Can India's Democracy Sprint?

In the last couple of days, two pieces in the NYT have drawn me to consider my contention about how a large democracy manages the messy business of governing effectively. Reading this story covering the political economy issues facing the privatization process in India reveals the difficulty of making a definite transition from a socialist orientation towards a more market driven economy. I have no doubt that India needs to deepen economic reforms by undertaking privatization in order to ensure that resource allocation in that economy occurs through the market mechanism. No country could maintain efficient resource allocation where enterprises owned by the government collectively contribute 45% of GDP.

And yet the divestiture programme that has raised nearly US$ 3.5 billion in the last ten months alone still faces the hurdles because of the strength of political parties and monopolies that benefit from the high degree of government influence in the economy. That story suggests that in spite of the obvious success and the good timing, opposition to privatization may delay government divestiture programme. To my mind, while India is large and finally growing at impressive levels, it is unlikely to match china's growth levels unless the second generation of deep economic reforms are undertaken and the divestiture programme substantially advanced.

A second piece here tackles the related issue of large deficits and the need to curb expenditure by the Indian government. While it is clear that controlling high debt situation demands either the reduction of expenditure or hike in taxes, the Finance Minister in India seems to be at pains to sell these alternatives to politicians who are opposed to both alternatives. This situation too highlights the general frustration that people have with democracies because decision making requires wide consultation during which populism often takes over and delays sensible economic policy.

In earlier blog posts, I have often stated that my long term bets are laid with India because of the overall value that democracy confers. I maintain that bet though it is clear that given the speed of economic policy making in China, India is very slow and chaotic.