What Narendra Modi Can Do for Development

 

Screen Shot 2014-06-26 at 9 42 43 AM (2)

 

Nearly one month after the landmark 2014 Lok Sabha election, India waits for newly-elected Prime Minister Narendra Modi to make good on his election promises. During his campaign, former Chief Minister Modi vowed to catalyze economic growth, curtail corruption, and defend the poor, a platform that surely helped him earn the largest margin of victory in the country’s history. Now, in the face of slowing economic growth and rising income inequality, Modi is expected to apply his development prowess for the rest of India.

But how?

The answer is simple: subsidy reform.

Since India’s independence from Britain, subsidies have had a major presence in India’s budget. India’s 2014-2015 interim budget estimated $21.2 billion in subsidies for food and petroleum alone. Until Modi’s election, this trend showed no sign of changing.

Next month, the Modi government is set to unveil its first budget, the first likely indicator of Modi’s fulfillment of campaign promises. Recently, Mr. Modi has hinted that his economic policies and corresponding budget will be unpopular with India, most likely due in part to the diminishing role of petroleum and agriculture subsidies.

India is host to a myriad of subsidies. From petroleum to education, India even subsidizes Muslim citizens to make the Haj. Of these, some of the most controversial are food subsidies. Within this broad scope, there are subsidies for fertilizer, irrigation, and electricity as well as in-kind food subsidies. The Government of India has barely reformed its food subsidy policy since the mid-1970s, with the exception of the 2013 National Food Security Act. The National Security Act provides food to two-thirds of India’s population, though only 22% live beneath the poverty line.

Designed with combating poverty in mind, subsidies are expected to boost production and increase efficiency while bolstering India’s recently declining growth rates. However, in reality, the inverse is true. Indian subsidies in agriculture are distributed unequally across the states. For example, the states of Assam and Madhya Pradesh, receive disproportionate agricultural subsidies, with the former receiving 600 rupees per agricultural person and the latter receiving 40 rupees per agricultural person. Both states, with active agricultural sectors, receive unequal subsidies for their efforts, leaving Madhya Pradesh to be one of the country’s more prosperous states and Assam one of the least developed.

Further, it is unlikely that in-kind food subsidies even reach India’s poorest. As early as 1985, the public distribution system was responsible for a mere 15% of the allocations meant for the poor, a track record that has worsened over time.

Though it may seem that business-centric Modi has neglected the poor in lieu of increasing foreign investment and freeing the labor markets, the new Prime Minister ’s policy reforms could be a key to reducing poverty. In a recent speech to Parliament, Modi alluded to administrative changes to increase the efficiency of the state-run Food Corporation of India. These reforms could come in the form of a nation-wide cash transfer system that could increase distribution efficiency and restore foodstuffs to market prices. With demonstrated effectiveness in neighboring Indonesia, cash transfers allow more targeted assistance and more effective poverty reduction. Though it is unlikely that Modi will eradicate subsidies altogether, it is clear that he is dedicated to their reform.

For better or for worse, Narendra Modi’s victory is a sign for changing times in Indian politics. The Modi government’s new budget is expected to be introduced in early July, but the transition from planning to implementation will be a challenge. Parliament must review and approve the budget, meaning that the Modi’s budget could be met with opposition before it even reaches the Rajya Sabha. Though scaling back subsidies and bolstering growth are ambitious, the greater obstacle could be a lack of political will.

 

 

Advertisements

Migrants of a Different Kind

Samysuddin, a current resident of Indonesia, can recall the days when he would take his trusted speargun and dive into the coastal waters of Ujung Village and be able to catch his family’s dinner. But things have since changed in the waters off the Kapoposang island of Indonesia: “I can spend the whole day motoring around, paddling and swimming, I’ll try everything. Sometimes I don’t catch any fish and we’ll go a whole day without eating any. These days, the coral reefs around Kapoposang are degrading. If the reefs continue to degrade then there won’t be any fish here. There won’t be anything left for us to do.”

2118582608_1ede92163a_z
A home on the water in Indonesia, a country where migration is already an inevitable method of adaptation and will be exasperated in the future. (Source: Curt Carnemark / World Bank)

Samysuddin is a part of a growing population of Indonesia migrants that have been displaced as a result of economic, social, and now adverse environmental changes.  changes.  Narratives like his are becoming a familiar tocsin. UN forecasts predict  “200 million to 1 billion” people will have to migrate as a result of climate change with 200 million being the most widely cited estimation but not devoid of misapplication and manipulation. While there is a considerable amount of research on migration as a response to various, social, political, and economic conditions, humans are now beginning to migrate as an adaptive strategy to adverse environmental conditions. Migration due to rising sea levels is in its most nascent forms as push and pull factors vary greatly among regions and social groups and are often intertwined with livelihood opportunities and public policy responses. For example, research conducted in the aftermath of Hurricane Mitch found that rural Nicaraguan families in extreme poverty were the least likely to migrate as they were unable to finance the cost of moving. Yet Costa Rica still absorbed an enormous influx of Nicaraguan migrants that have been victims of violence and have faced constraints in accessing social services.

Continue reading

Waving the REDD Flag in Indonesia’s Forests

As an archipelagic nation, Indonesia consists of around 17,000 islands with 98 million-hectare tropical forests, the third largest in the world after Brazil and Democratic Republic of Congo. Home to “twelve percent of all mammal species, 16% of reptile and amphibian species, and 17% of bird species,” Indonesia’s tropical forests are undoubtedly an important sanctuary and essential source of the world’s oxygen supply and carbon sink function.

The world, however, has been alerted that this lung of the earth is deteriorating, piece by piece, at a disturbing rate. One of Indonesia’s five big islands, Sumatra, for instance, has lost 85% of its forests. Meanwhile, another island, Borneo, experienced an average annual loss of 2.1 million acres of its forest area between 1985 and 2005. Although the nation has been lauded for its economic bounce after the devastating 1998 financial crisis with a 6% GDP growth on average over  8 years, it seems that Indonesia’s staggering economic growth is having an inverse trend to its environmental record.

Continue reading

Half-time in Indonesia’s Economic Growth

Last week, Washington, D.C. was the site for two big events on Indonesia and its economic prospects. The events featured speakers from the Asian Development Bank, The World Bank, Castle Asia, The National Bureau of Asian Research and The United States-Indonesia Society, all of whom point to an increasingly important role for Indonesia in the global economy and to the characteristics that make the country a peculiar case in development.

As largest economy in Southeast Asia with around 250 million people, Indonesia has enjoyed continuously high GDP growth rates (the latest announced this month still show surprisingly high growth). It distinguishes itself as its growth has been driven by domestic demand, not western demand that is seen in many other Asian countries such as Thailand or Vietnam. Domestic demand has in turn provided padding for Indonesia while demand from western countries has slowed down. Continue reading

Who Were the Biggest Winners (and Losers) in the Olympics?

The opening ceremony for London. 2012.

The conclusion of the 2012 Olympic Games in London offers an opportunity to reflect on the distribution of medals amongst participating countries. Most will look no further than the medal count standings to determine the most dominant countries in athletics. But is that an accurate way to judge a nation’s true performance? Many would argue that a casual glance at the medal winnings is unfairly skewed towards the bigger countries with larger populations, resources, and Olympic delegations. In response, analysts have taken into account numerous variables such as GDP, population, inflation, growth rate, unemployment, labor force, health expenditures, ex-host, and team size to provide adjusted indicators of Olympic success. Continue reading

Protecting the Most Vulnerable: Remittances and Worker Abuse

With $325.5 billion sent around the world by over 200 million migrants, it is easy to see why most discussions of remittances focus on the numbers. Often doubling or tripling official development assistance, remittance flows are an invaluable source of financing for many developing nations.

But in the enthusiasm over these quantitative measurements, one key measure is lost: an understanding of the migrants who work for each dollar those numbers represent. Far away from their homes, these workers often labor in poor conditions with little oversight or regulation. Moreover, as several articles published last month argue, poor economic conditions at home render migrant workers particularly vulnerable to predatory or even fraudulent practices.

A blog article last month by The Economist discusses the issue of migrant rights in the context of Indonesian immigrants who work as domestic servants in Saudi Arabia. Detailing the constant threat of abuse that workers may face, the article describes how the lack of workers’ rights have resulted in several prominent scandals, leading to tense relations between the two governments. In one instance, the Saudi Arabian government executed an Indonesian domestic servant without notifying the Indonesian embassy. The worker was accused of stabbing her employer to death after he allegedly abused her. Other workers have complained of long hours, unpaid work, and physical or psychological abuse.

Continue reading