Economic Cost of Indian Democracy: Look at China!

While democracy is a preferred system of government for people’s freedom and human rights, its appropriateness needs to be reviewed, and economic costs of democracy has to be assessed and accounted for,  for some countries.

bandh3Indians fame themselves of having the largest democracy in the world with a population of over 1.2 billion. In this democracy, the possibility and decision to go for protest on a day has never been difficult for ordinary and Poor Indians at the call of some interest groups whether the cause made sense to them or not. These ordinary people are the ones who end up getting injured, killed, arrested, or their properties destroyed in the process, in addition to massive destructions they cause on infrastructures, vehicles, buildings, and businesses. The assessments of the actual economic value they lose in protests are the least that they have in their head. The freshest of the recent events worth noting is the September 20th nationwide protest against the FDI in multi-brand retail and the hike in diesel prices. This single-day protest named ‘Bharat Bandh’, organized by opposition Bharatiya Janata party (BJP) cost US$ 2.3 billion to an Indian economy according to the Confederation of Indian Industry. This is only one of several such protests that take place every day across different states of India. The gross economic costs of all protests in a year in the democracy of India can be valued only if Indians themselves realize it and properly account it. (As of date, I did not come across a record of number of protests, assessed costs of such protests, nor the research work in this field).

The above mentioned protest is only one example of how tough it is for the government and the policy reform drivers to bring about economic reforms in democratic India. Almost every economic policy reforms initiatives are effectively opposed by the opposition party and interests groups. For most part of the past decade, India remained at large protectionist who has effectively helped its domestic firms remain inefficient, uncompetitive in international trade, and unproductive. Most of the leading economies in and around Asia seem fed up of trying to negotiate trades agreement with India which almost all have failed due to protectionist’s attitude shown by India. For instance, the South Korea’s Trade Minister Taehoo Bark said that negotiating trade agreement with India is extremely difficult, and it is not pursuing much interest on India at present, during his presentation to the students of IBS few months back. Such regards from the prospective trading partners, and its own conservatism has manifested in its poor economic performances.

20120630_ASD001_0India’s lack luster economic performances in the past decades since 1970s will become clear with a look at where it started in comparison to its rival China in the late 1970s, and where they are now. In 1978, India’s real GDP was larger at US$158.36 billion than that of China’s US$157.70 billion. Since then, China has overtaken India in economic performances. In 2011, China’s real GDP reached US$3547.10 billion while India’s real GDP was only US$1035.49 billion. Real GDP growth rate, though fluctuated, was spectacularly high for China while it remained low and sluggish for India until early 2000. India has lead China in Population growth which has helped to close gap on China’s population over the decades following late 1970s.

I am drawing this comparisons because India and China have two contrasting characteristics; India has a democracy where oppositions to economic reforms proved too strong, while China has controlled government where reforms initiatives of government is easily pressed through. On the other hand, India is pursuing conservative protectionist economic policies because of democracy, while China is pursuing more of open economic policies due to controlled governance. These are on which the differences in economic performances hinges. Chinese did benefit from its open economic policies, but Indians didn’t benefit much from its democracy; 32.7% of the total Indian people fall below the international poverty line of US$ 1.25 per day compared to China’s 13.4%, (was 85% in 1981), and India ranked 134 while China ranked 101 out of 187 countries in 2011on Human Development Index (HDI).

20120630_ASC490The only sector that India has managed to lead China is the Information Technology (IT). The advent of IT sector in India was the easiest as it never had one for it to apply its conservatism. Manufacturing has remained sluggish ending up importing so much from China. Majority of exports India makes to China are unprocessed minerals and raw materials. This trend has resulted in huge trade deficits (US$ 40 billion) with China that India is grappling with currently. In European term, in the past, about this kind of trade between two countries itself is a differentiation of rich and poor economies (Superior economy exporting manufactured goods and importing raw materials and unprocessed goods while the poor economy doing just the reverse). The recent agreement between India and China to increase trade volume to US$ 100 billion by 2015 is much to remain a hope than to materialize in view of their ongoing border issues.url

Wait! What about other countries around India? India’s democracy has manufactured its economic policies that didn’t help its own economy much. This very economy sits in the heart of the organization called SAARC (South Asian Association for Regional Cooperation). One can only wonder how other (all smaller) member economies of SAARC are helped by India, the largest economy.

So, what is the cost of Indian Democracy? Look at China!

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