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Preview: RealClearPolitics - Articles - Ashutosh Varshney

RealClearPolitics - Articles - Ashutosh Varshney

Last Build Date: Fri, 09 Mar 2007 00:19:32 -0600

Copyright: Copyright 2007

Democracy vs. Growth in India

Fri, 09 Mar 2007 00:19:32 -0600

The Indian experience is different on all three counts. India adopted universal suffrage at the time of independence, long before the transition to a modern industrialized economy began. The country does not have an extensive welfare system, although it has made a greater effort to create one of late. And, defying democratic theory, a great participatory upsurge has marked Indian politics, a phenomenon that is only beginning to be understood by scholars and observers: since the early 1990s, India's plebeian orders have participated noticeably more in elections than its upper and middle classes. In fact, the recent wisdom about Indian elections turns standard democratic theory on its head: the lower the caste, income, and education of an Indian, the greater the odds that he will vote. The ruling United Progressive Alliance (UPA), a coalition with the Indian National Congress at its core, counts on the lower social orders as its most important voting bloc. India's development experience is also likely to be distinct from East Asia's. South Korea and Taiwan embraced universal-franchise democracy only in the late 1980s and the mid-1990s, two decades after their economic upturn began. Other economically successful countries in the region, such as China and Singapore, have yet to become liberal democracies. Periodic renewals of mass mandates through the ballot box are not necessary in authoritarian countries, but they are in India. Democratic politics partly explains why, for example, privatization has gone so slowly in India compared to in China. In India, workers have unions and political parties to protect their interests. In China, labor leaders who resist job losses due to privatization are tried and jailed for treason and subversion, something entirely inconceivable in India's democracy. So far, the reform process of the last 15 years has had positive results: by most conventional standards, India's economy is booming. After registering a 6 percent average annual growth rate for nearly a quarter century, the Indian economy has picked up even greater speed. Over the last three years, it has grown at over 8 percent annually, and forecasts for the next few years promise more of the same. Investment as a proportion of GDP has been steadily climbing, exceeding 30 percent lately and raising hopes of an investment boom like that which propelled East Asia's economies. Total foreign direct investment for the current financial year is likely to exceed $10 billion (compared with $100 million in 1990-91) and is rising. Exports are growing at a fast clip, with India's trade-to-GDP ratio more than doubling in 2006 from its 1991 level of 15 percent. The manufacturing sector, like the services sector, is becoming a key engine of the economy, and India's world-class information technology sector continues to grow exponentially, employing less than 0.5 percent of India's labor force but producing about 5 percent of the nation's GDP. Corporate dynamism, rarely associated with India in the past, is fast changing the business map of the country, and India, in turn, is rapidly becoming an important factor in the global strategies of the world's leading international firms. But how long will the boom last? That depends on India's democratic politics, where economic growth has fed pressures for the redistribution of wealth. Mainstream economic theory about markets and human welfare holds that markets will benefit all in the long run. But long-term perspectives do not come naturally to democratic politicians, who must focus on winning elections in the short term. Accordingly, a low-income democracy such as India must nurture the energies of its entrepreneurs while, in the short run, responding to the reservations and resentments of the masses. How well India's politicians walk this tightrope will determine the outcome of the country's economic transformation. HOW IT ALL BEGAN In keeping with the prevailing theories in development planning after World War II, in the 1950s India opted for a centrally planned economy with a closed trade regime[...]