View: India's Fear of Free Markets Is Gift to China

asianobserve

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By the Editors, Bloomberg News
Dec 20, 2011


India's slowing growth and mounting resistance to pro-market reforms are putting its 20-year economic miracle at risk. To extend the past two decades' success, Prime Minister Manmohan Singh and his allies must maintain their commitment to liberalization and do a better job of defending it to the public.

Last week, for the first time since the spring, the Reserve Bank of India chose not to raise interest rates at its monthly policy meeting. The central bank has been trying to bring inflation, currently about 9 percent, under firmer control. Weaker growth has made the Reserve Bank pause. The economy expanded at a 6.9 percent annual rate in the third quarter, the slowest in more than two years. Industrial output in October was 5.1 percent lower than a year before.

Those numbers caused a stir because India has become accustomed to annual growth of 9 percent. Since the dismantling of industrial licensing and the Soviet-style planning system in 1991 -- an overhaul that Singh helped design and execute -- India has made a joke of the once-popular notion that the "Hindu rate of growth" was maybe 3 percent a year.

Unfortunately, though Indians now take rapid growth for granted, they still doubt the policies that are responsible. Too many voters and politicians continue to view freer markets and vigorous competition with suspicion, despite their demonstrated success in accelerating the economy and attacking poverty. Just as official statisticians were confirming the growth slowdown, Singh, in a major political setback, was forced to suspend plans to open Indian retailing to foreign investment.

Need to Modernize

Don't blame slower growth entirely on the weak international economy or the central bank's efforts to check inflation. Unfinished reforms and a failure to modernize India's infrastructure are also holding the economy back. Food distribution, especially, is an undeveloped sector in India, dominated by small traders and layer upon layer of middlemen. Lack of technology and modern logistics cause waste on a notorious scale, with government reports of up to 40 percent of fruit and vegetables rotting before being sold. Supply-chain bottlenecks worsen inflation -- and with hundreds of millions still in poverty, the country is especially sensitive to food- price spikes.

Continuing to block investment by Wal-Mart, Tesco and other international supermarket chains is therefore doubly perverse. It not only denies India the new investment and modern technology the country still needs across the board, but holds back a sector that could directly lower food prices and raise living standards.

In an interview with Bloomberg last week, Singh said he will keep trying. He predicted success in letting foreign companies take majority stakes in Indian retailers once regional elections have been held early next year and slower inflation bolsters his government's standing.

It might take more than that. Singh's Congress Party-led coalition lacks a secure parliamentary majority and has seen its energy sapped by corruption scandals. It was losing momentum, and Singh's leadership was being questioned even before the economy slowed. The main opposition group, the Hindu-nationalist Bharatiya Janata Party, was once pro-reform but now sees opportunity in rallying small traders, fearful of foreign investment, to its side. The political winds are blowing in an unpromising direction.

It would be hard to exaggerate how much is at stake -- and not just because India is home to 1.2 billion people. This latest of many setbacks to modernizing India's economy revives an old question about the country's longer-term prospects: In its keen economic rivalry with China, is its vibrant democracy an asset or a liability?

Indian Ambivalence

During the past 20 years, India has shown that democracy, bold economic reform and staggering rates of economic progress can go hand in hand. Meanwhile China's uncertain political future remains, for many economic analysts, a major risk. It would be nothing less than a tragedy if India's ambivalence about capitalism, and over reforms that have served it so well, handed victory in this race
to its authoritarian rival.


Democratic countries cannot easily have reform imposed upon them. They can be persuaded, though, that reform is in their interests, so long as their leaders rise to the challenge. Manmohan Singh, one of the great liberal reformers in the history of the modern world, has little to prove in this regard. His allies, his rivals, and voters at large, however, all need to ask themselves whether they sincerely want India to succeed.
 

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Agreed, 100%!!! As long as regressive people like Mamata Bannerjee exist in UPA, and as long as opportunistic oppositions like current BJP exist, there is no hope for the nation's economy. :sad:
 

cir

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Capitalism, as we know it, holds no future and is dying.

The US is a prime example。

A system of organization or national economy that consists of a judicial mixture of socialism and capitalism may be the best way forward.
 
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Tianshan

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Agreed, 100%!!! As long as regressive people like Mamata Bannerjee exist in UPA, and as long as opportunistic oppositions like current BJP exist, there is no hope for the nation's economy. :sad:
haha why attack the bjp. it was manmohan singh who could not make a proper decision, and ended up backtracking.

how can his important policy decisions be so easily reversed like that.
 
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asianobserve

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Capitalism, as we know it, holds no future and is dying.

The US is a prime example。

A system of organization or national economy that consists of a judicial mixture of socialism and capitalism may be the best way forward.

Hahaha! Every year fools like you predict the demise of capitalism. On a personal note, nothing would make me happier than a Chinese return to collectivism and absolute state control of economy. This would be a win-win solution for us both, you're happy and I'm happy. What do you think?
 

lemontree

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haha why attack the bjp. it was manmohan singh who could not make a proper decision, and ended up backtracking.

how can his important policy decisions be so easily reversed like that.
He is blaming the BJP, as this party is in the opposition and had objected to FDI along with the other parties.
 

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Come to think when did FDI in retail become the sole metric for reform?.Karat's threat to Chidabaram saved us from the 2007 financial meltdown.The most badly needed reforms are to amend the labour laws and G.S.T
 

asianobserve

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Come to think when did FDI in retail become the sole metric for reform?.Karat's threat to Chidabaram saved us from the 2007 financial meltdown.The most badly needed reforms are to amend the labour laws and G.S.T

Agree that it's not the sole metric, but it is one of the crucial metrics for it reflects market openness.
 

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haha why attack the bjp. it was manmohan singh who could not make a proper decision, and ended up backtracking.

how can his important policy decisions be so easily reversed like that.
Manmohan Singh has the toughest job in India. I feel very sorry for him.

On internet forums, I have seen the kind of weird and insane arguments that people give against any development, including FDI. I have seen people complaining that the companies will repatriate profits abroad, so FDI is bad. That FDI will change Indian food habits and condemn us to obesity. That FDI is a way of "recolonization of India". That "Anna Hazare is also against FDI", how can it be good? :frusty: And then, there are political chamchas (fanboys) who care for their party more than the nation, and join the chorus of protests just because their party leaders are protesting, for political mileage.

I can well imagine the kind of pressures and vested interest groups that Manmohan Singh might be subjected to, on a daily basis. On the one hand, there is political opportunism by the opposition parties like BJP, SP, RJD, etc. On the other side, there is "madam" and "baby Gandhi" with their economically unsound populist policies. The economist in Manmohan Singh must be crying out loud in private. :crazy:

I decided that I will never again blame Manmohan Singh for slow implementation of reforms. I am sure I would not have done any better in his place, squeezed from two sides with immense pressure, and also constantly vilified by the whippersnapper middle class. :frusty:
 

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Come to think when did FDI in retail become the sole metric for reform?.Karat's threat to Chidabaram saved us from the 2007 financial meltdown.The most badly needed reforms are to amend the labour laws and G.S.T
Agreed. But think about it - when FDI in retail was made into such a shitstorm by vested political interests, I can well imagine the fate of contentious reforms like labour reforms. :sad:
 

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Agree that it's not the sole metric, but it is one of the crucial metrics for it reflects market openness.
Yes ultimately it is all about democracy and public are dead against fdi.I wish there was more FDI and FII in infrastructure and PDS
 

Iamanidiot

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Agreed. But think about it - when FDI in retail was made into such a shitstorm by vested political interests, I can well imagine the fate of contentious reforms like labour reforms. :sad:
Thinking in hindsight with insight I find some sectors to be better left untouched Banking and Retail for instance.Where as labour reforms will create more jobs in the long run and G.S.T must be implemented.Bring more FDI into infra sector make land accquisition a win-win for both parties there are things that are to be done before FDI.

India drastically needs to improve its adminstrative transparency with an emphasis on fairness and win before it embarks on anymore reforms.
 
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Tianshan

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On a personal note, nothing would make me happier than a Chinese return to collectivism and absolute state control of economy. This would be a win-win solution for us both, you're happy and I'm happy. What do you think?
haha you wish

back then, maybe you thought, oh china is crazy but at least they don't have any big economy or industrial capabilities. but now we have.
 

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Thinking in hindsight with insight I find some sectors to be better left untouched Banking and Retail for instance.Where as labour reforms will create more jobs in the long run and G.S.T must be implemented.Bring more FDI into infra sector make land accquisition a win-win for both parties there are things that are to be done before FDI
I will agree that land acquisition policy needs to be reformed, on an urgent and priority basis. Of course we disagree on retail FDI. :sad:

Now, I can give you in writing that when labour reforms and land acquisition come up for discussion, the political skulduggery and chamchagiri will start all over again, and scuttle the whole thing, or at least make it very very tough to implement. :frusty:
 

asianobserve

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haha you wish

back then, maybe you thought, oh china is crazy but at least they don't have any big economy or industrial capabilities. but now we have.

Your comrade "cir" does not seem to agree with you... He still dreams of the death of capitalism that have served China and Chinese newly minted Billionaires so well.
 

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I will agree that land acquisition policy needs to be reformed, on an urgent and priority basis. Of course we disagree on retail FDI. :sad:

Now, I can give you in writing that when labour reforms and land acquisition come up for discussion, the political skulduggery and chamchagiri will start all over again, and scuttle the whole thing, or at least make it very very tough to implement. :frusty:
Regarding labour reforms shut-up the vocal minority lobby called the Bengali jholawallahs and a lot of things get into place.Land accquistion is extremely shoddily done.Government try to accqire excess of land there the trouble starts
 

Iamanidiot

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Your comrade "cir" does not seem to agree with you... He still dreams of the death of capitalism that have served China and Chinese newly minted Billionaires so well.
Crony commie capitalists to be precise sons/wifes of CCP officials even to be more precise
 

asianobserve

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Crony commie capitalists to be precise sons/wifes of CCP officials even to be more precise

You're being so mean. Give some of these Chinese entrepreneurs credit. But their talents only can shine in a capitalistic environment.
 

Tianshan

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Your comrade "cir" does not seem to agree with you... He still dreams of the death of capitalism that have served China and Chinese newly minted Billionaires so well.
haha i agree with him, i think mixed economies are the best.

extreme towards either side is not optimal.

anyway, all economies are alredy mixed. there is no pure capitalist or communist country.
 

Iamanidiot

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You're being so mean. Give some of these Chinese entrepreneurs credit. But their talents only can shine in a capitalistic environment.
The best Chinese enterpreneurs I have seen is from Taiwan,Singapore,Malaysia and Vancouver.I hear getting a loan in China is pretty tough for a normal enterpreneur
 

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