Tag: India

A Map of Economic Freedom in India

Economic freedom in India has improved notably since the beginning of the country’s market reforms in the early 1990s, stimulating high growth from a very low income base. Though India’s level of economic freedom is still low—it ranked 111 out of 144 countries in the latest Economic Freedom of the World index—assigning one overall rating to this vast country can be a bit misleading. The map below shows that, rated on a state by state basis, the levels of economic freedom in India in fact vary greatly. The state of Gujarat, for example, has the freest economy in the country and ranks far above West Bengal, one of the least free states.

The data comes from the Economic Freedom of the States of India: 2012 report, co-published today by Cato, the Friedrich Naumann Foundation, and Indicus Analytics in New Delhi.

Economic Freedom in India

This annual report shows a positive relationship between economic freedom and growth. It is a reminder to policymakers at the state level that they need not wait for national leaders to restart the reform agenda; much can be done at the sub-national level to improve freedom. My colleague Swami Aiyar, one of the co-authors of the report, suggests some reforms in his chapter(.pdf) describing Punjab’s decline.

The study discusses reforms in two other areas that would have a significant impact on Indian growth. In his chapter (.pdf), Ashok Gulati, the head of the Indian government’s Commission for Agricultural Costs and Prices, describes the extent to which Indian agriculture is so incredibly screwed up in every step of production and sales, and he suggests sweeping liberalization. Economist Bibek Debroy describes India’s extremely rigid labor laws (.pdf), which help explain India’s large informal economy and why the country has failed to create labor intensive export industries as have developed in other Asian countries.

U.S.-Pakistan Relations: The Afridi Affair and Its Aftermath

Yet again, U.S.-Pakistan relations have hit a new low. Days after a deal to reopen NATO supply routes into Afghanistan fell through, and two back-to-back U.S. drone strikes rocked northwest Pakistan in a 24-hour period, tensions flared again after a tribal court sentenced Dr. Shakil Afridi—a Pakistani citizen who helped the United States track-down Osama bin Laden with a fake vaccination program—to 33 years in prison.

Republicans and Democrats on Capitol Hill were appalled, and Secretary of State Hillary Clinton called the move “unjust and unwarranted.” Apparently, U.S. officials and lawmakers are surprised that the chasm separating Washington and Islamabad is growing wider after years of papering over their differences.

Yesterday, in response to Dr. Afridi’s 33-year sentence under the Frontier Crimes Regulation, the Senate Appropriations Committee voted to cut aid to Pakistan by a symbolic $33 million. That’s not enough—it represents just 58% of the amount the president requested for Pakistan. Washington should go further and phase out assistance entirely.

Today in the New Jersey Star-Ledger, my coauthor Aimen Khan and I argue that ending aid to Pakistan is the right course for both countries:

The U.S. must carefully calibrate a policy with Pakistan that continues diplomatic relations absent large sums of aid. While cutting aid to Pakistan might be temporarily destabilizing, Pakistan’s support for militant Islamists is arguably more harmful to regional stability. Moreover, while emergency-type humanitarian aid can be beneficial to the Pakistani people, economic development aid intended to promote growth has been detrimental, allowing Islamabad to avoid confronting its rampant corruption and budgetary problems with the necessary urgency.

The Pakistani government and people stand united in their belief that Pakistan does not need the U.S. Phasing out U.S. aid to Pakistan benefits both parties and better reflects strategic realities.

As is common with U.S. military and foreign aid to unstable governments, it typically serves to entrench the prerogatives of military and civilian elites. Quite perversely, in return for the tens of billions of dollars that American taxpayers forked over to Islamabad, many in Pakistan have come to blame Washington for their deteriorating situation. Even well-intentioned assistance under the much-lauded Kerry-Lugar aid package was viewed within Pakistan as an infringement on sovereignty, mainly because it came with intrusive strings attached. Furthermore, U.S. aid and arm-twisting have failed to pressure or persuade Pakistan to go after militants we deem to be a threat to our interests, including the Afghan/Quetta Shura/Karachi Taliban, Hekmatyar, and the Haqqanis.

From the 30,000-foot view, from Islamabad to New Delhi, it appears that Washington is slowly making a long-term pivot in South Asia. But as this author argued years ago, reconciling this pivot in the context of Afghanistan has been nothing short of a failure. The United States and Pakistan do not trust one another, NATO slouches toward an exit, and Pakistan has become more radicalized, destabilized, and encircled by India and militants.

But I digress. Please click here to read the full op-ed. Enjoy!

 

A Step Forward in Afghanistan, If We Are Willing to Take It

The Washington Post reports the Obama administration has revised its Afghan war strategy to include “more energetic efforts to persuade” Afghanistan’s neighbors—including India, China, and the Central Asian republics—to “support a political resolution.” Just yesterday, the New York Times reported that the administration was also relying on Pakistan’s Inter-Services Intelligence spy agency “to help organize and kick-start reconciliation talks aimed at ending the war in Afghanistan.”

This is good news, but also déjà vu. The administration called for “pursuing greater regional diplomacy” back in 2009. It also said it would ask “all countries who have a stake in the future of this critical region to do their part.” Countries in the region do have a stake in Afghanistan’s future; America, however, has few effective instruments for submerging the differences among competing powers.

Take our relationship with Iran. It has made significant inroads with Afghanistan’s Hazara and Tajik communities and is well-positioned to be a key player in the region. But Tehran and Washington seem neither close to engaging in direct talks nor willing to make reciprocal concessions for the cause of furthering peace. The irony is that after 9/11, American and Iranian interests initially converged in Afghanistan: Tehran cooperated with Washington to overthrow the Taliban regime, and during the Bonn negotiations helped broker a compromise between President Karzai and the Northern Alliance.

America’s complicated relationship with Iran is one reason why what U.S. officials perceive to be in America’s best interests may not be synonymous with the pursuit of peace. Isolating Iran, or even Pakistan for that matter, will hurt the substance of negotiations, increase the incentive for these countries to sabotage peace, and hinder Washington’s ability to shape a coherent regional strategy. Even if Washington were to engage Tehran and Islamabad, they may very well decide to protract the bargaining process to convey that time is on their side (it is). One reason why the administration’s 2009 effort may have faltered was that Pakistan—a major player in Afghanistan’s internal affairs (to the consternation of many Afghans)—has come to feel that it can manage the terms of reconciliation. In fact, it is this belief that tempers Pakistan’s eagerness to be more accommodating toward the United States, which is why the case for American humility is key when it comes to the subject of negotiations.

Peace will not be perfect. Problems will rise when competing interests collide on certain core issues. Nevertheless, all parties must be sufficiently dedicated to reaching a consensus on what constitutes a manageable settlement. After all, some countries will seek to stymie their enemy’s provision of assistance to Kabul (i.e. Pakistan vis-à-vis India). Getting these countries to think otherwise will necessitate a shift in said country’s perceptions of others’ intentions.

As I wrote last week, U.S. officials understand the enormity of problems they confront in this vexing region. Proponents of peace are not blind to these difficulties. Unfortunately, much like the current nation-building effort, when it comes to regional engagement, U.S. officials could be making yet another ambitious commitment that is beyond their ability to carry out.

Cross-posted from The Skeptics at the National Interest.

Monday Links

Commercial Ties with India Are An Opportunity, Mr. President—Not A Problem

During his visit to India, President Obama should bury once and for all his divisive rhetoric about American companies shipping jobs overseas. Our growing commercial ties with India are a great opportunity, not a problem. U.S. exports to India have doubled in the past four years. American companies that have set up shop in India have helped to fuel demand in that country for U.S. products and services. The president should be celebrating rather than demonizing our deeper economic ties with India.

How President Obama Can Make His India Trip Meaningful

To make his coming visit to India meaningful, President Obama needs to combat the impression that India fares better with Republican presidents than Democratic ones, because the latter are instinctively more protectionist. In his quest for economic recovery, he has bashed US corporations that outsource jobs to places like India, forbidden companies getting government rescue funds from outsourcing work, and has now enacted higher visa fees for visiting IT professionals which seem designed to hit Indian companies quite specifically. This may be designed to win votes in the Congressional elections, but will not win hearts and minds in India. President Obama needs to state categorically that he will not follow the Great Depression formula of trying to combat unemployment with protectionism.

A better way to create US jobs will be to relax labyrinthine export licensing rules for exports of dual-technology equipment and technology (which can be used for both civilian and defense purposes). India also needs to do its bit by shedding its reputation as world champion in anti-dumping actions (206 in the five years to 2009).

Comparative Political Economy

Free-marketers often point to the varying success of pairs of countries – the United States vs. the Soviet Union, West vs. East Germany, Hong Kong and Taiwan vs. China – to illustrate the benefits of markets over planning, regulation, and socialism. Some even point out the closer but real differences in GDP per capita between the United States and Western Europe. In his 1984 book Endless Enemies (p. 380) Jonathan Kwitny added the less familiar pairs “Morocco versus Algeria, Malaysia versus Indonesia, Thailand versus Burma, Kenya versus Tanzania.” Now Rama Lakshmi reports in the Washington Post that we can see the results of two systems of political economy in one country:

It didn’t take long for the first athletes arriving in New Delhi last week for the upcoming Commonwealth Games to catch a glimpse of modern India’s two faces.

Their gateway to the country was the capital’s gleaming new international airport terminal, built by a privately led consortium and opened in June four months ahead of schedule.

But the official wristbands that the visitors were handed at the airport turned out to be an emblem of India’s famous red tape and government inefficiency. When the teams reached the athletes’ village, the police guarding the facility refused to recognize the IDs, saying that the Games Organizing Committee had not sent the required authorization order.

The jet-lagged athletes stood about under a tree for hours with their luggage, calling their embassies for help, and the problem was not finally resolved for four more days.

To observers, the incident illustrated more than just the well-documented sloppiness that has marked India’s preparations for the Games. It also underscored the gap that has emerged between a government rooted in a slower-moving, socialist era and a private entrepreneurial class that is busy building global IT companies, the world’s largest oil refineries and spectacular structures such as the $2.8 billion airport terminal.

“It is about two aspects of the India story,” said Rajeev Chandrasekhar, an entrepreneur and member of Parliament. “India’s private sector has been exposed to competition and therefore has developed capability. Accountability is firmly built into the entrepreneurial mind-set. But the government structure is a relic of the colonial past and continues to plod along.”…

For the Delhi [airport] project, [Grandhi Mallikarjuna]Rao said, his company worked with 58 government agencies.

“Our nation is in the process of transition from a command-and-control economic system to a more efficient market-driven structure,” he said. “It will take some time till this transition is complete.”

Given all this history, the interesting question is why some people in the United States want to continually transfer such vital functions as energy and health care from the competitive, accountable, capable entrepreneurial sector to the slower-moving, plodding, command-and-control bureaucratic sector. (Of course, the already-government-influenced health care and energy industries are not the most entrepreneurial sectors of the economy. But as the examples above demonstrate, even imperfect markets work better than government direction. Nor are the government-run local schools very competitive or accountable, but they are more so than they will be under tighter federal control.)