Thursday, April 23, 2015

Same Same But Different: Parliaments of India, China and Japan are all pushing reforms but guess who's ahead?

The buzzword across three principal Asian countries ­ India, China and Japan ­ is `reform'. It's clear that their impulses are interlinked and have consequences for the world. Coincidentally, all three have been having key annual sessions of their respective Parliaments whose proceedings provide us some markers as to their respective priorities.

Chinese Premier Li Keqiang's opening speech at the annual National People's Congress in early March laid out the agenda for transforming China into a middle-class nation, by creating an economy based on consumption and innovation, rather than merely investment and export.Arun Jaitley's budget is seeking to initiate his government's huge agenda in a modest and workmanlike fashion. As for Japan, the challenges are different ­ structural change is needed to give a second wind to an advanced economy trapped in multiple layers of regulation and red tape.
For both India and Japan, China is a benchmark of sorts. Growth of Chinese power has implications for them. Both have outstanding boundary disputes that periodically flare up. But equally important are their concerns relating to the economic and military rise of China.
India, whose economic size approximated that of China in the 1980s, may not be able to match China in this century, with attendant political and strategic consequences. Japan, which has had a troubled history with China, worries about the consequences of Chinese hegemony in East Asia.
What is striking is the clarity with which China is adjusting to what President Xi Jinping calls the `new normal' ­ economic growth slowing to 7.4% in 2014 and possibly 7% in 2015. Beijing has clearly understood that it needs to become an economy based on entrepreneurial skills and better off consumers. NPC is likely to follow the recommendation of the National Reform and Development Commission, China's Niti Aayog, which has proposed cutting down the number of restricted areas in investment from 79 to 35. Xi told a group of Shanghai parliamentarians on the sidelines of NPC that China will quicken the pace of creating free trade zones and make institutional innovation key to development. `Innovation' has become the new motto of the Chinese, whether it relates to economy or foreign policy.
In his remarks Li also noted that China has taken steps to cut red tape for private companies, permit online retail to expand.He promised that China will make it even easier to do business. Currently China is listed 90th among 189 nations in terms of ease of doing business; we are listed at 142.
China's strategic goal is among the first of Xi's four comprehensives: “To build an all-round well-off society by 2020“. Recall, in 2012, the key word was “moderately“ well-off society. The second is to comprehensively deepen reform, the third to create a society which works under the rule of law, and the fourth to “push for stricter governance“ of the Communist party itself. The last may sound innocuous, but anyone who has observed the Chinese anti-corrup tion campaign, knows that it means business, given the list of the high and mighty `Tigers' who have been brought low.
The test for China is tough enough, but the challenge for India is far tougher. Most Indians are desperate to see PM Modi's government succeed, if only because it is India's last chance at getting onto the high-growth track which can help eliminate poverty by 2030. But what is absent is a sense of self-confidence and clarity over the direction we are headed. As of now we have a slogan: Make in India. Yet it is not even clear as to what this means.
As for policies, government is still grappling with the problems of the past.Recently it passed an insurance reform bill pending since 2008; likewise an overdue mines bill has been passed as well, though the crucial land acquisition bill remains to be passed.
But equally important steps such as the need to cut through the thicket of regulatory regimes that plague India are not yet on the agenda. Whether it is universities, banks, airports, India is one of the most over-regulated countries in the world, a consequence of government's desire to retain the levers of power through regulators, who are almost always former civil servants.
There are no signs, as of now, that the Modi government has a plan to reform the administrative and regulatory system of the country, an important element in any `ease of business' strategy. It is one thing to say that India will enhance the ease of doing business in the country, quite another to clearly spell out the steps that will be taken and their timeline. As for eliminating corruption, that item seems to be absent from the current government's agenda, though it remains a real problem for the common man.
As for Japan, PM Shinzo Abe has promised “the most drastic reforms since the end of the Second World War“. But his efforts have been tangled in the politics of the country and its powerful lobbies ­ of doctors, farmers, bureaucrats and workers. In the current Diet session, he has slashed the powers of the agriculture lobby, but he still has a long road ahead. Two of his “three arrows“ of reform ­ higher government spending and massive monetary stimulus ­ have been blunted and the third, structural reform, remains in his quiver.
One reason for the energy that Beijing exhibits is that the consequences of failure there will be severe ­ probably the collapse of the Communist party rule. India and Japan only risk the possibility of sinking back into the torpor of low growth or deflation.
Times of India March 30, 2015

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