THE POLITICS OF PRIVATE SECTOR DEVELOPMENT Political Fragmentation and Private Sector Development in India by Varun Piplani B.A in Political Science, August 2008, University of Nevada, Las Vegas B.A in Philosophy, August 2008, University of Nevada, Las Vegas M.A in Political Science, May 2012, George Washington University A Dissertation submitted to The Faculty of The Columbian College of Arts and Sciences of The George Washington University in partial fulfillment of the requirements for the degree of Doctor of Philosophy January 31, 2017 Emmanuel Teitelbaum Associate Professor of Political Science and International Affairs The Columbian College of Arts and Sciences of The George Washington University certifies that Varun Piplani has passed the Final Examination for the degree of Doctor of Philosophy as of August 16, 2016. This is the final and approved form of the dissertation. THE POLITICS OF PRIVATE SECTOR DEVELOPMENT Political Fragmentation and Private Sector Development in India Varun Piplani Dissertation Research Committee: Emmanuel Teitelbaum, Associate Professor of Political Science and International Affairs, Dissertation Director Bruce Dickson, Professor of Political Science and International Affairs, Committee Member Susan Sell, RegNet Professor, Centre for Governance of Knowledge and Development (CGKD), Australian National University, Committee Member ii © Copyright 2017 by Varun Piplani. All rights reserved. iii I wish to dedicate this dissertation to Keri Lynn Apostle, without whom this project would likely never have been completed. iv Acknowledgments Finishing this dissertation has taken a long time, and I would be remiss if I did not acknowledge the love, support and advice of the many people who have helped me through this process. First of all, I would like to thank the members of the Department of Political Science at George Washington University. Their incredible training fundamentally shaped the way I now see the world, and gave me the critical and analytical tools necessary to undertake a project of this magnitude. I am particularly grateful to Eric Lawrence for giving me my foundations in quantitative methods, and to Robert Adcock for his amazing course on research design. I also owe an enormous debt of gratitude to my dissertation committee. No one could ask for a better dissertation chair than Manny Teitelbaum. He has been a champion, guide, mentor and friend to me for many years, and I thank him from the bottom of my heart. Bruce Dickson was an amazing teacher, and his guidance and support has strongly shaped this dissertation. Finally, Susan Sell gave me incredible guidance and support from the first semester I was in her class in Fall 2008, and has been my advocate ever since. While none of the many shortcomings of this dissertation are their fault, I would say that many of its strengths come from the advice of my committee. Beyond my committee, the scholar who had the most positive influence on me is undoubtedly Caitlin Talmadge. Her brilliance, dedication to her craft, writing style and methods of investigation and analysis have strongly shaped the way I think about research and my contributions to the wider field. I cannot thank her enough for v giving me the opportunity to work with her, and for supporting me with scarce RA funds when I was conducting fieldwork in India. I would also like to thank my two readers, Irfan Nooruddin and Adam Ziegfeld for incredibly helpful comments, and support. Adam gave the dissertation his undivided attention, and Irfan’s suggestions have shaped the dissertation nearly as much as my advisor’s! Particular thanks also go to Milan Vaishnav and the DC India Politics Workshop for giving me feedback on the previous version of the national level chapter. The same goes to Jackson Woods, and the GW East Asia Workshop. The Advanced Graduate Workshop, organized by Akbar Noman of Columbia University, along with Azim Premji University in Bangalore was an incredible incubator for me to help sharpen my theories on privatization in India. In particular, I would like to thank Hemanshu Kumar for being an amazing discussant. Various other scholars have read and given helpful comments on previous versions of the chapters. Adam Auerbach, Aidan Milliff, Allison Quatrini, Jackson Woods, Jigar Bhatt, Kelly Bauer, Sam Frantz, Seok Joon Kim, Shannon Powers, Shekhar Mittal, and Ryan Willbrand, all read and critiqued various parts of the dissertation. I thank Alan Potter for sharing data on disinvestment with me, and Lowell Labaro for his ultimate Python coding skills. I would like to thank Mr. V.N Gaba, whole helped me fill out Right to Information petitions in Delhi at the Department of Disinvestment. I would also like to thank Mr. R.K Mishra and the Institute of Public Enterprises, Osmania University, Hyderabad, who helped connect me to various experts and government officials in Andhra Pradesh. For financial support, I thank the Department of vi Political Science, the Sigur Center for Asian Studies, and the Elliott School of International Affairs. I also owe an immense personal debt of gratitude to my friends and family that have not only tolerated me, but encouraged me to keep going, even when the end was nowhere in sight. I would like to thank my parents, Neeru and Ramesh Piplani, without whom I wouldn’t ever have gotten this far. I would also like to thank my sister, Yamini Piplani Grema, who has always been a friend and a worthy adversary to spar with, and my brother-in-law, Adelin Grema, who balances her out. Thanks also to my grandmother, Prem Lata Soni, my parents-in-laws Sherry and Nick Apostle, and Grandma Pat and Grandpa Mike for being incredibly supportive. I would also like to especially thank Dr. Harish Chandra Piplani, my uncle in Delhi who hosted me for so many months over the years while I was conducting fieldwork. More importantly, I thank him for his incredibly sharp mind, his perceptive views on Indian politics over chai and newspapers in the morning, and for being an amazing mentor. I also thank my cousin Roopanjal Piplani for ensuring that my trips to Delhi and Hyderabad were never boring! Finally, I would like to thank my wife, Keri Apostle. She stood by me while I struggled through years of doubt, and for long months over the course of three years when I was far away from her. Without her unwavering belief that I could do this, I cannot imagine writing this note of thanks at all. For encouraging me to keep going, she has my undying gratitude. Varun Piplani August 2016 Washington DC vii Abstract of Dissertation THE POLITICS OF PRIVATE SECTOR DEVELOPMENT Political Fragmentation and Private Sector Development in India My dissertation explores the impact of political fragmentation and coalition politics on the development of the private sector in India. Specifically, I ask two key questions: 1) Why do some governments develop their private sectors more rapidly than others, and why do they pick different methods of doing so? 2) What impact does democratic policymaking have on private investment? The first two chapters focus on trying to understand the impact of electoral politics on the different ways in which India has its domestic private sector. One of the most prominent strategies countries have adopted for developing the private sector has been privatization of existing public sector enterprises (PSEs). Privatization has been shown to be beneficial for economic growth and development, and remains a ubiquitous strategy for developing a state’s domestic private sector today. Alternatively, governments can also develop their private sectors by encouraging private sector participation in industrial and infrastructure development through public-private partnerships. What explains the variation in the state’s economic strategies to develop their private sectors? I argue that while discouraging privatization of public sector enterprises, the fragmentation of the party system encourages industrial and infrastructure development through PPPs. As party systems become more fragmented, they generate greater risks to reelections for incumbent leaders, and also create greater likelihood of coalition politics. Leaders and parties are thus forced to avoid risky or contentious policies like privatization. Under these circumstances, leaders avoid privatization or do few viii privatizations to help fund strategic government spending. On the other hand, such fragmentation incentivizes governments to push for more PPPs, and use them for broad- based or social development. Finally, while international financial institutions have played an important enabling role in greater private sector development. The first chapter explores this question at the national level in India since 1991, using a qualitative research design to study the general trends in private sector development over the last 25 years, and an in-depth case comparison of private sector development under two national governments. The second chapter explores this question at the state level in India, by looking at private sector development in Andhra Pradesh, Gujarat and Maharashtra. For these chapters, I utilize archival and interview evidence I collected through fieldwork in New Delhi, Hyderabad and Bangalore between 2013 and 2015. The final chapter explores the effects of parliamentary democracy on investment, by looking at the state electoral system in India. Existing research on democracies does not sufficiently look at the impact of coalition governance and the rise of new parties on private investment. I show that two kinds of changes in the electoral dynamics of parliamentary systems – coalition politics and the rise of new lead parties – fragment the policy-making process. Using data from India’s post-Independence period (1951-2005) for 15 major Indian states, I employ a mixed-methods research design, combining an instrumental variable approach with a case study paired comparison of Andhra Pradesh and Bihar. My findings have important implications, and improve our understanding of policymaking in democracies. I find that while democracy makes some economic policies harder to implement, it might make alternate economic policies easier.