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Analysis

India should tap EU, East Asia to overcome ‘late convergence stall’

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GDP Data

The usual brouhaha around the Budget strips the Economic Survey of the attention it deserves. The Survey document, especially since Arvind Subramanian has taken over as the Chief Economic Advisor, has consistently pushed the envelope on economic thinking, providing exciting new insights for the Indian economy. The latest one, released three days before the Budget, introduced a new phrase into economic jargon: The “late convergence stall”. It is a phenomenon that the Survey fears might affect the growth process of the developing world.

The basic argument is this. Economic convergence, which is the process of low-income countries catching up with richer ones in standards of living, has been taking place over the last few decades at an accelerated pace; something which economists like to call “convergence with a vengeance”. To be precise, countries were on a divergence path before 1997, a period of convergence from 1998 till the financial crisis in 2008 and an era of accelerated convergence post-crisis.

However, with changing global economic scenarios, it might be more and more difficult for developing countries to narrow the gap. In other words, the economies that have been rapidly climbing up the economic ladder might face a “late convergence stall”.

The threat of a convergence stall might result from the development of four challenges that were non-existent during the formative stages of the developed world. The first and the most crucial one is the end of rapid globalisation that benefitted the East Asian economies and even China. High levels of export growth rates of these countries have been drivers of their economic growth stories.

Developing nations that are late to the global scene cannot expect to achieve such export levels in the current inward-looking shifts in trade policy, especially across the developed world.

Subramanian always remains careful in stating that it is the era of “hyper-globalisation” (or rapid globalisation) which has come to an end, and not globalisation per se. However, globalisation, if defined as a period when trade among nations is growing faster than the global GDP growth, can be seen to be growing rapidly from 1950 till a few years after the economic crisis of 2008. During this period, growth in trade was close to five per cent while growth in world GDP was close to four per cent.

After 2010, growth in world trade levels has fallen below GDP growth, marking an era of de-globalisation (3.5 per cent economic growth against global trade growth of 2 per cent). Therefore, even though the Survey takes a conservative approach in claiming that globalisation has come to an end, the data shows that the world is, in fact, de-globalising.

It can be the case such low levels of trade might not hold once the world economic growth is running in full throttle, but the fact of the matter remains that the developing world cannot reap the same gains that were received in the later part of the 20th century. This could bring about the historical divergence that world economies had experienced throughout much of modern economic history. This trend was famously evidenced by Harvard’s Lant Pritchett in his paper “Divergence, Big Time” in which he showed that between 1870 and 1990, the richest and poorest countries have shown considerable divergence between their per capita incomes. Therefore, the convergence has only been a recent phenomenon. It would not be a surprise if it returned.

To make matters worse, other avenues of economic development that had been open earlier are also closing down. While industrial expansion was the most effective means of achieving economic successes for poor economies in the past, high productivity has implied that economies in current times reach the pinnacle of industrial employment much earlier on their growth path.

Turkish economist Dani Rodrik, also from Harvard, calls this “premature deindustrialisation” and shows how most of the developing world is affected by it. Therefore, resources which earlier used to shift from the low-productivity informal sector to high-productivity jobs, now usually shift to sectors that are only marginally more productive. The economic gains from a shift of labour across sectors are thus not derived to an extent that was true for the countries that are now high up on the income spectrum.

The case for a slowing down of convergence or divergence is, therefore, quite strong. The developing world needs to be prepared for any such restoration of the past economic trend. The advent of automation and similar technological innovations will further accentuate the problem because the richer countries will be more capable of deploying them for production on a mass scale. It is comforting to realise that the Indian government is well aware of the threat in advance, but it remains to be seen if this awareness is followed up with appropriate policy action.

The Economic Survey gets it right in recommending rapid improvements in human capital to sustain growth at current levels, but takes a defeatist approach in suggesting that India can do very little about diminishing globalisation. On the contrary, there remains immense scope for the country to play an enabling role in further integration of the global economic order. If the US is currently a lost cause, there remain other large markets like the EU and East Asia where India can further the cause of higher trade openness.

(Amit Kapoor is chair, Institute for Competitiveness, India. The views expressed are personal. He can be contacted at [email protected] and tweets @kautiliya. Chirag Yadav, researcher at Institute for Competitiveness has contributed to the article)

Analysis

Modi gets real on China: Wuhan summit demonstrated that a weak economy gives India few cards to deal

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Kapil Sibal

The informal summit at Wuhan between Prime Minister Narendra Modi and President Xi Jinping must be seen in the context of changing global equations. China with its trade volumes and economic clout is seeking to challenge American supremacy.

In recent years, China has undergone a period of tepid growth. The launch of its One Belt One Road (OBOR) initiative is an attempt not only to fuel growth but also influence our neighbours. It has invested or committed more than $150 billion in the economies of Bangladesh, Maldives, Myanmar, Pakistan, Nepal and Sri Lanka. This along with the Chinese project in Pakistan’s Gwadar Port showcases the real intent of the Chinese to symbolically encircle India.

On the other hand, President Donald Trump has struck a blow to globalisation with his ‘America First’ policy. On the trade front, Trump seeks to create tariff barriers to reduce China’s over $200 billion trade surplus.  Trump wants access to Chinese markets and seeks to persuade NATO allies to share defence costs. His sanctions against those who deal with Russia and pulling out of the Iran nuclear deal will have implications for India and global trade.

Illustration: Ajit Ninan

China recognises this. The overbearing presence of the Chinese in our neighbourhood and Trump’s non-sentimental approach both to trade and diplomacy are factors that have led to Wuhan. Modi, after almost 4 years of unchartered, unguided and inconsistent policy towards China, has realised that it is time to have a quiet bilateral dialogue.

Neither the optics lapped up by captive channels when Xi was feted on the Sabarmati’s banks, nor the flexing of muscle in response to Chinese expansion at Doklam has paid dividends. Modi realised it was time to distance himself from the Dalai Lama and seek Chinese collaboration to deal with outstanding issues. Our economy requires investments in key sectors.

China has penetrated the Indian economy in telecom, power, engineering and infrastructure and has shown interest in setting up industrial parks. India’s digital payment company Paytm is 40% owned by Chinese. Chinese firms such as Harbin Electric, Dongfang Electronics, Shanghai Electric and Sifang Automation either supply equipment or manage power distribution networks in 18 cities in India. This move forward with the Chinese has come towards the end of Modi’s five-year term.  Photo ops and expansive statements clearly are no substitute to hard-nosed diplomacy.

In dealing with China, we must accept a few truths.

First, the Chinese will never give up on their all-weather friend Pakistan. The Chinese will not support our candidature at the UN high table, nor will they agree for us to be a part of the Nuclear Suppliers Group. While they have access to our markets, they are loath to reciprocate and open up their markets including in the IT sector. A recent decision by the Chinese to allow some of our pharmaceutical companies to do business and export generic drugs to China is one way to deal with the imbalance of our bilateral trade that is tilted in favour of China.

We must also recognise that we need to collaborate with and not confront China because between us, we host 2.5 billion people and we are the two largest players in this part of the world. On many issues at international fora, we have to take positions consistent with our developmental needs. As a democracy, we have greater political affinity with the US, and in the context of global power equations we need to collaborate both with the US and Japan.  However, our economic interests, given our developmental needs, have greater affinity with China. We must maximise our leverage considering fast-paced developments in global trade.

The Indian and Chinese statements at Wuhan show both a divergence in emphasis and a meeting of minds. While terrorism is an issue addressed elaborately in our statement, the Chinese referred to it only once. They will pay lip service in their response to terrorist activities launched across the border but will not condemn Pakistan. During the Doklam crisis only Japan issued a statement in India’s support; Trump was silent. The other difference is that while the Chinese talked about investments in India, we emphasised the importance of balanced trade.

While India sought mutual trust and ‘predictability and effectiveness in the management of border affairs’ this was missing from the Chinese statement. The Indian statement seeks an environment in which both sides can manage to control tensions and not let them spiral out of control, but the Chinese statement has been more assertive on sovereignty. China has not addressed the issue of its $71.5 billion trade surplus in 2016-17.

Much of foreign policy is dependent on a country’s economic situation. Diplomatic options are enhanced when an economy has the potential to grow at a fast pace. Any country which seeks to add muscle to its foreign policy must have the economic leverage to do so. In this context, it is difficult to match China.

Even in our bilateral relationship with the US, Americans have kept their economic interests paramount. Reduction of H1-B visas and the insistence by Trump on economic justice to Americans makes us suspect the US may not be the steadfast partner we can wholly rely upon. We need a calibrated and institutionalised policy response to China and other countries; not a personalised policy where institutional memory and positions are sidelined.

I hope Modi has realised that and the Wuhan meeting is a step in that direction.

DISCLAIMER : Views expressed above are the author’s own.
Courtesy: This article is published in TimesOfIndia on 21st May 2018
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Analysis

Yeddy does ‘Atal’, deals blow to BJP’s south strategy

With Karnataka gone now, Yeddyurappa made an emotional last bid to win people’s heart ahead of the 2019 Lok Sabha polls.

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BS Yeddyurappa

New Delhi, May 19 : The BJP’s efforts to expand in southern states suffered a blow on Saturday with its two-day old government collapsing as Chief Minister B.S. Yeddyurappa resigned before a trust vote in an assembly where no party has majority.

The party now hopes that the move, akin to what then Prime Minister Atal Bihari Vajpayee did in 1996 after failing to garner enough support for his 13-day old government, will help it gain sympathy in the 2019 Lok Sabha polls.

Despite knowing the fact that it was short of the required numbers, the BJP leadership went ahead to stake claim and took risk of allowing Yeddyurappa to take oath as Chief Minister.

This is what Vajpayee — the first Bharatiya Janata Party (BJP) Prime Minister — did almost 22 years ago.

The BJP, which considers Karnataka as its gateway to south, tried its best to win the trust vote after forming the government on Thursday but failed to sustain it.

Despite this, BJP leaders are hopeful Yeddyurappa’s emotional speech in the Assembly before resigning and clearing his vision for the cause of farmers and downtrodden, will help the party in 2019 elections.

“Yeddyurappa did the same way Atal Bihari Vajpayee made his speech in the Lok Sabha in 1996 before resigning as the Prime Minister,” a senior BJP functionary told IANS, recalling how the BJP-led NDA returned with a thumping majority in the elections that followed.

“The BJP surged all over the country and formed governments (in many states) with coalition as well as of its own in 2014. We are hopeful of emerging in south too through Yeddyurappa,” he said.

With the possibility of relatively fewer seats in the Hindi belt states like Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Gujarat, Rajasthan, Jharkhand and other north Indian states during the Lok Sabha elections in 2019, BJP President Amit Shah has been working on a strategy to compensate a bit from the probable loss of seats in southern part of the country.

But after Yeddyurappa’s resignation, Shah’s startegy has suffered a jolt as it provided an opportunity to the opposition camp to remain united.

The Assembly poll results clearly indicate that if the Congress and JD-S join hands in 2019, it will be a tough task for the BJP.

In 2014, the BJP had won 17 out of total 28 Lok Sabha seats of Karnataka. Out of total 129 seats of southeren states of Andhra Pradesh, Tamil Nadu, Telangana, Karnataka and Kerela, the BJP could win only 21 in 2014.

With the Telugu Desam Party (TDP) quitting the NDA, the BJP has already suffered a jolt in south as its position has weakened considerably in Andhra Pradesh where Chief Minister N Chandrababu Naidu is campaigning against the Modi government for not meeting the demand of special status to the state.

To compensate TDP’s departure from the NDA, the BJP has been eying YSR Congress. But that looks like not an easy task as YSR Congress itself has been vehemently opposing the Modi government for not meeting the demand of special status.

In 2014, the BJP could won only two out of 25 seats in Lok Sabha in Andhra Pradesh.

In Tamil Nadu, the BJP is also facing the ire of the people as the Union government has failed yet to constitute a Cauvery Management Board.

With AIADMK in power and DMK as the main opposition, the BJP has very little space for its emergence in the state. In the 2016 state Assembly elections, the BJP even found it hard to identify candidates for the 234 constituencies in the Dravidian state.

The BJP is now trying to make inroads in Kerala but it will again not be an easy cup of tea for the party.

Although the BJP improved its vote share by around nine per cent in 2016 state Assembly elections, but it failed to stop Left Democratic Front from retaining power. In that year, the BJP opened an account in the state assembly — a first in the history of Kerala.

The BJP is hopeful of gaining ground in Telangana but faces a tough contest from the Telangana Rashtra Samithi and the Congress. In 2014, it could win only one seat out of total 17 in the state.

Now, with the country all set to face general elections next year, the only state through which the BJP could have made inroads in south was Karnataka.

With Karnataka gone now, Yeddyurappa made an emotional last bid to win people’s heart ahead of the 2019 Lok Sabha polls.

“I will travel across the state non stop. We have received tremendous love and support across the state. For 2019, I promise, we will win 28 out of all 28 Lok Sabha seats. I won’t relent. I will continue to fight till my last breath,” he said in the Assembly, before meeting Governor Vajubhai Vala to resign.

(Brajendra Nath Singh can be contacted at [email protected])

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Analysis

It’s about anything but Jinnah, says AMU community over controversy

Of the students and teachers unions raising questions on the impartiality of the local administration, Peerzada said the AMUSU and AMUTA were independent bodies and were “entitled to their views”.

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Jinnah row at AMU

There is consensus not only among the students, teachers and the administration of Aligarh Muslim University (AMU) but also locals that, contrary to the perception created by media reports, the recent controversy and violence around the over the 143-year-old varsity has little to do with the portrait of Muhammad Ali Jinnah. And there is more to it than what meets the eye.

One of the reasons behind this widespread scepticism is the fact that the man who stirred the controversy — BJP Lok Sabha MP from Aligarh Satish Gautam — had been a member of the AMU Court between 2014 and 2017. Why didn’t he raise the issue earlier, and how come his letter flagging the issue was leaked to the media even before it reached the Vice Chancellor office, ask those in the AMU community.

Of the “real purpose” behind the attack on the varsity by Hindutva activists, however, there are diverse views. While some insist on linking the entire episode with the ongoing Karnataka assembly elections, the others see it as a “diversionary tactic” by supporters of the BJP government at the Centre and state to hide its “failures”.

Still others feel that it had something to do with former Vice President Hamid Ansari’s visit to the university.

Those with an academic bent of mind portray the incident as an attack not just on AMU but on all institutions of higher learning in the country and their pluralist ethos. They point to a pattern in the attacks and urge one to look at “the larger picture”.

While the students have been openly questioning the local administration and the police’s impartiality, some of the teachers feel the university administration could have handled the portrait controversy “in a better way”.

The varsity administration, however, avers that it did everything “that needed to be done” on the first day itself and has been doing its best to “maintain peace on the campus so that that academics does not suffer and students’ future is not jeopardised in any way”.

The controversy started with a letter written by MP Gautam to the AMU Vice Chancellor on April 30 in which he questioned the presence of a portrait of Jinnah — Pakistan’s founder — in the AMU Students Union (AMUSU) office.

On May 2, BJP leader Subramanian Swamy is said to have tweeted: “Somebody needs to teach AMU a lesson. Who will do it?”, with a link to an article with the same heading.

On May 2, former Vice President M. Hamid Ansari was scheduled to visit the AMU at the invitation of the AMUSU that was to confer its lifetime membership — an honour also bestowed on Jinnah in 1938 and which explains the presence of his portrait there — on the former Vice President and a former Vice Chancellor of the university.

The next day, on May 3, Ansari was to deliver a lecture on pluralism in the Kennedy Hall at the varsity and in the evening attend a dinner hosted by the AMUSU. His schedule had been conveyed by the Aligarh administration in advance by Ansari’s office as per protocol.

Ansari reached the university on May 2 at the scheduled time, that is, 1 p.m., and was lodged at the AMU guest house which is near the Baab-e-Syed gate of the university.

A little later, a group of men, owing allegiance to the Hindu Yuva Vahini, an outfit founded and patronised by Uttar Pradesh Chief Minister Yogi Adityanath, started creating a ruckus near the administrative block of the university by raising objectionable slogans. The AMU security confronted them and handed them over to the Civil Lines police.

As per the statement given by the AMU Proctor’s office to the police, the men returned barely half an hour later with more people — around 25-30 men, some of them wielding pistols, lathis and stones — and shouting expletives and objectionable slogans against the AMU, tried to barge into the university through Baab-e-Syed.

“First the persons handed over to the police were let off easily. Then the miscreants were allowed to come near Baab-e-Syed at a time when a former Vice President of India was in the university guest house which is less than 100 metres away from Baab-e-Syed. Then the students going to lodge the FIR against all this were brutally beaten up by the police and Rapid Action Force. How could there be so many lapses on the part of the administration within a few hours,” AMU Teachers’Association (AMUTA) President professor Hamid Ali asked while speaking to IANS.

Several students were badly injured in the police assault and had to be hospitalised.

Ansari cut short his two-day programme and returned to Delhi soon after the incident as the local administration expressed its inability to provide him security cover. Last year, there was an attempt to poison the drinking water tank of a madrasa in the town run by Ansari’s wife, Salma Ansari.

AMUSU Presdent Mashkoor Ahmed Usmani said that neither is the controversy about Jinnah’s portrait nor is the students’ protest.

“Jinnah’s djinn will disappear again after Karnataka elections. Our protest is not about him or his portrait because the portrait has been there long before us. We are protesting against the use of brutal force against the students who were moving peacefully. We are also demanding a judicial probe into the entire incident and quashing of FIR against the unknown students of AMU,” Usmani told IANS.

“But a section of the media is portraying our protest as if we are supporters of Jinnah. We are not. His portrait is there since 1938, along with many others who were conferred with the lifetime membership of the AMUSU,” he added.

The students are also nursing a resentment against the university administration which, they think, “failed to rise to the occasion”.

Nevertheless, Vice Chancellor Tariq Mansoor did visit on Tuesday the dharna site — where students were preparing for the final exams commencing from Saturday — to “express solidarity with the genuine demands of the students”.

“I share our students’ pain and have endorsed the demand for judicial inquiry and conveyed the sentiments of the AMU fraternity to all concerned,” Mansoor said in a statement on Tuesday.

University Public Relations Officer (PRO) Omar Peerzada said that the administration had no objection to the students’ protest as this was being done “in a peaceful, democratic way inside the campus”.

Of the students and teachers unions raising questions on the impartiality of the local administration, Peerzada said the AMUSU and AMUTA were independent bodies and were “entitled to their views”.

“On our part, we have very good relations with the local administration as well as the Union HRD Ministry and we have had their full support so far,” Peerzada told IANS.

Meanwhile, it is business as usual in the rest of the town even as armed police surrounds the campus of the historic and multi-faceted university that has a long list of distinguished alumni who have made their names in politics, armed forces, civil service, sciences and academia. Incidentally, the university was ranked No 1 in the country this year in official rankings.

By : Asim Khan

(Asim Khan can be contacted on [email protected])

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