Sunday, September 01, 2013

India's Growing Economic Crisis

A story that's being eclipsed by Syria but may have much larger implications (WalterRussellMead via Instapundit):

The economic crisis in India represents a much more fateful moment in world politics than anything happening in Syria.

What’s so important about India’s economic problems? It’s more what they tell us about the state of the country than the severity of the problems themselves. The stock market jitters, the currency crash, the GDP slowdown and the government deficit aren’t enough in themselves to sink India. All economies go through rough patches every now and then, but the question isn’t about a downturn. The question is whether the Indian political system has what it takes to get the economy back on track.

Two horrible things happened in India this week: an inept government reeling from serial corruption scandals and mounting evidence of economic failure pushed two bad bills towards enactment. There’s a wasteful “food security law” that will do much more to nourish India’s rich world of government corruption than to help the poor on a sustainable basis, and a poorly designed “land reform” law that could be even more crippling.

We’ve noted the food bill before; the land law is new and its consequences could be devastating enough to India’s growth prospects to change the course of world history. In India, under a law dating from the British Raj, the government has wide powers of eminent domain. Essentially, the government is the nation’s real estate agent, organizing transactions between buyers (often Indian or foreign companies who want to build factories, or Indian government organizations wanting to build roads or other infrastructure) and the farmers and others who own the land. For many Indians, this approach makes sense for two reasons. First, there are so many small plots in India that without the convenience of government organization (and its powers of eminent domain to force unwilling holdouts to sell), it would difficult if not impossible for private organizations to get the land for big projects. The second reason is that given the low level of education among many rural people in India and their lack of economic sophistication, there is a fear that unscrupulous investors will swindle the poor unless the government is there to protect them.
More here (Hindustan Times):
This provision could well spell the end of India’s dreams of emerging as a manufacturing superpower. The only way to quickly lift what the western media pejoratively refers to as India’s teeming millions into the lower middle classes and then progressively higher, is to create industrial jobs.

The farm sector accounts for 16% of GDP but supports 60% of the population. This is clearly unsustainable. We need rapid industrialisation. And for this, we need land — not land that has been acquired from their owners for a pittance and given to industry cheap, but land that has acquired at a fair value and given to industry at a price that keeps projects viable.

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