Presented By:Rineesh (M150022MS)Akash (M150003MS)

The Political Economy India emerges a global power ?

Political economyIndia’s mixed economic approaches &

measurement of economic performancePost & Pre liberalizationIndia’s international relationsGMR Case (India-Maldives)India-ChinaIndia -SrilankaNAMIndia-US

“The Economy”It is not a monolithic institution – it is a

collection of billions of individual choices based on people’s incentives

The Political Economy – how politics and economics interact, and how they balance freedom and equality (conflicting values)

Components of Political EconomyMarketsPropertyPublic GoodsSocial ExpendituresTaxationMoney, Inflation, and UnemploymentRegulationTrade

Components of Political Economy

Every regime’s ideology determines the relationship the state will play in regulating the economyMarkets – interaction between supply and demand that

functions to allocate resourcesFreely allow individuals to buy, sell, and trade

what they produce for what they will consumeSets values, or “prices” for these goods and

servicesMarkets arise spontaneously, and are difficult

for the state to control

Components of Political EconomyProperty – ownership of goods and

servicesState can choose to play a role in protecting

property rights – the right to sell property freely, or to not have it taken awayFrequently property exists without a

fundamental protection of property rights, due to the state’s inability to monitor instances of fraud

Components of Political EconomyPublic Goods – goods provided and/or

secured by the stateExamples (universal): Roads, lighthouses, the

militaryExamples (in some cases)

Health care in Britain, CanadaOil in Nigeria and Saudi ArabiaMost businesses in Cuba

Components of Political EconomySocial Expenditures

Commonly called “The Welfare State” – redistribution of wealth through government taxing some, and paying others

Typically provided to the elderly, the unemployed, the poor, and the disabled

Often a subject of political battle, due to the question of who benefits from expenditures

Components of Political EconomyTaxation

Means to provide for public goods and social expenditures

Subject of political battles, determined partially by ideology toward the role of the state

Tax Rates as % of GDP (2015)

Denmark: 50.8 %Belgium: 47.9%France: 47.9 %Sweden: 45.8 %  Finland: 43.6 % Italy: 43.5 %  Austria: 43.4 %Norway: 43.6 %  Germany: 40.6 %  Netherlands: 39.8 % United Kingdom: 39 % Russia: 19.5%

Canada: 32.2 %Switzerland: 29.4 % New Zealand: 34.5 % Australia: 25.8% Ireland: 30.8%  United States: 26.9 % Japan: 28.3 %India :17.7%  China: 22%Mexico: 19.7%Iran: 6.1%Nigeria: 6.1%UAE :1.4%

Source:  Heritage Foundation (2015). "2015 Macro-economic Data

Components of Political EconomyMoney, Inflation, and Unemployment

States create and manage the money supply through a central bank

Money is created by the rate at which banks make loansLow interest rates encourage more creationHigh interest rates discourage creation

Creation of too much money in effort to stimulate the economy and reduce unemployment can cause inflation

Slowing the growth of money to control inflation can slow economic growth and cause unemployment to rise

Components of Political EconomyRegulation – rules or orders to set the

boundaries of given proceduresStates can ban production or sale of goods,

set safety requirements, outlaw monopoly control, etc.

Trade – access to goods and services from foreign statesStates can allow open trade, or restrict it

through tariffs, quotas, and other non-tariff barriers

Arguments for and Against TradeWhy Regulate

Trade?Generate state

revenueFoster local

industryProtect local jobsKeep wealth within

the country

Why Not?Promote

competitionKeep the cost of

goods and services low

Stimulate domestic innovation in areas of comparative advantage

Political-Economic SystemsLiberalismSocial DemocracyCommunismMercantilism

Political-Economic SystemsLiberalism – rooted in capitalist ideology of

private ownership, minimal state regulation and intervention beyond protection of property rightsEmphasizes individual freedomExamples: U.S., Great BritainLaissez-Faire – philosophy claiming the

economy should be left to do what it wishes

Political-Economic SystemsSocial Democracy – eliminate extremes of

too much freedom, too much equalityAccepts a role for both private property and

public ownership, freedom and regulationExamples: Most European countries

Political-Economic SystemsCommunism – believes freedom only

comes from total economic equality, uses the state to achieve that goalRejects private ownership of propertyNationalization – bringing private industries

under state controlExamples: China (though there is a massive

transition ongoing), former Soviet Union

Political-Economic SystemsMercantilism – emphasizes needs of the

state to grow wealthy and powerful above the needs of societyEmphasizes neither freedom nor equalityParastatals – industries nationalized based on

some perceived need for international competitiveness

Examples: Japan, India, South Korea

INDIA’S MIXED ECONOMIC APPROACHWhat is Mixed Economy?Mixed Economy is neither pure capitalism

nor pure socialism but a mixture of the two system. In this system we find characteristics of both capitalism and socialism. Mixed economy is operated by both, private enterprise and public enterprise.

Characteristics of Mixed Economy1. Co-existence of the public and Private

Sectors.2. Economic Welfare.3. Economic Planning.4. Free and Controlled Economic

Development.

Merits of Mixed Economy1. Adequate Freedom.2. Maximum Welfare.3. Modern Technology.4. Best Allocation of Resources.

Demerits of Mixed Economy1. Low inflow of Foreign Capital.2. Inefficiency of Public Sector.3. Maximum Control on Private Sector.4. Fear of Nationalization.5. Problem of Concentration of Economic

Power.6. Presence of Imbalance in the Economy.

Measurements of Economic PerformanceGDP – Gross Domestic Product

Total dollar value of all goods and servicesGDP per capita shows standard of living of

the average personPPP – Purchasing Power Parity

Adjusts GDP for relative buying power in each country, since cost of living differs from place to place

Measurements of Economic PerformanceGini Index

Formula to measure economic inequality in society

High Gini coefficient = more inequality, lower Gini coefficient = less inequality

HDI – Human Development IndexAttempts to measure well-being, in addition

to wealth

GDP for the 8 Countries (billions of$)U.S. - $18,558 China - $11,383United Kingdom - $2,760India - $2,288.7Russia - $1,132Mexico - $1082Nigeria - $537.9Iran - $386.1

Source: International monitory fund world economic outlook (April _2016)

GDP per capita (PPP) for the 8 CountriesU.S. - $46,859United Kingdom - $36,523Russia - $15,922Mexico - $14,560Iran - $11,250India -$8,642China - $5,693Nigeria - $2,134

Gini Coefficient for the 8 CountriesU.S. – 45China – 46.9India – 33.6United Kingdom – 32.4Russia – 42Mexico – 48.3Iran – 44.5Nigeria – 4.7

Source: CIA World fact book

HDI Ranking for the 8 CountriesU.S. – #8China – #90United Kingdom – #12Russia – #57India – #130Mexico – #53Iran – #101Nigeria – #151

source: Human development report 2015 UN Development program

Global Trends in Political Economy2 MAJOR movements

Globalization – world is increasingly interconnected due to technology and trade

Liberalization – free markets are more prevalent than ever before in history, and developing nations often see liberalization as the key to growing wealth

Pre and Post Liberalization Effects

GROWTH IN DIFFERENT SECTORS

IMPROVED CONNECTIVITY

GROWTH IN START-UPS

FDI INFLOWS

TOTAL FOREIGN EXCHANGE RESERVE

TELECOM SUBSCRIBERS

EDUCATIONAL INSTITUTIONS

POVERTY RATE

India International relationsThe 28th and 29th Association of Southeast

Asian Nations (ASEAN) Summit was held in Vientiane, Laos from 6th to 8th September 2016.The document also emphasizes the importance of

maintaining peace, security and stability, unimpeded commerce, freedom of navigation in and overflight above the South China Sea.

Prime Minister Narendra Modi expressed deep concern over the rising export of terror in an apparent reference to Pakistan.

Pakistan is going to host the 19th SAARC

(South Asian Association for Regional Cooperation) Summit in Islamabad (capital city) and Murree on November 9 and 10, 2016.

India, Japan and United States (US) navies have kicked off 2016 MALABAR trilateral naval Exercise near South China Sea. This year it is the 20th edition of the naval exercise in which over 100 aircraft and 22 naval ships including a nuclear submarine are participating.

India has managed to win crucial support from Switzerland for Nuclear Suppliers Group (NSG) membership.

Prime Minister Narendra Modi and Afghanistan President Ashraf Ghani jointly inaugurated the Afghan-India Friendship Dam in Herat province in Western Afghanistan.

India, Iran and Afghanistan sign historic

three-way land transit agreement on Iran’s strategic southern port of Chabahar.

Chabahar port is strategically located in the Sistan-Balochistan Province on the energy-rich Persian Gulf nation’s southern coast. It lies outside the Persian Gulf and is easily accessed from India’s western coast, bypassing Pakistan.

A Congressional resolution aiming to bring India on a par with America’s NATO (North Atlantic Treaty Organization) allies in terms of Defence trade and technology transfer was introduced recently. The US-India Defense Technology and

Partnership Act (HR 4825) proposes to amends the Arms Export Control Action. It was introduced by Congressman George Holding, Co-Chair of the House India Caucus.

India has assumed BRICS Chairmanship from the Russian Federation for the year 2016. Union External Affairs Minister Sushma Swaraj formally unveiled the BRICS Logo for the duration of India’s BRICS Chairmanship and also launched website. Logo: Lotus with colours from all the five members and traditional namaste at the centre.

Project Mausam aims to explore the multi-faceted Indian Ocean world for collating archaeological and historical research and not to counter China’s Silk Route strategy. It was announced by Union Minister of State (MoS) for Culture and Tourism (Independent Charge) Dr. Mahesh Sharma in a written reply in Rajya Sabha.

The Union Cabinet has approved the construction of 69

Bridges including Approach Roads on the Tamu-Kyigone-

Kalewa (TKK) road section of the Trilateral Highway in Myanmar.

Prime Minister Narendra Modi inaugurated the new

building of Afghanistan Parliament in the capital

city Kabul built by India.

Ground breaking ceremony of 1800-kilometre-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project was held at the ancient city of Mary of Turkmenistan.

GMR Issue

Initially Government made aggressive statements like “this will

affect foreign investment in Maldives, we are committed to protect the interst of Indians abroad etc.etc.etc.”

But after Singapore judgement did not come in favour of GMR, Salman Khurshid says “this is all legal matter, we respect the judgement.”

Indian Government was planning to cancel financial aids to Maldivian Government, to force them into settling issue in favor of GMR. Experts are against this move because??

What could be the real reason behind GMR controversy?The Chinese angle

Behind the curtains, China had played role in it. First getting Nasheed replaced and then Getting Waheed to cancel the GMR deal. And (perhaps) later, it’ll get the contract to manage the airport.

Maldives is of strategic interest for both China and India, because of its location in the Indian Ocean alongside major oil and shipping lanes.

More than 80% of international trade to and from Asia passes through Maldivian territory.

Even USA has plans of building a military base in one of the islands of

Maldives. China doesn’t want this. China has recently opened an embassy in Male= proves they’re

interested in the Maldives. China has been consistently expanding its own influence in island

nations on India’s periphery – the Maldives, Sri Lanka, Seychelles and Mauritius by giving several millions of dollars in aid and infrastructure projects.

The Crony Capitalism Angle GMR is a shoddy company. It was “unknown” before 2000s. Suddenly

it started making billions after getting Delhi-Hyderbad airport contracts and other plump highway, building and coal projects.

There is nexus between Indian ministers and this company. GMR is charging Airport development fees in Indian airports also.

(according to CAG report, this wasn’t part of original contract.) Now even IT department has started raiding its offices.

Nasheed was already in debt of India Government (recall we purchased 100 million worth treasury bonds.)

So behind the curtains he was “ diplomatically” coerced into giving final approval to this company.

This was either done because Indian Government wants to increase presence in Male or simply because GMR paid gave them a few suitcases for lobbying

Indian banks’ money stuck (AGAIN) So far GMR had invested about 500 million dollars in

Male Airport. But all of that money didnot come from its own pocket. GMR had taken loans from Axis Bank and Indian

Overseas Bank (IOB) worth approx 160 million dollars. Some experts believe that GMR will now refuse to pay

interest rate on loan until matter is settled! (SBI must be feeling happy for not being the only bank loosing money on airline related loans.)

China and India in South AsiaIndia has enjoyed substantial regional

influence across South Asia due to its size, comparative economic might, and historical and cultural relevance to the region.

China’s increased involvement in South Asia poses a challenge to India as the regional economic and diplomatic heavyweight.

China’s Major Projects in South AsiaCPEC:  link the city of Gwadar in

southwestern Pakistan to China's northwestern autonomous region of Xinjiang via a vast network of highways and railways.

Hambantota Port Project:

Chinas dam in Brahmaputra

China and India in South Asia Continued…Trade With South Asia: In the past

decade, China has emerged as a top exporter of goods to the region, including to India.

Migration and Remittances:

Continued…Aid and Investment:

Continued…A Future of Cooperation and

Competition:  Bangladesh-China-India-Myanmar economic

corridor

India and Srilanka RelationshipSri Lanka is India's largest trade partner in

SAARC. India in turn is Sri Lanka's largest trade partner globally.

During January-August 2015, the bilateral trade amounted to US$ 3.23 billion. Sri Lanka’s imports from India amounted US$ 2,776.65 million and exports to India amounted US$ 454.42 million.

BILATERAL AGREEMENTSIndia-Sri Lanka Free Trade Agreement

(ISFTA)

South Asian Free Trade Area (SAFTA):Agreement on South Asian Free Trade Area (SAFTA) came into force from 1st January, 2006

Comprehensive Economic Partnership Agreement (CEPA)

BILATERAL TRADE

INVESTMENTS

Issues Between India And SrilankaDespite geographic proximity, strong past

cultural and civilizational linkages, some contentious issues have prevented the realization of full potential of India-Srilanka ties.

Issues of Tamils in Srilanka’s northern province- even five year after the end of bloody civil war, srilankan government has bee dragging its feet on 13th amendment based on 4 Ds- development, democracy, devolution of power and demilitarization.

Continued…Fishing right issue- Indian fishermen

fishing in Srilankan water with hazardous equipment claiming traditional rights over the Palk Bay area.

Growing Chinese influence- Chinese help in infrastructure building and allowing Chinese submarines to duck in Colombo has raised security concern in India.

Continued…Dispute over Katchatheevu island: Sri

Lanka and India claimed this piece of land for fishing and the dispute remained unsettled.

Trade issues- the signed FTA is complained to be heavily in favor of india.

Non Aligned MovementThe Non-Aligned Movement (NAM) is a

group of states which are not formally aligned with or against any major power bloc. As of 2012, the movement has 120 members.

Nehru described the five pillars to be used as a guide for Sino-Indian relations called Panchsheel (five restraints), these principles would later serve as the basis of the Non-Aligned Movement.

The five principles were:Mutual respect for each other's territorial integrity and sovereigntyMutual non-aggressionMutual non-interference in domestic affairsEquality and mutual benefitPeaceful co-existence

Policies and IdeologyNon-Aligned Movement is unified by its

declared commitment to world peace and security.

The seventh summit held in New Delhi in March 1983, the movement described itself as "history's biggest peace movement“

 NAM also sponsored campaigns for restructuring commercial relations between developed and developing nations, namely the New International Economic Order (NIEO)

Role after the Cold WarBecause the Non-Aligned Movement was

formed as an attempt to thwart the Cold War, it has struggled to find relevance since the Cold War ended.

Shifted its focus to the socio-economic challenges faced by member states, especially the inequalities manifested by globalization and the implications of neo-liberal policies.

Current activitiesCriticism of US policy: The 2003 invasion of Iraq and

the War on Terrorism, its attempts to stifle Iran and North Korea's nuclear plans, and its other actions have been denounced by some members of the Non-Aligned Movement as attempts to run roughshod over the sovereignty of smaller nations.

Self-determination of Puerto Rico.Self-determination of Western Sahara.Sustainable development: Issues such as

globalization, the debt burden, unfair trade practices, the decline in foreign aid, donor conditionality, and the lack of democracy in international financial decision-making are cited as factors inhibiting development.

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