NEVER MIND EUROPE; WORRY ABOUT INDIA

 [Why is India’s economic growth slowing? The causes are varied. They include a less than optimal attitude toward foreign business and investment: recall the Indian government’s reversal of its previous willingness to let Wal-Mart enter the retailing sector. The government also has been assessing retroactive taxation on foreign businesses years after incomes are earned and reported. Another problem is the country’s energy infrastructure, which has not geared up to meet industrial demand. Coal mining is dominated by an inefficient state-owned company and there are various price controls on both coal and natural gas. Over all, the country does not seem headed toward further liberalization and market-oriented reforms.] 

By Tyler Cowen

THE economic slowdown in India is one of the world’s biggest economic stories, but it is commanding only a modicum of attention in the United States.

It may not even look like a slowdown because by developed standards, India’s growth — estimated by the International Monetary Fund at 6.9 percent for 2012 — is still strong. But a slowdown it is: the economy has decelerated from projected rates of more than 8 percent, and negative momentum may bring a further decline. The government reported year-over-year growth in the October-through-December quarter of only 6.1 percent.

What is disturbing is that much of the decline in the growth rate is distributed unevenly, with the greatest burden falling on the poor. If the slower rate continues or worsens, many millions of Indians, for another generation, will fail to rise above extreme penury and want. The problems of the euro zone are a pittance by comparison.

China commands more attention, but Scott B. Sumner, the Bentley College economist, has pointed out it is India that is likely to end up as the world’s largest economy by the next century. China’s population is likely to peak relatively soon while India’s will continue to grow, so under even modestly optimistic projections the Indian economy will be No. 1 in terms of total size.

India also is a potential force for energizing the economies of Bangladesh, Nepal and, perhaps someday, Pakistan and Myanmar. The losses from a poorer India go far beyond the country’s borders; furthermore, the wealthier India becomes, the stronger the allure of democracy in the region.

Why is India’s economic growth slowing? The causes are varied. They include a less than optimal attitude toward foreign business and investment: recall the Indian government’s reversal of its previous willingness to let Wal-Mart enter the retailing sector. The government also has been assessing retroactive taxation on foreign businesses years after incomes are earned and reported. Another problem is the country’s energy infrastructure, which has not geared up to meet industrial demand. Coal mining is dominated by an inefficient state-owned company and there are various price controls on both coal and natural gas. Over all, the country does not seem headed toward further liberalization and market-oriented reforms.

These problems can be solved. More troubling are the causes that have no easy fix.

Agriculture employs about half of India’s work force, for example, yet the agricultural revolution that flourished in the 1970s has slowed. Crop yields remain stubbornly low, transport and water infrastructure is poor, and the legal system is hostile to foreign investment in basic agriculture and to modern agribusiness. Note that the earlier general growth bursts of Japan, South Korea and Taiwan were all preceded by significant gains in agricultural productivity.

For all of India’s economic progress, it is hard to find comparable stirrings in Indian agriculture today. It is estimated that half of all Indian children under the age of 5 suffer from malnutrition.

Another worry is that India’s services-based growth spurt may have run much of its course. Call centers, for example, have succeeded by building their own infrastructure and they often function as self-contained, walled minicities. It’s impressive that those achievements have been possible, but these economically segregated islands of higher productivity suggest that success is achieved by separating oneself from the broader Indian economy, not by integrating with it.

India also has one of the world’s most unwieldy legal systems, and one that seems particularly hard to reform. On the World Bank’s Doing Business Index, the country ranks 132 out of 183 listed countries and regions, behind Honduras and the West Bank and Gaza, and just ahead of Nigeria and Syria. One undercurrent of talk is that the days of “the license Raj” have returned, referring to the country’s earlier subpar economic performance under a regime of heavy government regulation.

ON the positive side of the ledger, the country retains a population with remarkable talent, energy and entrepreneurship. It has worldwide networks of trade and migration, and world-class achievements in entertainment and design, among numerous other strengths. Nonetheless, the previous pace of progress no longer seems guaranteed.

India may not be alone in this slowdown. There is a more general worry that the grouping of disparate giants known as the BRIC nations — Brazil, Russia, India and China — has, for some reason, lost much of its previous momentum. Last year Brazil grew at only a 2.7 percent rate, down from 7.5 percent, and Chinese and Russian G.D.P. growth are slowing too, to an unknown extent and duration. In the past, many countries engaged in catch-up growth have suddenly slowed and hit plateaus, although economists do not have firmly established theories as to when and why this happened. In any case it remains a real danger.

In the short run, we often focus on headlines, elections and fights between personalities and political parties. But the world is shaped by deeper structural forces, such as resources, technologies, demographics and economic growth rates. We ignore India’s troubling trends at our peril.

Tyler Cowen is a professor of economics at George Mason University.

@ The New York Times

WHEN HILLARY MEETS ‘DIDI’

[During her last visit to India, Ms. Clinton had asked India to take greater responsibilities in the Asia Pacific region. She could discuss with Banerjee  the importance of West Bengal in promoting India’s relations with her eastern neighbors and thus, by extension, to the region as a whole. This would include close ties with Bangladesh, for instance. She could likely discuss the critical role West Bengal has in forging relations with partners.]

By Anuradha Sharma

On Monday in Kolkata, the U.S. secretary of state, Hillary Rodham Clinton, is scheduled to meet with the chief minister of West Bengal, Mamata Banerjee,(nickname “Didi” or Big Sister) a woman whose power over Indian central government decisions has been virtually unchecked but whose increasingly erratic actions are raising concern even in her own party.

What will the two women, each arguably the most powerful in her country, discuss? Officials from both governments are being tight-lipped, but India Ink asked several experts for their opinions. Here’s what they said:

Deb Mukharji, former Indian high commissioner to Bangladesh

Mamata Banerjee is a powerful force and has been successful in replacing a Communist government after 34 years. Hillary Clinton would appreciate Ms Banerjee in a way.

Ms. Clinton would be trying to promote U.S. business interests in Bengal, and their talks on Monday are likely to center around this.

During her last visit to India, Ms. Clinton had asked India to take greater responsibilities in the Asia Pacific region. She could discuss with Banerjee  the importance of West Bengal in promoting India’s relations with her eastern neighbors and thus, by extension, to the region as a whole. This would include close ties with Bangladesh, for instance. She could likely discuss the critical role West Bengal has in forging relations with partners.

Dr. Sabyasachi Basu Ray Chaudhury, professor of political science, Rabindra Bharati University

One of the issues that could be taken up at the meeting isforeign direct investment in India’s retail sector. They could also talk on Bengal’s role in the east and the northeast. Some issues relating to Bangladesh, such as water-sharing and import-export, are likely to be discussed.

Ms. Clinton’s visit is sure to increase the prestige and position of Ms. Banerjee, who has been criticized widely for throwing a spanner in development projects. On the other hand, since Ms. Clinton is on her way out, I am not too sure how the visit will influence the overall situation of the state or country.

Dr. Anindya Jyoti Majumdar, head of international relations department, Jadavpur University

With another impending recession in the U.S., I am of the opinion that Ms. Clinton’s meeting with the chief minister could be an exercise in exploring business opportunities in West Bengal.  Foreign direct investment in retail could also be discussed.

Ms. Clinton’s calling on the chief minister of a state is a recognition of the federalized nature of Indian politics and the influence that coalition partners wield on central decisions.

Amada Kidwai, regional director, American Chamber of Commerce in India

Since this is not an economic visit, I am not expecting really significant developments as far as business goes. However, I am pretty certain that Chief Minister Mamata Banerjee will raise the issue of investment opportunities in West Bengal. She is the first woman chief minister of the state and comes after 34 years of Communist rule. She is likely to share her vision for the state. The visit will have a positive impact on Indo-U.S. relations.

However, more than that, I think, it will be able to draw the attention of people in India and abroad to India’s eastern region, which has often been neglected by the center.

Harsh Neotia, chairman, Ambuja Realty

I would like to refrain from speculating on what the two powerful women could talk about. As a Kolkatan, I am thrilled that our city and the state are getting U.S. attention. It shall sure augur well for Indo-U.S. ties, which include business ties.

Swapan Dasgupta,  journalist and political commentator

I am frankly mystified as to what exactly Mamata will discuss with Hillary. I can only presume it is a good-will visit bereft of political and diplomatic significance. 

@ The New York Times