On June 22, 2016, Faculty Associate Manu Bhagavan was asked to submit an opinion to the New York Times’ discussion of Indian politics. The text of Bhagavan’s opinion piece is reproduced below. Visit the New York Times site to read differing views and responses by other contributors:
In a feat of magic, the Indian government surprised everyone this week with its sudden announcement of policies to liberalize further key sectors of the economy, like defense and civil aviation. What remains unclear is if this is a sleight of hand or an act of true wizardry.
While portraying itself as a visionary agent of the future, the government has been mired in identity politics that were regressive last century.
The chasm between the Modi administration’s lofty rhetoric and ground realities has been growing ever wider. On the one hand, the government has pitched itself internationally as visionary, tech-savvy and pro-development, an agent of change that will finally carry India into the future. On the other hand, it has been plagued domestically by sluggish reforms and regressive identity politics that are more about the last century than the next. Even the underlying metrics used to calculate the country’s economic growth have come under question recently.
Markets have had jitters as a result, but nonetheless have continued to respond favorably overall, in large measure because of the steady hand provided by superstar central banker Raghuram Rajan. But Rajan’s announcement on Saturday that he will not seek a second term has sent out shock waves, reinforcing concerns about the country’s direction. The fact that Rajan faced criticism from some quarters for having now and again spoken up in favor of liberal principles, like the right to free speech, has raised questions for many about the reason for his departure. Even more bitingly, some commentators have used the rejection of the renowned Rajan to question the government’s commitment to competency.
It is therefore difficult not to see the relaxation of foreign direct investment rules on Monday as more than a coincidence. Without a doubt, whether intentional or not, the dramatic announcement draws attention away from the departure of the Reserve Bank of India governor. In the short term, the new policies will have at least some of the desired impact, calming spooked markets, exciting international investors and spurring economic activity with an infusion of capital. The longer term repercussions are less clear, and carry greater risks to labor, manufacturing and local industries.
To take pharmaceuticals as an illustration, will increased international presence spur Indian companies like Cipla to exponentially ramp up research and development, to become international cutting-edge drug developers themselves? Or will Big Pharma ultimately succeed in pushing for greater intellectual property protections detrimental to India’s generics production, harming access to cheap and effective life-saving medicine for millions? This is all part of the mystery behind the wand that has been waved at the Indian economy.