 1978 ultimately played a role in steering India’s
path of economic reform. Since then, China has often served as a
benchmark for judging India’s progress, because it is the only other
country that matches India in population size. Sorting out the lessons
from China’s experience is always useful, beyond the comparison of the
countries’ planning exercises, the subject of my last column.
What should India learn from China, and what should it not?
One should start by rejecting the political values of China’s regime. Suppressing the free expression of ideas, or the exercise of political voice, is not necessary for economic development, or even for political stability. India’s previous flirtations with such suppression were never associated with economic progress, and recent attempts to impose broad censorship of the internet are indicators of insecurity of the political elite, and nothing more. The notion that China’s authoritarianism has virtues (often part of the “Asian values” school of thought) to be copied by India must be totally rejected. Democracy is not incompatible with inclusive economic development.
More....
What should India learn from China, and what should it not?
One should start by rejecting the political values of China’s regime. Suppressing the free expression of ideas, or the exercise of political voice, is not necessary for economic development, or even for political stability. India’s previous flirtations with such suppression were never associated with economic progress, and recent attempts to impose broad censorship of the internet are indicators of insecurity of the political elite, and nothing more. The notion that China’s authoritarianism has virtues (often part of the “Asian values” school of thought) to be copied by India must be totally rejected. Democracy is not incompatible with inclusive economic development.
More....
A Tale of Two Plans
India is moving toward finalising its Twelfth Five-Year Plan, for
2012-17. The process is long and fascinating. A 140-page draft approach
paper was made available late last year, and has been followed by an
exceptional process of consultation and discussion, including meetings
across the country, a website that allows citizen discussions of
specific points and issues, and even a Facebook page. The Plan document,
and the framework of 12 strategy challenges, are encompassing in
nature, as befits the ambitious goal of faster, sustainable and more
inclusive growth.
The world’s other emerging giant, China, also still has Five-Year Plans. In this case, it is only a year or two ahead of India—its Twelfth Plan was finalised last year, and covers the period 2011-15. One cannot imagine the Chinese government having online discussions by citizens for shaping such a document, and certainly not a Facebook page. But more than the process, which is ultimately mostly top-down at the formulation stage for both countries (because that is where the expertise and knowledge mostly reside), the tenor and goals of the two Plans are quite different.
More....
The world’s other emerging giant, China, also still has Five-Year Plans. In this case, it is only a year or two ahead of India—its Twelfth Plan was finalised last year, and covers the period 2011-15. One cannot imagine the Chinese government having online discussions by citizens for shaping such a document, and certainly not a Facebook page. But more than the process, which is ultimately mostly top-down at the formulation stage for both countries (because that is where the expertise and knowledge mostly reside), the tenor and goals of the two Plans are quite different.
More....
Saturday, January 28, 2012
India and the World in 2012
These are two columns reflecting on what went wrong in India in 2011, what I hope will change for the good, and what the global and domestic threats are for the continuance of India's growth story.
Making 2012 a Better Year for India
A year ago, I offered an optimistic and hopeful view of India’s possibilities in 2011. As it turned out, things were much less rosy than I had guessed they might be. I had gone with the then-popular growth forecast of 9%. Growth has been much lower. Part of the problem was the ongoing European crisis, and the US’s slow recovery. Much of the difference came from what has been happening within India.
A year ago, I remarked that the private sector in India has done well despite poor governance. This has remained true, but not to the extent that I had hoped. The general poor quality of governance was compounded in 2011 by uncertain handling of corruption, which surfaced as a major issue for India’s citizens. My view is that India’s ruling coterie is currently weak in its leadership and its vision. Too many of those who rule are focused on short-term personal advantage, rather than leading the country well. Will this improve in 2012? It is hard to say what will happen at the national level. However, one can hope for more progress in governance quality in some of the states.
Read more...
Thousand Rupee Notes on the Pavement
The past year has driven home the fact of globalization, even for countries like India that are relatively less integrated with the global economy. For example, India’s ratio of exports of goods and services to GDP is only about two-thirds of China’s (despite excluding Hong Kong and Macao). But it has still felt the wind from global storms. The European crisis, in particular, has heightened risk perceptions, slowing global growth, and leading to a flight to safety of global capital. What are the potential global threats for India in 2012?
Read more...
Making 2012 a Better Year for India
A year ago, I offered an optimistic and hopeful view of India’s possibilities in 2011. As it turned out, things were much less rosy than I had guessed they might be. I had gone with the then-popular growth forecast of 9%. Growth has been much lower. Part of the problem was the ongoing European crisis, and the US’s slow recovery. Much of the difference came from what has been happening within India.
A year ago, I remarked that the private sector in India has done well despite poor governance. This has remained true, but not to the extent that I had hoped. The general poor quality of governance was compounded in 2011 by uncertain handling of corruption, which surfaced as a major issue for India’s citizens. My view is that India’s ruling coterie is currently weak in its leadership and its vision. Too many of those who rule are focused on short-term personal advantage, rather than leading the country well. Will this improve in 2012? It is hard to say what will happen at the national level. However, one can hope for more progress in governance quality in some of the states.
Read more...
Thousand Rupee Notes on the Pavement
The past year has driven home the fact of globalization, even for countries like India that are relatively less integrated with the global economy. For example, India’s ratio of exports of goods and services to GDP is only about two-thirds of China’s (despite excluding Hong Kong and Macao). But it has still felt the wind from global storms. The European crisis, in particular, has heightened risk perceptions, slowing global growth, and leading to a flight to safety of global capital. What are the potential global threats for India in 2012?
Read more...
Thoughts on FDI in Retailing
Here are two columns I wrote late last year, reflecting on the political process and economic analysis associated with India's attempt to open up multi-brand retailing to FDI. The first column also has some thoughts on developmental objectives and social opportunity, based on some new work by Yale economist John Roemer.
Development and Opportunity
The furor over the attempt to open up FDI in multi-brand retail reminds us of several things about India. But the true lessons may not be the seemingly obvious ones. It is certainly possible that the government’s handling of the policy change was not the best it could have been. On the other hand, those with long memories will recall numerous occasions where policies have been floated, reversed, modified or even transformed. At one time, all FDI and disinvestment were controversial—now the discussions are more nuanced (even if political rhetoric remains strident).
Read more...
Retailing and Reform
In my last column, I mused on India’s economic reform process and inclusive growth, in the context of opening up multi-brand retail to FDI. I want to return to the question of political capital, and policy thinking about reform in the retail sector.
On using up political capital, I think ongoing events have proved me wrong. Opposition to opening up multi-brand retail has come from the same quarters as opposition to other reform measures, including the Pension Bill and Companies Bill. On all these, the government has openly looked for compromises that will lead to acceptance of the reforms. If that is the case, then moving on multiple fronts may give the government more chance of getting some changes through, not less. The government has also reset its approach to FDI in retail, marshaling interest groups that might benefit, and saying more to make the case for the positive consequences of the change. So even if it lost some political capital initially, it should recover it quickly.
Read more...
Development and Opportunity
The furor over the attempt to open up FDI in multi-brand retail reminds us of several things about India. But the true lessons may not be the seemingly obvious ones. It is certainly possible that the government’s handling of the policy change was not the best it could have been. On the other hand, those with long memories will recall numerous occasions where policies have been floated, reversed, modified or even transformed. At one time, all FDI and disinvestment were controversial—now the discussions are more nuanced (even if political rhetoric remains strident).
Read more...
Retailing and Reform
In my last column, I mused on India’s economic reform process and inclusive growth, in the context of opening up multi-brand retail to FDI. I want to return to the question of political capital, and policy thinking about reform in the retail sector.
On using up political capital, I think ongoing events have proved me wrong. Opposition to opening up multi-brand retail has come from the same quarters as opposition to other reform measures, including the Pension Bill and Companies Bill. On all these, the government has openly looked for compromises that will lead to acceptance of the reforms. If that is the case, then moving on multiple fronts may give the government more chance of getting some changes through, not less. The government has also reset its approach to FDI in retail, marshaling interest groups that might benefit, and saying more to make the case for the positive consequences of the change. So even if it lost some political capital initially, it should recover it quickly.
Read more...
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