India’s Tryst with Globalization Rahul Mukherji Associate Professor South Asian Studies Pr ogramme Honorary Senior Fellow, Head (Research) Institute of South Asian Studies National University of Singapore October 16 2014 1 Nominal Gross Domestic Product at Purchasing Power Parity - 2011 2009 2007 2 Source: Economist Intelligence Unit Database assessed via NUS library web site, 2012 Economic Liberalization & GDP Growth: India 3.4% Public Sector and Economic Self Reliance 5.1% Private Sector and Economic Self Reliance Private Sector and trade 6.2% 8.8% Private Sector and Trade Promotion 3 Comparative GDP Growth: 2003-2012 4 The Tipping Point: The Earthquake Model • Evolutionary Change • Endogenous change • Appearance and reality • Ideas within the state matter • This is not the East Asian developmental state 5 Reasons for Resisting Globalization From pre - colonial to colonial experience Powerful Economic Ideas • Import substitution or economic self reliance • Public sector and private companies • Large country and economic self reliance Why the transition from import substitution to trade promotion? 6 The Old Model • Nehru Vs Patel • The Old Consensus - Second Five-Year Plan (1956-61) 1. Foundational Idea 2. Heavy Industries 3. Neglect of agriculture Sardar Patel (left) & Jawaharlal Nehru (Right)7 Gradual Globalization and Deregulation – The 1980s PM Indira Gandhi 1966-75; PM Desai 1980-84 1977-79 – New Ideas – Help Indian companies but not trade – Political resistance PM Rajiv Gandhi – Bias favoring status quo 1984-89 8 The Tipping Point in 1991 PM Rao Manmohan Singh 1991-96 Finance Minister: 1991-96 PM: 2004-2014 Why globalization and deregulation? New Economic Ideas Balance of Payments Crisis Economic Crisis and Domestic Opposition 9 Economic Reforms of 1991 Economic Reforms 1. Reduction in Tariffs 2. Devaluation & competitiveness 3. Industrial Deregulation 4. Foreign Investment 10 The Role of Private Companies • Deregulation helped Indian Private Companies – The Tata Group Ratan Tata – Infosys: The Software Giant – A New Business Class – India and China N R Narayana Murthy (Infosys) 11 Roots of Competitiveness • Success – Telecommunications – Banks PM Vajpayee (1998-2004) – Stock Markets • Failures – Ports Sunil Mittal – Power 12 Why Foreign Investors Should Care? • India is not China • Why should investors care? • What should an investor do? • The success of J C Bamford against Caterpillar 13 Amartya Sen Versus Jagdish Bhagwati: State versus Market? Authors: top left – Sen; bottom left – Dreze; top right – Bhagwati; bottom right - Panagariya 14 Human Development in South Asia 15 Can Narendra Modi succeed with globalization? • Ideas Matter – Inspiring speaker & good administrator – Jan Dhan Yojana – Employment & right to information – Investor sentiment & easy visas • Worries – Inexperienced ministers – Trade facilitation – Better regulation – Minority rights and social peace See: http://www.pmvisit.org/ (Madison Square Garden Speech) 16 http://www.youtube.com/watch?v=yc1iTDUnsqQ (Modi at Times Square) .