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Opinion

January 22, 2015
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Modi’s East Asian dream

Opinion

January 22, 2015

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India’s Prime Minister Narendra Modi has recently appointed Arvind Panagariya, Professor of Economics at Columbia University and a champion of free trade and deregulation, as Vice-chair of the National Institute for Transforming India (NITI) Aayog, a new agency which will work as a high-level think tank on policy advice to the Indian government.
The prime minister himself will be the chairman of this agency. It seems that the establishment of this agency is sort of a farewell to the Indian Planning Commission, which has worked as a bastion of centralised economic planning on the style of Russia and produced several five-year plans for development.
The process of liberalisation and deregulation which India embarked on in the 1990s will now gain momentum. Professors Jagdish Bhagwati and Arvind Panagariya have persistently argued that in order to accelerate economic growth, India should further liberalise areas like labour, land, and education which are considered still highly regulated. Their argument was that after all economic growth, mainly the result of reforms undertaken in India, pulled more than 200 million people out of poverty.
Perhaps with Prime Minister Modi in power, Bhagwati and Panagariya's turn has come.
Since coming to power, Prime Minister Modi is arguing for a new model based on export-oriented manufacturing which means encouraging domestic entrepreneurs and inviting the world’s top-class companies to relocate their production to India. The ‘Make in India’ programme launched by Prime Minister Modi recently is an initiative towards achieving this goal.
‘Make in India’ promises a new FDI approach by rolling out the red carpet to investors through a string of measures aimed at reducing regulatory and compliance burden. The programme basically envisages boosting manufacturing, job creation for youth and capitalising on low-wage costs.
But economists are arguing that revival of manufacturing is not that easy. Manufacturing

has consistently lost its share in the GDP of the country. The services sector has remained the primary driver of economic growth in India over the last few decades. The industry’s share of value added is said to be stuck at 25 percent.
According to Gita Gopinath, professor of Economics at 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 – Comprehensive reforms are required. Significant improvement could be achieved by rule changes to accelerate approval of business permits and environmental clearances, simplify labour regulations, and fill judicial vacancies”.
A number of ordinances are on the agenda for translating the development agenda into practice. Reforms of commercial laws for speedier arbitration in commercial disputes, raising foreign direct investment cap in the insurance sector from 26 percent to 49 percent for promotion of foreign direct investment, opening up the mining sector to the private sector, and easing land acquisition by exempting key public and private sectors like defence, rural infrastructure and heavy industry from costly and complicated social and regulatory processes are some of the legislative measures under consideration.
Undoubtedly, Modi’s development agenda is ambitious and may unlock the growth potential if it goes smooth. But there are serious caveats for the success of Modi’s development agenda. For example, India’s tax and regulatory environment is highly complex and how swiftly he manages to make it simpler and easier remains to be seen.
The success of the East Asian growth model was due to high investment rates. It is unclear if Modi’s government will be able to attract high investment in the near future. Confronting the development challenges will require cooperation from the state governments and whether that support will be forthcoming to the Modi government is uncertain at best.
But there are some broader issues upon which the pace of the future growth of India hinges. On top is communal harmony, which seems to be seriously under assault these days. A harmonious society is the basic prerequisite for development.
The increasing communal interventions of the Sangh Privar and Modi’s silence over such interventions leaves a lot to guess. His track record while he was the chief minister of Gujarat is also dubious with regard to respect of fundamental rights of the minorities and communal harmony. “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), mobilisation over Ramjanambhoomi/Babri Masjid, repeal of Article 370,religious conversion, and most importantly, disrupting and reworking the education system”, says a blog on Times of India.
Can we expect schemes like ghar wapsi to will give confidence to the minorities of India and to foreign investors? A tug of war between culture and development seems to rage in India. Modi’s dilemma is that he is the leader of the right wing who are more interested in cultural nationalism than in development.
Shashi Tharoor, in a recent article ‘Modi’s chauvinism problem’, says: “In fact Modi rose to power at the head of a family of right-wing organizations that largely do not share his economic priorities ,and that are obsessed with so called cultural nationalism – which is essentially repackaged 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”.
India’s East Asian dream is hard to come true unless it ensures communal harmony, peaceful coexistence and accommodation for the minorities and its neighbors. Otherwise tension between Modi’s economic agenda and cultural aggression of the right wingers will drown all development initiatives no matter how sincere they may be.
A series of attacks on Indian minorities especially the Muslims since Modi’s coming into power is not a good omen for the development agenda of Modi. “The galloping chauvinism has known no bounds. Modi himself made an embarrassing declaration – in a speech at a new hospital, no less- that the figure of Hindu god Ganesh, with the elephant’s head on a human body, attested to the ancient Hindus’ knowledge of plastic surgery”, writes Shashi Tharoor.
For Modi, the challenge at hand is not to have an ambitious plan but to translate it into practice by garnering support of the broader segments of society so that his development agenda is not considered synonymous with cultural and national chauvinism.
The writer is a graduate of ColumbiaUniversity. Email: [email protected]
Twitter: @Jamilnasir1

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