China Research

I have been analyzing India since the late 1980s. Consequently, I feel quite familiar with most of the structural changes in this big country and the economic development that could be noted in the past twenty years. India of today is certainly very different from India of the early 1990s – at least in most economic respects. India has been changing.

Improvements have been achieved in many areas – but not in all. There are still important bottlenecks for the efficiency of reforms.

First, India remains a slowly moving country. Indian colleagues and journalists still tell me regularly that this phenomenon mainly can be explained by the fact that democratically based changes often need time-demanding compromises (which China does not need to consider, Indian experts usually add).

Second, the different states in the federal system of India make the conditions for unified reforms over the whole country many times very difficult or in certain cases even impossible. This situation can also be regarded as very different from China.

Third, lndian capitalism is softer than, for example, the more ruthless capitalist part of the Chinese economic model. Sympathy for the first or the second version of these two capitalist applications may differ among foreign observers. Western analysts and companies dislike in this context many times the inflexibility on Indian labor markets.

Anyway, India belongs obviously to the group of emerging markets where foreign country analysis tends to focus insufficiently on the strong  relationship between politics and economic development. This is a decisive shortcoming.

Expectations were indeed high when Narendra Modi from the conservative Bharatiya Janata Party (BJP) in 2014 became India’s new prime minister. In the beginning, reform plans looked promising. Today, however, historical reality seems to be back – i. e. the usual reality of delayed moves forward. Sure, prime minister Modi and his plans and strategies for economic policy still seem to be supported by the Indian corporate sector. But political opposition in Indian parliament(s) gets tougher and tougher.

Today, for example, the political opposition works against the introduction of a new goods and services tax for in the same way as the current government did during their time in opposition. Furthermore, plans of more relieved rules for purchases of land by companies and the liberalization of many tight labor market rules have also been canceled from the near-term agenda.

Altogether, India is changing into the right direction – and at the same time it is not. Policy orientation itself toward better structural growth conditions seems to be in place – but the tools to speed up the processes of implementation are still too inefficient or even absent.

Here we the key to many promising future structural economic reforms in India!

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

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