Friday 9 October 2015

‘Minimum govt’ crucial for Modi’s success (Pakistan Observer)

Geopolitical notes from India

M D Nalapat

Friday, October 09, 2015 - Finance Minister Arun Jaitley cannot be accused of not being frank. He went public that China’s economic woes are India’s opportunity. And indeed, there is truth in the assertion, though whether it was diplomatically rewarding to mention it openly remains a matter for debate. After all, India is looking at massive investment from China for the “Make in India” programme of Prime Minister Narendra Modi, with some estimates of possible investment over the next six years rising as high as $ 150 billion. 

The Indian market is of major significance for the healthy growth of Chinese companies in infrastructure, telecom and energy. Besides, its financial entities would find channels within private industry in India who would be willing to collectively borrow another $ 150 billion, for not only are Chinese interest rates more competitive than for Indian banks, so is the repayment period, which is usually much longer for Chinese institutions. And while banks based in the US or the EU also have lower lending rates than their counterparts in India, they are also less forgiving of bad times, and much more willing to close down a company by refusing accommodation during crises than Indian or Chinese banks. 

However, despite the potential for Chinese investment and lending, not only Finance Minister Arun Jaitley but another key member of Team Modi, National Security Advisor Ajit Doval, who is as open and straightforward in his views as Jaitley, has made no secret of his assessment that China and not any other country poses the biggest threat to India. 

Those eager to ensure high growth are however hopeful that such blunt remarks by leading policymakers in Delhi’s high profile Lutyens Zone will not substantially affect the flow of investment from Beijing to Delhi, especially because Prime Minister Modi himself does not appear to have such an apocalyptic view of relations between India and China, and indeed is known to consider President Xi Jinping as a close friend. South Korea is another country from where Modi is looking to entice investment on a substantial scale. 

After his visit to the country and discussions with the businesslike and petite President Park Geun-hye, every week some delegation or the other from Seoul has been visiting India, concentrating mainly in the south of the country, which has been growing at a steady rate since the 1980s, fuelled by its excellent human resources as well as a societal climate that attracts the best brains from states such as Uttar Pradesh and Bihar, where local politicians have made life difficult for those looking to do an honest and productive day’s work. As a consequence, talented residents of such states have to migrate to other states, where many do exceptionally well. 

Over the past year, more than twenty South Korean manufacturing units have been planned in India, and there are plans to develop more South Korean industry parks on the lines of the small facility set up near Neemrana in Rajasthan. Over most of East Asia (Korea, Japan, the PRC and Taiwan), companies prefer to invest in clusters and create enclaves where expatriates will feel more at home. South Korean companies have of course been hyperactive in India since the 1990s and as a consequence, several large cities in India have Korean restaurants that are heavy on seafood and meat, as indeed are Chinese and Japanese - not to mention European and North American - eateries. Given the expected scale of investment from China, Japan and South Korea over the remaining period of the NDA goverment’s 5-year term,more can be expected to follow.

The economy in India has the potential to soak up $ 1 trillion before 2024. However, for “manufacturing” money to set up industries in India (as distinct from “hot” money flowing into equity markets and in banks paying extortionate interest rates to attract dollar deposits) on such a scale, much more needs to be done to create a policy matrix designed to encourage inward investment. Since Sonia Gandhi took over the de facto leadership of the Government of India in 2004, policies have been formulated that resemble those in the 1970s,when high tax rates and crippling regulatory constraints ensured that India moved at a crawl the same time as ASEAN and much of East Asia accelerated. 

This columnist has been consistent in his view that it will take two years for Prime Minister Modi to design and implement an all-India Modi model of development, the way he fashioned a model for Gujarat during 2001-2014. Others have argued that it would take only a year for the Prime Minister to adjust to the vastly different conditions in Delhi from what they are in Gandhinagar, the capital of Gujarat. A Chief Minister, if he personally commands the support of a majority in the state assembly, controls about 45% of the total administrative and policy power in his or her state, the rest being distributed amongst other players, such as industrialists, farmers and societal organisations. 

As yet, the NDA government sworn in on May 26,2014 does not seem to have made this adjustment.Indeed, it functions as though it controlled 89% of administrative and policy power,seeking to lay down rules on matters big and small the way Sonia Gandhi did. India is a country of the young, and what the 70% of the country below the age of 30 seek is empowerment and opportunity. They will not accept restraints prescribed by the state, such as the recent effort to stop the consumption of buffalo meat in a country where the meat of cows has been taboo since long, or the effort to continue the North Korea model of internet governance legislated into law by the Congress Party with the support of the BJP (then in opposition) in 2005. 

Prime Minister Modi and his ministers will find severe blowback unless the poll promise of “Minimum Government” is taken seriously by them. The world will be watching to see if Narendra Modi can get passed the Goods & Services Tax Bill in the winter session of Parliament after having been unable to do so for the last three sessions. If the GST does get passed, and is followed by lower regulation, interest rates and taxes, India under Modi will enter the same trajectory of growth that Deng Xiaoping guided China’s economy into during the 1980s. If none of this happens, the present 7% growth rate will begin to fall to the 3% growth rate witnessed during the Jawaharlal Nehru and Indira Gandhi period.

—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.

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