Tag: india

Guest Post: Interpreting The Indian Election

This guest post was contributed by Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics.  He notes two surprises in the outcome of India’s recently concluded election and suggests that India offers an alternative model of development for much of the world.

The results from the Indian elections point to a victory for the incumbent Congress party and its allies.  Congress was led de jure by the economist-turned-politician Dr. Manmohan Singh and de facto by the Italian-born Sonia Gandhi, who is part of the Nehru family, which has been a force in Indian politics since the late 1800s and provided three Prime Ministers.

Two casualties of the election have been the Communists who resisted economic policy reform and opposed the nuclear agreement between India and the United States, and the Hindu nationalist party, the BJP.

Going forward, these results augur well for Indian economic policy reform. The Congress will be numerically strong enough not to have to rely on partners for political support and will be able to push through new policy initiatives.

Another likely consequence is that the Nehru family will probably provide India, not immediately but within the next couple of years, with its fourth Prime Minister—Rahul Gandhi, son of Rajiv Gandhi, grandson of Indira Gandhi, and great grandson of India’s first Prime Minister Jawaharlal Nehru. 

These results are surprising for two reasons.  Indian elections have traditionally been characterized by the phenomenon of anti-incumbency: ruling politicians get routinely thrown out of power.  This government is the first in over 40 years that has been re-elected after a full term in office. Continue reading “Guest Post: Interpreting The Indian Election” →

Policy Parallels: Eurozone and India

I’ve had a chance, over the past 10 days, to debate the details of what’s next for the macroeconomy with leading policymakers in both the eurozone/EU and India.  I’m struck by some similarities.  In both places, there is little or no concern that inflation will rebound any time soon.  At least for people based in Delhi, there is as a result confidence that conventional policy can now act aggressively to cushion the blows coming from the global economy.  In the eurozone, all eyes are on monetary policy and the same is true for India – both places have almost the exact debate about whether fiscal policy can do much more than it is already doing, given that government debt levels are already on the high side.

The discordant note comes from people based in Mumbai.  They feel that Delhi does not fully understand that the real economy is already in bad shape.  Sectors such as real estate and autos are hurting badly.  Small businesses, in particular, seems to be bearing the brunt of the blow.  The banking picture seems more murky, but is surely not good.  And of course the Satyam accounting scandal could not come at a worse time.

Overall, my strong impression is that growth forecasts will need to be marked down for India and the eurozone.  Both will likely cut interest rates further quite soon (and have space for additional cuts), but we should not expect much more from the fiscal side in either place.  They will both start to look beyond standard macro policies  – although India may make progress on this front sooner.

I also heard strong and reassuring opposition to protectionism – although, I must say the case against any kind of trade restriction comes through more clearly in India than in the eurozone.

India in the Global Economy

One of our commenters pointed out that we have failed to say anything about India, despite its large and growing importance in the global economy. Simon’s colleague Arvind Subramanian (whom we have linked to before, including this morning) has a new opinion piece, originally posted at the Peterson Institute.

India and the G-20

The upcoming G-20 summit meeting in Washington provides an opportunity for India to help shape the new global economic architecture in line with its strategic and economic interests. India should propose short-term, crisis response actions to help limit the economic downturn; advance a clear, medium-term agenda; and push for a political commitment by all countries to keep markets open and prevent trade barriers from going higher.

Although the G-20 has been in existence for nearly a decade, this is the first G-20 summit meeting, and many participants will be looking to Prime Minister Manmohan Singh, a respected economist in India and throughout the world, for a particular contribution.

What does India bring to the G-20 table? As a long-time spokesperson for the G-77, India has a record of assuming a leadership role. But in the past, this role was often used to assert India’s right to retain sovereignty. In the words of Strobe Talbott, the former diplomat who now leads the Brookings Institution, India has been on many issues a “sovereignty hawk,” protecting its own interests at the expense of global cooperation on issues ranging from nuclear proliferation to trade. But with India’s growth, and in an era of globalization, its interests—and its perception of its interests—have changed. India now has a keen stake in sustaining an open global trading system. Accordingly, its leadership should now be harnessed for a different cause. Moreover, India has begun to realize that it needs to contribute to sustaining this system rather than assuming that the status quo can be taken for granted. But trading partners are wary of India, viewing India’s role in the trade negotiations as unhelpful. It would be a singular achievement if India can manage to reassure G-20 participants on this score. In short, leadership comes naturally to India. The question is going to be the cause for which India harnesses this leadership role.

As Aaditya Mattoo of the World Bank and I have argued [pdf], for India the medium-term agenda should include: First, reforming the financial architecture, including by strengthening the International Monetary Fund’s capacity to respond to crises and enhancing its legitimacy through radical governance reform to give greater say to the emerging powers. Second, securing the future openness of the trading system, which would require a commitment to go beyond completing the current Doha agenda in two ways: deepening rules in existing areas (especially services) and developing rules in new areas (to deal with undervalued exchange rates, cartelization of oil markets, investment restrictions and environmental protectionism). Third, reforming the makeup of the bodies involved in global decision-making, including the creation of a more representative membership than the G-7.

Arvind Subramanian is a Senior Fellow, Peterson Institute for International Economics and Center for Global Development, and Senior Research Professor, Johns Hopkins University