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Liu Zongyi: Lack of authoritative leadership hinders India’s reform


By Liu Zongyi    Source: Global Times    Published: 2017-10-31

Why is India having trouble promoting economic reform? It may be due to the political ecology of this country. India lacks a centralized authority similar to that of China, led by the Communist Party of China (CPC), which is the driving force of the nation`s rapid economic development.

China and India carried out similar economic reforms in the last century. India began to implement comprehensive reform and opening-up in 1991, just like China did in 1978, but the results can`t be compared. A crucial reason is that India`s political party and federal systems have seriously hindered reform. The multiparty system makes it impossible for Indian leaders to concentrate entirely on economic reform; instead, they become mired in political disputes.

India`s economic reform faces "three mountains" - land, labor and taxes. The traditional tax system divides the Indian states into independent tax jurisdictions, resulting in economic and trade fragmentation. As a result, internal transportation of goods becomes extremely complex.

Under Prime Minister Narendra Modi`s efforts, the Indian government has made great progress in tax reform. A goods and services tax implemented on July 1 greatly simplified the system, which helped to carry out Modi`s commitment to facilitate business. Even so, his reforms are still meeting strong resistance in India, and a group of chambers of commerce in India have launched a protest over the new tax laws. Because of regional resistance, the new tax system had to be conservatively implemented in some states, reflecting the defects of India`s federalism and power-sharing.

Lacking an authoritative power like the CPC, India achieved little in land and labor law reform in recent years, another weakness for Modi`s government. India`s private ownership of land is the big obstacle when it comes to infrastructure construction.

Meanwhile, while labor laws and regulations protect the rights and interests of employees, and not just in terms of working conditions, they also impose harsh restrictions on hiring and firing. Because of this, some companies avoid expansion, which hurts the development of India`s economy.

Being subject to party politics, there are different types of political logic behind some economic reforms in India. In November last year, Modi`s demonetization had a strong influence. It was an effective way to combat the shadow economy, but it also cut the campaign funding of opposition parties. India`s largest opposition party, the Congress Party, strongly condemned the government move.

If economic reforms are based on the political interests of certain parties rather than the general public, it is hard to implement changes systematically.

In terms of reform and opening up as compared with China, there wasn`t much of a time gap, but India`s GDP is only one-fifth of China`s.

The Modi government seems to have realized the negative impact of the political system and power divergence on the promotion of economic reform and hopes to learn from the Chinese model, shaping the Bharatiya Janata Party as a political party with influence and competence like the CPC and gaining prestige for Modi.

But realizing this goal is not an easy job. This will be a very controversial tactic for Modi in a country as diverse as India in terms of society, culture and religion. Political turmoil may also be triggered by this, which will be a great challenge for Modi.

Over the past 30 years, India`s stalled reform made it miss the golden age of rapid globalization, while China successfully seized the opportunity and achieved rapid economic growth through reform and opening-up.

After Modi came to power, he hoped to learn from the Chinese model and become part of the global industrial chain by promoting "Make in India" and taking up comprehensive reform. However, with a wave of anti-globalization sentiment in recent years, Western countries have established trade barriers to reshore their manufacturing. China became the new standard-bearer of globalization.

But the Modi government chose to compete with China instead of cooperating, and it displayed a negative - even confrontational - attitude to the cooperation frameworks proposed by China, including the Belt and Road initiative. These errors may hamper India`s economic development and cause an even greater disappointment in the country.

The author is a visiting fellow of the Chongyang Institute for Financial Studies, Renmin University of China.

Key Words:India   Modi   leadership   Liu Zongyi  

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