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India Opening Economically?

China may get the lion’s share of attention from the American media, but the implications for U.S. policymakers stemming from the rise of India are equally profound. After years of dynamic growth the Indian economy has slowed, which has led to calls by renowned Indian analysts for the country to be more welcoming to foreign investment.

It appears New Delhi may be heeding this advice. According to the Wall Street Journal, India is pursuing changes to increase foreign investment in both its airline and retail sectors:

India currently excludes overseas airlines from its policy that allows foreign investors to own as much as 49% of an Indian carrier. The change would allow overseas carriers to take stakes as large as 49%, too.

India’s airline industry until recently was a fast-expanding example of the country’s new commercial prowess but has been battered by high costs for fuel, taxes and jet leases. Only one out of the nation’s six commercial airlines makes a profit.

On retail, Mr. Sharma has written to the chief ministers of several states that aren’t allied with the Congress party in an effort to persuade them that backing the introduction of foreign supermarket chains, known as multibrand retailers, in India would improve the country’s supply-chain infrastructure, increase pay for farmers by cutting out market middlemen, and reduce costs for consumers.

Unlike China’s brutal, corrupt but sometimes technocratically efficient one-party system, India’s messy politics, also corrupt, often block needed change. Late last year, for instance, the Congress Party-led government approved changes that would have allowed Walmart to own 51 percent of an Indian joint venture but later had to back down when key coalition allies objected. Alarmed by new signs of economic stagnation, the government now seems eager to restart the reform process; we shall see.

India is a huge, complicated country filled with social tensions, entrenched interests, and contending ideological visions of the world. Change in India is hard, and many people fear the loss of their livelihoods if change comes. (Walmart, for example, would drive many small retailers out of business in India just as it has in the U.S. Reformers believe that lower prices for the poor and for businesses buying supplies from a more efficient retail chain would offset those losses, but millions of mom and pop retailers don’t agree.) A democratic government has to take these objections seriously, but at the same time it has to take decisions that enable the country as a whole to move forward.

How India solves—or fails to solve—its internal problems will affect us all in the years ahead. This is a story Via Meadia intends to keep following.

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  • Anthony

    “India is a huge, complicated country…Change is hard….” Social organizational patterns are most resistant to imposed top down change perhaps more so in world’s largest democracy.

  • An

    @WRM Politics aside, the latent business culture and societal institutions is smothering the innate talents and entrepreneurial spirits of the Indian people. Navigating the bureaucracy in India to get anything done is a game in itself. You have to deal with the 1) the existing caste structure of Hindi culture, 2) the massive bureaucracy that combining the worst elements of socialist top down planning with the remnants of the British Raj, and 3) inherent business or bribes and gifts. Bribery is a “cost of doing” business and is expected. if your potential business associate does not receive a gift it is considered an insult.

    Western notions of fair play is non existent. The India we see in the news is not the one you experience trying to get a business deal done. With India, you have the (successful) grafting of 1st world political framework onto a third world political culture.

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