India’s economic growth and the Philippines compared
CROSSROADS (Toward Philippine Economic and Social Progress) - Gerardo P. Sicat (The Philippine Star) - June 19, 2019 - 12:00am

Comparisons with other countries enable us to see ourselves in a fresh light. We get to understand and appreciate our problems and strengths in perspective.

While no two countries are truly alike, some traits, habits and fortunes might resemble or parallel each other. To that extent, they could present good lessons to learn from and bad ones to avoid.

Modi’s emergence. The reelection last month of Narendra Modi as prime minister of India brings to prominence the economic development and prospects of that country as it moves forward to upgrade its pace of modernization.

Modi surged into the national scene when he led his political party toward control of the Indian government. His pragmatic approach to reforms to turn India’s underperformance into an active agent of growth won him support in 2014 to become prime minister.

Modi’s election also diminishes the power of the dynastic hold of the Gandhis on Indian politics.

India’s recent history, politics and economy. India became politically independent in 1947. Its political structure is patterned after the British, a parliamentary government run by a prime minister. It is a democracy built upon a party system of representation.

After independence, one family had dominated the political scene until lately – the founding prime minister was Jawaharal Nehru and his daughter, Indira Gandhi, and her family, had ruled India through the Congress party

A massively written political constitution defines the various powers and rules of government, from the parliamentary government to the local institutions which are often in conflict.

Many political practices were enhanced by tactics of control learned from the British rule and transferred to the ruling elite.

Even as dynastic politics has ruled India since independence, there is a lot of divisiveness in its practice that often prevent decisive actions. Such fractiousness, in fact, serves as triggers for realignments of dynasties and families in the country and in the various regions.

Such narrow confines of interests has made it difficult for India to grow progressively in the past. Yet, over the long term, it has managed to grow at a low pace in most economic sectors.

The immense cultural legacy of ancient India also provides narrow guidelines in its own efforts to modernize, making it difficult to undertake change.

One of the major problems of Indian political and economic change is often the conflict of rules that protect various jurisdictions so that there is great difficulty for decisive actions to be made by the government (whether national, local (that is, federal).

One of the biggest problems of India’s efforts to attract foreign direct investments even after liberalizing its rules to open the economy to foreign direct investments is tied up with land cases that hardly get resolved in the judiciary. Not only is the judiciary accused of corruption. Many of its inactions on pending cases are determined by highly conflicted rules of ownerships and claims to it.

Members of its parliament (national and provincial) determine the ruling political coalitions that define political power. It is, however, also a federal structure with powerful leaders of big states or provinces.

India’s economic policy from the beginning of independence was more based on socialistic principles of giving priority to state planning, i.e. overseeing the provision of large basic industries and the planning of major infrastructure and transport and communications. But its fiscal resources could not keep up with the requirements of growth.

Industrialization was based on capitalist promotion of major industries which led to the pre-eminence of big family groups in private industry.

This was heavily protected: high tariffs and exchange controls, import controls, highly nationalistic investment promotions, very restrictive limitation of foreign direct investments.

India wakes up, 1990s to 2000s. During the 1950s, many observers of development compared India and China as exemplars of growth by democratic and communist political systems of governance.

The rapid growth of China from the late 1970s to the 1980s put India in poor light with its own laggard and erratic growth. These two countries are the largest countries in the world by population. (Today India’s population is 1.35 billion and China’s, 1.45 billion.)

This awakened the politics of India with the need for economic reforms. The government of P. V. Narasimha Rao, ably guided by its then finance minister, Manmohan Singh, changed course.

Curing first an impending balance of payments crisis, it managed to steer through a prudent combination of macroeconomic and institutional reorganizations, including fiscal reforms, privatization, and opening to foreign investments, and access to foreign markets.

These reforms provided fresh guidance to India’s economy and led to high growth, more dynamic domestic activities, the opening of India to more foreign technology and the entrance of significant new foreign direct investments.

Despite these gains, the new problems only further opened the need for more economic and institutional reforms. In India, these are deep and very difficult to initiate.

But India’s politics of development was changed forever. It is aiming for growth rates that are double its historical performance. Today, that objective is to grow at eight percent of the GDP. Recent records have shown underperformance.

To resolve the gap, the level of investments in infrastructure and education have to rise, very rigid labor and land laws eased, and the fiscal system needs to continue to meet growth requirements.

These remedies are easy to enumerate, but most difficult and challenging for India to put into a program of government.

Phl economic reforms parallel India. There are many things about India that remind us of our travails as a country aiming for a higher level of economic development.

Like India, we are on a track to overcoming past mistakes and misfortunes. As a smaller country compared to India’s bigness and difficulties to move forward as a nation, we have much more potential flexibility to adjust.

However, India’s bigness itself is a major reason why some foreign direct investments would like to move into India not only to raise their economic performance, but also to find new markets.

Yet, as smaller economies have demonstrated in the past, the Philippines could rise on its own if it tries harder.

My email is: gpsicat@gmail.com. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.p h/gpsicat/

INDIA’S ECONOMIC GROWTH NARENDRA MODI
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