Time to Accept Reality and Manage a Nuclear-Armed North Korea 09-21

Image credit : Shyam's Imagination Library

Shyam's take on this topic...

I have already read one high value article on this topic from Kevin Rudd. This is another value addition to this topic. I think this is for the first time someone has spoken about accepting the status quo of North Korea being nuclear state. This acceptance solves many problems and removes certain pre-requisites that hinder a peaceful engagement with the North Koreans. 

In this context, I would like to mention what the Russian president Vladimir Putin said, he said the economic sanction after a particular stage can become counter productive. He (Kim Jong-un) will even starve his people and allow them to die, but will not back down on his nuclear intentions.

It is an accepted fact and history shows many examples of the economic sanction becoming counter productive after a stage. North Korean president Kim Jong-un is an educated young upstart. Apart from being arrogant, he is also intelligent, but at the same time highly insecure. Removing the insecurity of a military aggression from his mind and providing food and medicine for his people would gradually make him a little less unpopular every day and would leave him with less problems to tackle with in his own country and with his own people. 

This quite possibly may result in softening of his aggressive postures, giving a room to begin a peaceful engagement.

We would however need a huge contribution from both Russia and China to make even a small beginning possible. 

The idea at this stage may look a bit too far fetched, but who knows, Even Kim Jong-un may be keen to come out this. Because maintaining this level of military activity and agility, must be too heavy a financial burden for the already impoverished country.
Having a positive thought about a positive action for a peaceful outcome is also a positive development.

Let us start dreaming, action will naturally follow...

Posterity should not blame us for not even trying…

Now the article...................

Anyone following the growing crisis on the Korean Peninsula in recent weeks has been treated to an endless parade of op-eds on what to do about it, written from almost every conceivable angle. Despite the variation among these perspectives, most such proposals remain focused on how to get Pyongyang to give up its nuclear weapons. Unfortunately, this objective appears less and less viable with every new North Korean (DPRK) missile and nuclear test. This suggests the need for policymakers in the United States, China, South Korea, and Japan to adopt a more realistic approach focused on deterrence, containment, and an array of crisis management measures.

While some nongovernmental observers are beginning to call for this approach, few if any present a clear explanation of either the reasons why such a refocus is needed, what specific key features it should include, or how to carry it out. This is a first step in that direction.

A Reality Check on North Korea

The spectrum of suggested responses to the North Korean crisis runs the gamut from attacking Pyongyang in large or small ways—whether as a means of ending the regime, signaling resolve, deterring further escalation, or forcibly ending Pyongyang’s nuclear weapons program—to offering North Korean leaders untold numbers and types of carrots—such as a peace treaty, security assurances, and economic aid—to convince them of the life-altering benefits of dismantling their program.

In between lie a variety of mixed approaches, most often centered on a combination of ever greater sanctions (usually seen to require much higher levels of Chinese pressure) and various types of saber rattling, alongside potential freeze deals and assurances. I advocated a version of such proposals myself at an earlier period.

The situation that the world is facing today has evolved, however, particularly regarding North Korea’s nuclear weapons program. A more realistic approach should be based on the following five basic truths, most of which are ignored or downplayed by many political leaders and outside observers alike.

First, the danger of military escalation that could result in a devastating all-out war would exist with any direct use of force against North Korea, however small. In the current situation, there is no such thing as a surgical or limited strike with a low chance of escalation. Any such action would constitute an act of war, inviting major retaliation by an insecure and defiant Pyongyang. Anyone who thinks otherwise is being highly reckless and engaging in wishful thinking.

Moreover, North Korea’s possession of nuclear weapons could increase the likelihood of such retaliation by giving the leadership the false impression that it could strike back with little fear of prompting major escalation. And anyone who concludes that the best course of action is therefore to jump to the supposedly inevitable endpoint of any potential clash by launching an all-out war on the peninsula would be thinking even more recklessly and irresponsibly. Such a bloody conflagration could conceivably kill as many Americans and South Koreans as a North Korean nuclear strike would. And a smaller-scale military attack designed to simply destroy Pyongyang’s nuclear capabilities is an impossibility, given the large number of underground sites involved.

Second, no use of force or other high-risk option against North Korea would offer any chance of success, however small, without the full and willing support of South Korea (ROK). Without such support, a U.S attack on North Korea would likely shatter, or at the very least greatly weaken, the alliance, undermining, in the short term, efforts to control escalation and successfully conclude such a conflict while creating enduring resentment and anger toward the United States.

Moreover, regardless of the outcome of this hypothetical war, the resulting badly damaged U.S.-ROK alliance and resulting loss of U.S. credibility as a trustworthy ally would greatly increase the likelihood that Seoul, and then quite possibly Tokyo, would eventually acquire nuclear weapons. Such a regional security environment would be far more unstable than the current one, marked by the United States; China; a likely reunified, nuclear-armed Korea; and a nuclear-armed Japan maneuvering for an advantage, with high levels of suspicion on all sides.

Third, despite its highly inflammatory rhetoric and the Alice-in-Wonderland features of its political system, Pyongyang is not suicidal. Its leaders understand that the United States could extinguish North Korea in a matter of minutes and would do so if a DPRK nuclear missile struck even one U.S. city. Therefore, Pyongyang is not about to launch an unprovoked, out-of-the-blue nuclear attack on the United States.

Rather, the major dangers posed by North Korea’s nuclear weapons arise from the possibility of misperception and miscalculation. These risks could most likely be the result of a perceived existential threat emanating from Washington, or a rapidly escalating conventional clash initiated by Pyongyang under the mistaken belief that its nuclear weapons would deter any U.S./ROK military response. Under such conditions, Pyongyang might eventually resort to serious nuclear threats, prompting a U.S. preemptive strike.

These dangers speak more to the need to greatly reduce threat perceptions and strengthen crisis management measures vis-à-vis North Korea than the need to eradicate Pyongyang’s nuclear weapons before they can strike the U.S. mainland.

Fourth, no assurance exists today or for the foreseeable future that Pyongyang would give up its nuclear weapons under the most draconian sanctions regime possible, a mix of sanctions and assurances, or even an assurances-only approach. North Korea’s nuclear weapons program is now almost certainly too far developed and serves too many vital purposes for the regime to abandon it as a result of greater pressure and/or more extensive incentives.

The North Korean leadership views its nuclear weapons as more than just a deterrent against attack. They are also a symbol of the potency and status of the DPRK regime, a domestic propaganda tool, a source of leverage for extorting benefits from other countries, and a potential direct source of political influence and economic growth via the export of nuclear materials and technology.
Hence, even with full Chinese cooperation on UN sanctions and/or hand-on-heart U.S. security and/or aid assurances, Pyongyang would almost certainly cling to the benefits it receives from its nuclear capabilities rather than take the clear security and other risks involved in abandoning them. Indeed, the determination of the North Korean regime was reflected in a private remark recently made to a colleague by a DPRK official: “We will go to any lengths not to give up our nuclear weapons.”

In addition, despite such bravado, it is highly unlikely that more onerous outside sanctions would create such deprivation. Reports from knowledgeable sources strongly suggest that the North Korean economy is more resilient today in the face of outside pressure than during the famine of the 1990s, due to the widespread expansion of private economic activity and the growth of indigenous production in many key industrial sectors.

Fifth, despite the above observations, the United States, its allies, and most of the international community cannot just accept the idea of a permanently nuclear-armed North Korea and adjust accordingly. Given the insecure and hostile nature of the DPRK regime, any open acceptance of such a status would raise the likelihood of war in Asia, increase the possibility that other aggressive states and terrorists might obtain nuclear weapons, and weaken U.S. extended deterrence with South Korea, Japan, and possibly other allies, thereby increasing the chances that they might acquire nuclear weapons of their own. Hence, the international community must continue to work to deter and contain North Korea’s nuclear capabilities, regardless of the short-term prospects of fully eradicating its weapons program.

Shifting Gears: Deterrence, Crisis Management, and Confidence Building

The above five factors strongly suggest that any effective approach to the Korean nuclear crisis must replace the current primary emphasis on ridding North Korea of its nuclear weapons before Pyongyang acquires a clear-cut capability to strike the U.S. homeland. Instead, policymakers should aim to develop a less urgent, long-term strategy designed to minimize North Korea’s capacity and willingness to utilize those weapons and related technologies in threatening ways, while also continuing to work toward eventual denuclearization.

In particular, the United States, China, South Korea, Japan, and Russia must focus not only on deterring and containing Pyongyang through clear, strong, consistent, and common diplomatic and military signals. They must also aim to minimize the chances of destabilizing military escalation by building effective crisis management mechanisms (CMMs) and channels of communication, while also implementing some confidence-building measures (CBMs) toward Pyongyang to reduce its insecurity.

Such CMMs and containment measures should include:

• A direct crisis management channel between trusted senior officials or high-level representatives of the senior leaderships in China, South Korea, and the United States;
• Communication links between key intelligence agencies in China, South Korea, and the United States to share information on North Korean nuclear weapons development and possible proliferation activities, communicate sensitive messages, and confirm specific actions that each side may take in a crisis;
• Agreed-upon procedures for detecting and preventing any attempt by Pyongyang to transfer nuclear weapons materials, know-how, and technologies;
• A military-to-military dialogue about how to de-conflict Chinese, South Korean, and U.S. special forces in the event of a loose-nukes scenario in North Korea resulting from a fracturing or breakdown of the DPRK regime.

In addition, the United States and China should assure one another that, in any potential Korea crisis: 1) neither side would seek to benefit at the expense of the other, 2) both sides would provide full information and notification before any action would be taken, and 3) nothing would be done to change the situation on the ground over the long term.

In the deterrence realm, critical actions should include a greatly strengthened ballistic missile defense network in the United States, South Korea, and Japan, as well as a more integrated intelligence, surveillance, and reconnaissance system that includes both China and Russia, if possible. Containment measures should consist of a more extensive and focused version of the existing Proliferation Security Initiative in effect since 2003 (again, including China) to prevent Pyongyang from exporting nuclear machinery and technology.

CBMs toward Pyongyang should include, as a first step, a freeze on its missile and nuclear testing, as well as its conventional military exercises, in return for a suspension of U.S. and South Korean exercises and perhaps a partial easing of sanctions. This should serve as a prelude toward an eventual capping of the North Korean nuclear weapons program in return for movement toward a peace treaty and diplomatic recognition. If Pyongyang refuses such an understanding, the United States should then consider redeploying tactical nuclear weapons on its naval vessels in Northeast Asia, as well as other measures designed to strengthen deterrence and reassure U.S. allies.

Creating such a regime and set of understandings will require significant changes in the mind-sets and approaches of the powers concerned, especially those of China and the United States. Beijing has thus far refused to discuss with Washington or other powers either crisis contingencies or possible deterrence and/or containment measures, due to a sensitivity about how North Korea might react, a fear that such actions would result in the eventual replacement of the Pyongyang regime by a unified Korean government closely allied with the United States, and the misplaced belief that security assurances will eventually entice the North Koreans to give up their nuclear weapons.

For its part, Washington resists any actions that detract attention from greater pressure in the service of denuclearization. In this respect, President Donald Trump seems only concerned with developing ways to coerce or entice Beijing and Seoul into applying supposedly irresistible pressure on Pyongyang before it acquires the capability to strike the U.S. homeland—a dangerous, misdirected, one-dimensional strategy that is almost certainly destined to fail.

To move both powers toward an emphasis on containment and crisis management, analysts in and out of both the Chinese and U.S. governments, as well as those of South Korea and Japan, need to stop telling their respective political leaderships that they can coerce, force, or entice Pyongyang into abandoning its nuclear weapons in any foreseeable time frame, if ever. In such a high-stakes situation, policy should not be based on extremely low-probability outcomes and certainly should not operate under a self-imposed, short-term deadline.

Washington and Seoul should also work together to revive earlier efforts to convince Beijing to hold talks on crisis contingencies and CMMs, on the likely assumption that Pyongyang’s recent missile and nuclear tests in defiance of Beijing’s strong urgings may have reduced China’s resistance to such moves. To facilitate this effort, both nations should also address Beijing’s long-term concerns by expressing a clear willingness to discuss the future political and security status of a unified Korean Peninsula, including the size and presence of any U.S. forces. This could significantly increase China’s willingness to cooperate in a deterrence and containment regime.

Once progress is made in the above areas, the United States, South Korea, China, and Japan should begin talks on the possible features of a stable, long-term deterrence and confidence-building regime on the Korean Peninsula. Even if all sides agree to such an undertaking, it will not prove an easy task to implement, as it requires agreed-upon military, economic, and diplomatic postures sufficient to deter major North Korean provocations without causing Pyongyang to overreact and lash out at a perceived existential threat. Hence, some limited reassurances will likely prove necessary in addition to the above CBMs, such as a formal no-first-use conventional and nuclear force agreement between North Korea and China, South Korea, and the United States.

Finally, throughout this process, the powers concerned should maintain their demand for North Korea to move toward eventual denuclearization, as follow-on to an eventual peace treaty and diplomatic normalization. But that eventual objective will remain as a likely long-term effort.

None of the above recommendations will be easy to achieve. But transitioning as soon as possible away from efforts to denuclearize North Korea in short order to a more realistic focus on deterrence, containment, and crisis management would stand a far better chance of creating a stable and peaceful Korean Peninsula not only in the immediate future but for the long term as well.

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Please also read on North Korea 

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One miss and South Korea gets demolished, South Korea has right to dignified existence, especially when it has done no wrong. 

Creative diplomacy is vital to defuse Korean crisis”

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Empty Economics 02-14

Empty Economics

Unfortunately for Congress and the BJP, Sloganeering 

Won't Bring Economic Growth

As India heads into a critical election season, the country seems adrift. In its foreign relations, it is on its back foot both in South Asia and with China and the United States. At home, citizens and visitors are increasingly concerned about law and order after several highly publicized attacks on women. But one challenge stands above all else: the economy. India’s growth rate has fallen by nearly half since 2010; inflation remains high; corruption is rampant; and the investment cycle has collapsed. When voters are asked to identify what issues will decide their vote when they go to the polls this April, they consistently place economic development, inflation, and corruption at the top of their list.

Unfortunately for voters, none of the leading parties have presented a coherent economic strategy. Instead, their economic policy messages can be summed up as a series of bumper sticker slogans: “Trust us” for the Hindu-nationalist Bharatiya Janata Party (BJP); “Who, us?” for the ruling Congress Party; “Anyone but them” for various regional parties; and “You, not us” (AAP) for the Aam Aadmi Party, an anti-corruption and populist newcomer that scored an upset victory in the December 2013 Delhi elections.

The BJP, led by Gujarat chief minister Narendra Modi, is widely seen as the front-runner. That is mostly thanks to the Congress government’s intellectual bankruptcy when it comes to reviving the economy and Modi’s accomplished track record in Gujarat. But scratch the surface and neither the BJP nor its competitors have delivered on a growth strategy for the long run.

TRUST US

Three major pre-election polls suggest that the BJP is on track for its best-ever performance on Election Day. It could potentially even surpass the 182 seats it obtained in both 1998 and 1999, when the public opted for its Hindu nationalist ideology and good governance rhetoric. But despite the public’s apparent enthusiasm, the BJP has failed to articulate a cogent economic vision. Instead, as elections loom, BJP officials’ strategy has been to point to either its last stint in power or to Modi’s economic success in Gujarat and say, “Trust us.”

It is true that the BJP’s last administration -- from 1999 to 2004, when the BJP-led National Democratic Alliance government headed by Prime Minister Atal Bihari Vajpayee ruled Delhi -- is now remembered as the halcyon days of economic reform. Vajpayee’s government did jump-start growth by privatizing public sector companies, introducing competition in the state-dominated telecommunications sector, and ramping up spending on public infrastructure such as roads and highways. That track record, the BJP claims, offers proof that it would fix what ails India’s economy in 2014.

But the BJP’s claims should give Indians pause. In the decade that the party has served in the opposition, it has shamelessly blocked several economic reforms offered by the ruling party. On issues ranging from increasing foreign direct investment in the insurance and retail sectors to reducing the government’s discretionary powers over natural resources and eliminating wasteful subsidies, the once pro-business BJP has flip-flopped. It is easy to dismiss such behavior as politics as usual -- after all, opposition parties are supposed to oppose. Yet even in several states in which the BJP does hold power, it has given up its earlier ideological leanings in favor of economic populism.

Here, Modi’s experience in Gujarat is instructive. On the campaign trail, Modi has suggested that he would take nationwide the free-market economic model he installed in Gujarat. The pledge has been met with skepticism for two reasons. First, Modi faces pressure from some constituencies within the BJP to soften his market-driven dogma. Despite its pro-business tag, the BJP has always been an unusual mix of free-marketers and Hindu conservatives espousing swadeshi (self-reliance). The tensions came to the fore at the party’s January 2014 national council meeting, when Rajnath Singh, president of the BJP, promised a slew of policies indistinguishable from those typical of the incumbent Congress Party, such as a “right to health” and guaranteed employment for one member of every farming family. Second, while campaigning, Modi himself has often carved out policy positions at odds with his record in Gujarat. For instance, his criticism of the Congress government’s large-scale expansion of food subsidies in 2013 was not that it should be scrapped but that it did not go far enough.

Simply put, voters cannot be sure whether they will get the reformist BJP of yesterday or the retrograde one of today. In that sense, trusting the BJP’s reform policies would take quite a leap of faith.

WHO, US?

For its part, the incumbent Congress Party flatly rejects any insinuation that it deserves the blame for India’s economic doldrums. After all, the party maintains, it was the Congress Prime Minister Manmohan Singh who was the architect of the landmark 1991 economic reforms that rejected the old License Raj in favor of free-market competition. Furthermore, as Congress stalwarts are quick to point out, India -- like many emerging markets -- has been badly hurt by recent global economic volatility.

The global economic turmoil has no doubt affected India’s fortunes, yet it was those emerging markets whose finances were in greatest disarray that were the worst hit. According to the economists Barry Eichengreen and Poonam Gupta, among others, U.S. Federal Reserve Chairman Ben Bernanke’s May 2013 announcement that the Fed would gradually withdraw (or “taper”) its monetary stimulus package caused emerging market currencies to tumble the furthest in those countries with the largest deficits, such as India.

When it comes to the health of the economy, moreover, Congress leaders omit the damage that their own eye-popping corruption scandals, missteps on foreign investment and tax policy, and ineffectual executive leadership have inflicted. In addition, in its tenure, the party has only halfheartedly nudged India in a more market-friendly direction -- and only then when its back has been against the wall. For example, when India’s once vaunted growth rate slipped below five percent in September 2012, the Congress Party responded by scaling back fuel subsidies and lifting caps on foreign direct investment in sectors such as retail and civil aviation. Even these moves, however, have since been watered down. For instance, the government initially announced that it would restrict the supply of heavily subsidized domestic gas cylinders to six per household. Under political pressure, it later raised the quota to nine and, in January 2014, with elections in view, to 12.

ANYONE BUT THEM

Beyond the Congress Party and BJP, there is a motley crew of regional players seeking to head the next government as a “third front” coalition. These aspirants range from the unpredictable Mamata Banerjee in West Bengal to the unreformed socialist Mulayam Singh Yadav of Uttar Pradesh to the (usually) pro-growth Jayalalithaa Jayaram of Tamil Nadu, known as Jayalalithaa. Aside from their antipathy toward the two national parties, there is little that holds this ragtag group together. Their most powerful selling point is the fact they do not belong to either of the two national parties.

Unfortunately, India’s major regional parties have no clear prescription for how to get India’s economic groove back. In national politics, such unruly, regional party-led coalitions tend to be short-lived and, because of the complex calculations that they must make to please their fractious bases, they are typically profligate spenders, unmoved by long-term considerations. For instance, in 1997 the unwieldy United Front government led by Prime Minister I. K. Gujral, implemented massive increases in the salaries and pensions of government workers without offsetting the costs with cuts elsewhere, as a government-appointed commission had recommended. This led to a sharp rise in the deficit and the deterioration of public finances.

Although the prospects of a non-Congress, non-BJP-led government appear to be weakening as the BJP’s popularity increases, it is a certainty that any government formed in 2014 will have to include some key regional players. This puts them, in turn, in prime position to extract concessions that could dampen any push for reform.

YOU, NOT US

Finally, there’s the new party on the block, the Aam Aadmi Party, whose economic vision seems to be in sync with its acronym -- aap means “you” in Hindi -- and with its apparent economic slogan, “You, not us.” On economic matters, activist-turned-Chief Minister of Delhi Arvind Kejriwal has been more than willing to give the people what they want -- generous subsidies for public services -- without worrying too much about sustainability. The AAP government in Delhi has, in just one month, cut electricity tariffs in half and guaranteed generous free water quotas for all. The beneficiaries of these schemes are not necessarily the have-nots (after all, if a household does not have a water connection, it cannot receive free water).

In the end, AAP’s greatest impact on India may be in the realm of ideas, rather than electoral politics. The party’s obsession with cleansing the government forced the established parties to finally legislate the creation of a federal anti-corruption ombudsman (a task that they had long delayed) and to articulate their own anti-corruption platforms. Although it is too soon to tell whether corruption has decreased, it is no coincidence that the Congress Party’s first campaign advertisements featured the image of party scion Rahul Gandhi next to a list of six anti-corruption bills that his party had long ago introduced but only recently rediscovered.

But AAP’s ideas, particularly its populism, aren’t all good. Its recent moves in Delhi may have triggered a competitive race to the bottom: the Congress government in Maharashtra, the second most populous state, slashed power tariffs by 20 percent and some BJP leaders are touting a proposal to eliminate India’s income tax. Just when politicians in India were finally getting accustomed to the notion that good economics can make for good politics, AAP’s agenda could undo everything.

BEYOND US

None of the contenders in India’s upcoming election provide much real reassurance that they can revive India’s long-run economic growth rate. To do that, they would have to grapple with India’s institutional malaise. What the country so badly requires, but does not yet have, is an election manifesto pledging to invest in building up India’s woefully inadequate state institutions.

Such a manifesto would focus on rebalancing an Indian state that is grossly over-bureaucratized but also severely understaffed. On average, according to the World Bank, it takes 168 days and 35 applications, licenses, and certificates to obtain a construction permit in India. And India’s inability to deliver services is linked to endemic manpower shortages. In 2012, the judiciary’s vacancy rate topped 20 percent. It comes as little surprise that the courts face a backlog of 32 million cases. When private firms must spend years to enforce simple contract terms thanks to a clogged judiciary, investment inevitably suffers.

A sensible, long-term economic vision would also be motivated by a desire to attract new forms of human capital and skills into public service. Regulatory agencies, for instance, should no longer provide sinecures for retiring bureaucrats or judges; they should become magnets for specialized experts. When regulatory agencies are largely staffed by former public servants, officials are less likely to rock the boat while in the final years of the tenure for fear of losing their golden parachutes.

The BJP hopes that the Modi’s “Gujarat model,” in which a CEO-style executive can discipline the bureaucracy and offer investors personal attention to their demands, can be scaled up. But that model is heavily reliant on one man’s charisma. The Congress Party has tried to expand the reach of the state through a new set of rights-based entitlements -- access to education, employment, and food -- without investing in a corresponding increase in state capacity. Regional parties are more concerned with consolidating their power than with building lasting institutions. And AAP has reduced the issue of state capacity to rooting out venality. India badly needs the government to hold bureaucrats to account. But renovating its institutions requires building up competence as well.

Confronting India’s institutional challenges will be a long, unglamorous slog. Indeed, the very mention of reforming civil administration can make even the most hardened Delhi policy wonk’s eyes glaze over. In the short run, India can enjoy a rebound in its economic fortunes with “good enough” governance. For instance, the next government will likely enjoy a modest economic rebound as the global economy strengthens, India’s economy bottoms out, and investors cheer the demise of a rudderless incumbent Congress Party. But in order to materially improve long-term growth, “good enough” governance is simply not good enough. 

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India's Finance Minister P. Chidambaram speaking at Carnegie Endowment for International Peace. 10-19

Recapturing India's Growth Momentum  Speech by Mr.P.Chidambaram, Union Finance Minister, at the Carnegie Endowment for International Peace on Recapturing India’s Growth Momentum

Dr. Perkovich, Vice President for Studies at the Carnegie Endowment for International Peace, Ladies and Gentlemen!  Thank you for the invitation to speak at one of the oldest and well-regarded global think tanks. I understand Carnegie is in the midst of establishing a Carnegie South Asia Centre based in New Delhi, and I welcome that initiative. Carnegie currently has two captains of Indian industry on its Board of Directors, Shri Sunil Mittal and Shri Ratan Tata. I am glad to see these growing Carnegie-India links. One of Carnegie’s core priorities today is building a research program on India’s political economy. To this end, I gather you have recently launched your “India Decides 2014” initiative. I wish you all the best in this exercise, but may I tell you in advance that your study will discover that India will vote my government back to power. I thought I may caution you lest you should waste too much time and effort to figure this out. Let me now turn to the topic of India’s economic growth. India’s growth story attracted the attention of the world when our economy grew at an average of 8.5 per cent per annum during the period, 2004-05 to 2010-11. This was achieved despite the strong negative spill-over effects of the global financial crisis in 2008 and subsequently. Growth slowed down in the crisis year, 2008-09, but India took the world by surprise by rebounding quickly from the slower growth of 6.7 per cent in that year to record rates of growth of 8.6 per cent in 2009-10 and 9.3 per cent in 2010-11. However, there was a further downturn in the global economy in 2011 on account of the sovereign debt crisis in Europe and the subsequent slump in the World economy. We also witnessed the emergence of domestic constraints on investment and consumption. As a consequence, India’s growth rate declined again to 6.2 per cent in 2011–12 and further to 5.0 per cent in 2012-13. The increasing trade deficit and fall in net invisible earnings led to a widening of the current account deficit to USD 88 billion or 4.8 per cent of GDP in 2012-13.With a sharp slowdown in manufacturing growth and a moderation in the expansion of services, the growth in the first quarter of 2013-14 further declined to 4.4 per cent. India’s experience in this period is not unique. Virtually all the major emerging economies around the world have seen a sharp decline in growth -- the so-called Great Descent. However, we are now seeing that some of the worst-affected countries of the Euro zone are showing signs of recovery, with significant improvements in their current account and fiscal deficits. The expectations of improvement in the economic and financial conditions of the US, coupled with the decision of the Fed to postpone the tapering of the quantitative easing, have shaped expectations of a gradual global revival. But I am aware that there may be possible ‘bumps’ on the road ahead. In line with this emerging global outlook, the Indian economy has also showed early indications of recovery with a pick-up in exports in July, August and September – our second quarter; reversal of the negative growth in manufacturing; and a reasonable rise in freight traffic, indicative of economic activity picking up. With very good rainfall in the current year and a sharp increase in the sown area, we expect robust growth in farm output. We have also taken numerous reform measures over the past one year. We expect these measures to show their impact from the second half of the current fiscal and believe that the Indian economy will grow at over 5.0 per cent and perhaps closer to 5.5 per cent in 2013-14. I know that the World Economic Outlook report does not share my optimism, but I may tell you that we do not share their pessimism. Set against the current global economic background, even a growth rate of 5.0 per cent looks good, but is much lower than the ambitious standards that we set for ourselves in 2004. I would be the first person to say that we need to do better and recapture the growth momentum of the last decade. Macro economists maintain a very clear distinction between trend and fluctuations. The fluctuations are the function of open economy macroeconomics, of fiscal policy and of monetary policy. To understand trend growth, however, we have to look deeper. Trend growth is largely determined by the underlying microeconomic fundamentals. In the next ten minutes I wish to speak to you about the microeconomic fundamentals which have given us one doubling of our GDP every decade. In my reckoning, there are at least six main stories: (i) Demographics. As is well known, India has young demographics. Alongside, we are doing well on improving the quality of the workforce. Household survey data (the CMIE Consumer Pyramids database) shows that for children of age 12, literacy is now 95%. We have a great surge in college enrolment: a full one-fifth of 21-year-olds now have a college degree. Every year, millions of young people are added to the labour force and their education is qualitatively superior to that of the elderly cohort leaving the labour force. We have also launched an ambitious national mission on Skilling in order to qualify young men and women with only a school education for jobs in the manufacturing and service sectors. (ii) The second growth fundamental is international economic integration. On the current account and on the financial account, India is now engaging with the world on an unprecedented scale. Gross flows on the current account are now 63.3 per cent of GDP and gross flows on the financial account are now 55.3 per cent of GDP. These add up to gross flows across the border of 118.6 per cent of GDP. This makes India one of the more open economies of the world. Engagement with the world drives a flow of ideas into the economy, which is a growth fundamental. (iii) The third growth fundamental is an increasingly “capable” financial system. On average, we invest 35 per cent of GDP every year. Finance is what determines the allocative efficiency of how this investment is done. What industries and what firms get is controlled by the financial system. We are taking measured steps on strengthening the financial system and taking the best that the global financial system has to offer. Every year, our financial system is getting better and stronger and, through this, we expect to translate our good investment to GDP ratio into a higher GDP growth rate. I shall speak a bit more on this in a moment. (iv) The fourth growth fundamental is sophisticated firms. As all of you are aware, Indian firms are increasingly becoming capable and competitive. We used to think – and fear -- that if India opened up, our so-called large firms (I shall not take names) were third world dinosaurs that would collapse in the face of global competition. Instead, we have a clutch of firms in steel, oil and gas, mining, power, information technology, and hospitality that have become multinationals and are buying out companies in the advanced economies. (v) The fifth growth fundamental is sophistication of the workforce. A young girl of age 21, who started her labour market career in 1991, now has 21 years of experience in a competitive and globalised market economy. She has dealt with modern technology, foreign companies, and a truly competitive domestic environment. The forty-somethings of India today are qualitatively superior to the older cohorts who grew up in a closed economy and did not face modern technology or foreign companies or competition. (vi) The sixth growth fundamental - and I know this will be contested by many - is democracy. While it is fashionable to criticise the workings of Indian democracy, when we look deeper, I think it is working reasonably well. Liberal democracy is the ultimate foundation of rule of law and legal certainty, without which nobody can trust a country or invest in it. At its best, democracy is a great conversation, where diverse views and aspirations get heard, and the issues that genuinely concern the majority of the people become the priorities of policy makers. On a bigger scale of history, when we start from 1947, I think India has fared well on the project of constructing a liberal and open democracy. To summarize, the Indian trend growth of the last 21 years was caused by several microeconomic fundamentals, and I have listed six of them. Nothing has changed on these. In fact our resolve to strengthen these fundamentals has become stronger. I believe India continues to have great prospects based on these fundamentals. From the viewpoint of public policy, our job is to clear our minds of old cobwebs as well as of day to day problems and stay focused on laying the long-term foundations of a capable State that is able to deliver. While India has greatly deregulated, there is much more to be done. However, looming large is the issue of State “capacity”. We need a State that has in place institutions to resolve market failures. We need a State that will deliver public goods quietly, efficiently and economically. This is the prime challenge in India today. In a liberal democracy, we need to build the full framework of laws that will clearly articulate specific objectives, empower the arms of government that will enforce these laws, and put in place mechanisms that will ensure performance and accountability. If you believe what our newspapers and television channels report you may conclude that no Indian politician or civil servant is doing any work. Actually, the pace of work has been quite hectic. Let me illustrate this with examples of what have been done to improve the Indian financial system, only in 2013. So far, we have had four historic events. A commission of eminent people has drafted a new Indian Financial Code: a path breaking piece of law that has been drafted to replace 50 existing laws governing finance with a single, integrated, coherent, modern financial law. This is a law which dwarfs the scope of the Dodd-Frank Act. We have enacted a brand new Companies Act to replace a law that was 57 years old. We have shifted the subject of commodity futures to the Ministry of Finance, something which has not been possible in the US even after the 2008 crisis. We have enacted a law establishing the Defined Contribution Pension system under a statutory regulator. The New Pension System is already one of the world's big individual account DC pension systems with over 6 million participants. Each of these four was a huge project involving enormous planning and preparation. The genesis of the Indian Financial Code goes back to 2004, when we started deep thinking about the possibilities of Mumbai as an international financial centre. The Companies Bill was pending before Parliament for many years. The work on shifting commodity futures to the Ministry of Finance began in 2003. The NPS was originally designed in 1999. All these projects have been largely bipartisan. We have dug in through these years, chipped away at the objections, cultivated the technical capacity, and built consensus, through which we are now able to reap the fruits of the long years of labour. To conclude, I would urge everyone not to lose sight of the microeconomic foundations of Indian growth, which are delivering one doubling of GDP every decade. That is not an insignificant achievement. It will find its place in history in due course. The defining challenge in India however is in augmenting State capacity. How do we construct a competent and ethical State, that will minimally interfere with the rights of citizens in property and contracting, that will focus on preventing or resolving market failures, and that will successfully produce and deliver public goods? A wave of new thinking in public administration is now underway in India. We need to build completely new organization charts within government, leading to sharply focused agencies that can be held accountable for delivery on specific objectives. Those are the first few lines of an absorbing new story that I hope will begin in the near future. And that is the story that I am sure will captivate the world in the next ten to twenty years, as India takes its place as the third or fourth largest economy in the world.  Audio recording of the speech View at the original Source

The Modi Debate worth having in India 10-09

The Modi Debate worth having in India

Narendra Modi, the chief minister of India’s Gujarat state, has dominated India’s political conversations ever since he orchestrated his party’s reelection in Gujarat’s December 2012 vote. The effort earned him a fourth consecutive term in office and a steady influx of commentary about his character and credentials. As the official prime ministerial candidate of the Bharatiya Janata Party (BJP), Modi will now lead India’s largest opposition party into national elections slated for spring 2014. While his candidacy offers the tantalizing possibility of a substantive debate about how India should be governed, the Modi discussion to date has frankly disappointed.

Milan Vaishnav

The rough contours of Modi’s candidacy are, by now, well-known. Many within the BJP’s rank and file ardently support Modi as the man who can save India’s opposition from its decade-long doldrums and the Indian economy from its own slumber. Others find ideological common cause with Modi thanks to his nearly lifelong dedication to the Hindu nationalist ideology of the BJP and the Sangh Parivar.

To his detractors, Modi’s reputation is indelibly tarnished by the violence that surrounds his time in office, most obviously the gruesome communal rioting of 2002. In 2013, a former minister in Modi’s cabinet was convicted of orchestrating a notorious massacre from that period, and Modi’s former home minister is currently awaiting trial on separate allegations of extrajudicial killings from 2005.  

Yet, beyond the specter of 2002, Modi’s critics are also moved by what they claim are shortcomings related to more mundane matters of governance. They have raised three persistent doubts about his record: that he inherited, rather than built, a dynamic state economy; that he has failed to translate that growth into social welfare gains; and that he has championed a ruthless, authoritarian management style. 

This criticism and the debate it can provoke offer India a unique opportunity to strengthen its democracy. For the first time in the country’s post-independence history, an Indian leader is staking a claim to the country’s top job on the basis of his merits as the chief executive of a state. Unfortunately, the debate over Modi’s governance record has been deeply disappointing. For those who revile him, as well as those who revere him, it has been far more convenient to speak about Modi’s record in black-and-white terms rather than dive into the messy details of a debate more appropriately colored in shades of gray. 

ECONOMIC GROWTH

Modi’s supporters have touted Gujarat’s rapid growth rates as an example of the remarkable gains the state’s economy has made under his watch. Armed with slogans such as “pro-people good governance” (“P2G2” in Modi-speak) and “minimal government, maximum governance,” Modi has championed a right-of-center, pro-business outlook in his home state, which has made it the darling of India’s largest business houses.

Critics counter that Gujarat’s rapid economic growth predates Modi’s ascent to power. Modi, they believe, merely jumped onto a moving train that was headed in the right direction—and at considerable speed. After all, owing to its inhabitants’ renowned entrepreneurial spirit and generous coastline, Gujarat has served as an integral trading hub for centuries. 

A closer examination of hard data reveals that Modi’s growth and investment record in Gujarat is impressive, in line with the boasts of his most ardent supporters, but it is also clear that it is not exceptional. 

Gujarat enjoyed the highest per capita income growth rate of any major Indian state in the decade immediately preceding Modi’s rise to power in October 2001. Between 1992 and 2001, per capita income in Gujarat grew at a rate of 5.5 percent, more than half a percentage point greater than Kerala, the next-fastest-growing state. When one looks at the decade from 2002 to 2011, when Modi was firmly entrenched as chief minister, Gujarat again ranked first among states in terms of per capita income growth (see figure 1). Indeed, Modi’s Gujarat improved its performance against the prior period by nearly 3 percentage points. 

However, the 2000s were the boom years for India’s economy overall, and all states did better than they had in the 1990s. Thus, the growth gains in Gujarat during the 2000s compared to the prior decade are solid but hardly unheard of; several states posted larger improvements (including high-growth states like Maharashtra and Haryana as well as traditional laggards like Bihar and Odisha). If other state leaders have engineered greater improvements in their states’ growth rates, can Modi’s supporters really claim that he is exceptional? 

To Modi’s credit, between 2002 and 2011 Gujarat maintained its pole position in the growth rankings, and this is no small matter. Sustained growth rarely occurs on autopilot; it requires competent leadership at the top. West Bengal, for instance, grew at the fourth-fastest rate in the 1990s but underperformed relative to other states in the 2000s (when it ranked only thirteenth). And several states that improved their growth performance by a larger margin than Gujarat over the last decade began from a relatively low base. Bihar, for one, has experienced a dramatic economic turnaround, but it started from a base of negative average per capita growth during the 1990s.

Even more than the pace of growth, it is Modi’s investor-friendly reputation that has won him plaudits. From 2000 to July 2013, Gujarat alone received more than Rs 40,469 crore ($8.8 billion) in foreign direct investment   (FDI). The state accounted for roughly 4 percent of all FDI flows into India during that period. While this represents an impressive haul, the state of Maharashtra received eight times and Delhi more than four times as much FDI. Gujarat also lagged behind the states of Tamil Nadu and Karnataka, and it just barely outpaced Andhra Pradesh. 

Beyond foreign investment, the picture is also not that clear-cut for all investment projects, regardless of investor class. Gujarat’s share of investment projects (in value terms) during Modi’s decadelong tenure has hovered just above 8 percent, which is impressive given that Gujarat accounts for less than 5 percent of India’s population but is roughly on par with Gujarat’s share of the overall economy. 

The share of investment projects under implementation in Gujarat between 2001 and 2011 almost perfectly mirrors the all-India trend; there is no clear indication that Gujarat deviated sharply from India as a whole. There has also been a large gap between lavish project announcements made atModi’s biannual investor gathering, Vibrant Gujarat,   and the projects that materialize. Indeed, when it comes to tallying projects that actually break ground, Gujarat is outshined by its neighbor to the south, Maharashtra (see figure 2).

SOCIAL DEVELOPMENT

However one calculates Modi’s contribution, even his critics concede that Gujarat made enviable economic strides under his leadership. But the critics lodge a second complaint: the growth Gujarat has experienced under Modi has failed to trickle down to ordinary citizens. One critic writes that “Gujarat has forgotten human development  .” His backers, meanwhile, claim that Gujarat’s exceptional growth wave has lifted all boats. 

When Gujarat is compared to other states it becomes clear that Modi’s critics go astray when alleging there have been no development gains, but his supporters perhaps exaggerate the degree of developmental transformation. Consider the state’s record on two of the most widely cited indicators of social development: literacy and infant mortality. 

In 1991, Gujarat’s literacy rate stood at roughly 61 percent, 9 percentage points above the all-India average (see figure 3). By 2001—the year Modi came to power—the gap between Gujarat’s literacy rate and the national average had narrowed by half. With Modi at the helm, the literacy rate improved another 10 percentage points over the next decade, increasing the pace of its gains in line with the all-India trend.

On infant mortality, Gujarat’s progress had largely flatlined in the years leading up to 2001. Despite this stagnation, in relative terms its infant mortality rate (60 deaths per 1,000 live births) still fared better than the all-India average (see figure 4). Between 2001 and 2011, Gujarat’s progress largely tracked that of India’s as a whole (the infant mortality rate declined substantially to 41 and 44 deaths per 1,000 live births, respectively).

Overall, since 2001, the data demonstrate Modi’s Gujarat has made significant, though not exemplary, progress on social development, at least when considering literacy and infant mortality. This latter caveat is crucial since critics have argued that Modi’s Gujarat has not performed nearly as well using other metrics like child malnutrition (for which recent data is not available, so the trend cannot be fully evaluated over time).   

Gujarat’s progress on social development can also be analyzed by more directly measuring how well it has maximized the social development bang for the growth buck—in others words, looking at how a 1 percent gain in per capita income has affected literacy and mortality. 

Here, the relative shortcomings of the Gujarat model are more readily apparent: the state is situated toward the bottom of the pack when it comes to harnessing greater wealth for improved social welfare (see figures 5 and 6). Relative to how much growth it has enjoyed, Gujarat’s social development performance has not been particularly noteworthy. 

The poor translation of growth into development improvements is likely related to the Modi government’s belated emphasis on social development. Bibek Debroy, the author of a recent book on Gujarat’s development, has said that Gujarat’s focus on health and education did not begin in earnest until 2007. Where the state has truly focused its efforts, for instance on reducing neonatal deaths by encouraging deliveries in hospitals or other institutions, it has generated positive results. But this recalibration in priorities has come relatively late in Modi’s tenure as chief minister. 

AUTHORITARIAN TENDENCIES

Moving beyond the numbers, critics allege that Modi’s administrative ethos has qualitative blemishes. They argue that the downside to his “CEO-style” governance, which his supporters laud, is the tendency to govern autocratically. Modi has few political rivals in Gujarat, and he is often accused of underinvesting in (if not purposely weakening) the second-tier leadership within his own party. His detractors argue that many elite Gujaratis in the civil service, judiciary, police, private industry, and media are cowed by him; over time, this has led to a severe imbalance of power titled toward one man. To understand the unequal playing field, one needs to look no further than Modi’s dogged attempts to undermine theestablishment of an independent ombudsman  (lokayukta) in his state. 

However, Modi’s governing ethos mostly mirrors the widespread trend across Indian states toward an overconcentration of power in the hands of the chief minister. As an oft-repeated saying in India goes, the country is governed by a parliamentary system, but its states are strictly presidential. 

This is in part because India’s party system has become more regionalized—with regional parties often resembling little more than family fiefdoms or pet projects of strong-willed leaders. Even the two major national parties have become more decentralized, with state leaders operating with greater autonomy in their capitals. This is particularly true of the BJP because it lacks a dominant leadership, in contrast to the Congress Party, which has long relied on the centripetal pull of the Gandhi-Nehru dynasty. Together with the progressive weakening of the state assemblies and the deterioration of public institutions, this regionalization of parties has led to a vacuum of authority that has been filled in many state capitals by charismatic strongmen (or women).

Modi may be this trend’s most prominent exemplar, but he is by no means alone. Nitish Kumar, the chief minister of Bihar and Modi’s bête noire, has demonstrated autocratic tendencies as well. He has developed a worrying reputation for leveraging his state government’s hefty advertising budget to punish media outlets who dare publish negative stories about his administration.

 Mayawati, who served as chief minister of Uttar Pradesh from 2007 until 2012, was famously pilloried in a U.S. government diplomatic cable (released by Wikileaks) as a “virtual paranoid dictator replete with food tasters and a security entourage to rival a head of state.” 

The former chief minister was fond of erecting parks and monuments to commemorate her, her party, and prominent Dalit leaders (Mayawati herself hails from that low-caste group) at a cost of hundreds of millions to the taxpayers in one of India’s poorest states. Similar stories could be told about West Bengal’s Mamata Banerjee or Tamil Nadu’s Jayalithaa. 

Despite the similarities, prominent leaders like Kumar have criticized Modi’s temperament and ability to lead the country. Kumar recently ended his party’s alliance with the BJP over his displeasure with its selection of Modi as its prime ministerial candidate and has remarked that “to govern a country like India, you have to take everyone along.”

 What perhaps separates Modi from the pack, then, is that he has never proven he can play nice with potential allies. When contemplating a Modi transition from Gujarat to the national stage, his critics believe that his strongman tendencies cast doubts on his ability to govern a fractious polity, not to mention juggle an unwieldy set of coalition partners. Modi has never engaged in coalition politics—indeed, because of the BJP’s repeated majorities in Gujarat, he has frankly never had to.

Modi is also distinguished from his peers by his imposing (and relentless) public relations operation. India’s state-level leaders are hardly shrinking violets, but Modi’s slick packaging is second to none: while campaigning for reelection last December, Modi beamed a holographic image of himself to 52 rallies occurring simultaneously across the state. 

A WELCOME CHANGE

Barring early elections, there are more than six months to go until Indian voters head to the polls to decide Narendra Modi’s fate. While his proponents and opponents raucously debate the BJP leader’s decade-plus tenure in Gujarat, Modi’s record should properly be debated as a nuanced one; it is simply not as black and white as either side’s arguments would suggest. But because Modi polarizes public opinion more than any other politician in India today, the resulting debate about his qualifications to lead this diverse democracy of 1.2 billion people often sheds more heat than light. 

Given the tendency for the inane to crowd out the important in Indian elections, a substantive debate on Modi’s actual record—rather than the caricatures his friends and foes are fond of painting—could be the Gujarat leader’s greatest contribution to this electoral season. But will India’s polity step up?

The author thanks Reedy Swanson and Danielle Smogard for excellent research assistance. 

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Five Trends Shaping India’s Voting Landscape Milan Vaishnav 09-17

Five Trends Shaping India’s Voting Landscape
Milan Vaishnav

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.

Hundreds of millions of Indians will take part in the largest organized democratic exercise ever recorded in the spring of 2014, barring the collapse of the ruling United Progressive Alliance government led by the Indian National Congress or a move by Prime Minister Manmohan Singh to call an early general election. If all goes according to plan, by June India will have selected 543 members of the sixteenth Lok Sabha, the popularly elected lower house of parliament or the House of the People. The makeup of the house will determine who emerges as the country’s next prime minister.

India, like the United States, is divided up into parliamentary constituencies (similar to congressional districts), and the person who wins the most votes in each constituency is elected. In this winner-take-all system (referred to as “first past the post”), the “election” is actually a series of 543 discrete constituency elections. The party, or coalition of parties, that manages to cobble together a majority of parliamentary seats forms the government.

 India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  

Five striking structural trends that have emerged in India’s fifteen postindependence elections set the stage for 2014’s political contest. For starters, political competition in India has grown rapidly, particularly in the last two decades, ushering in a complex, fragmented party system. As elections have become more competitive, the average margin of victory in a typical parliamentary constituency has plummeted, reaching a record low in 2009. 

The intensity of competition, coupled with the idiosyncrasies of India’s electoral rules, has also made forecasting elections more difficult, as a small swing in aggregate vote share can have massive repercussions on the number of seats a given party wins (or loses). 
Despite these trends, voter turnout has grown only modestly with popular participation varying across states. In fact, states are important players in many ways. India’s union has become significantly more decentralized, with its federal states playing a much more substantial role in the daily lives of their citizens. This, in turn, has solidified the primacy of state-level considerations even when it comes to voting in national elections. 

The media has portrayed the upcoming contest as a head-to-head battle between the Nehru-Gandhi dynasty of the Congress Party and the Bharatiya Janata Party (BJP), the main opposition force led into elections by Gujarat state’s chief minister, Narendra Modi. But a closer look at these five trends that have unfolded over the last six decades illustrates why the election will likely hinge on a confluence of local factors. 

SURGING POLITICAL COMPETITION

The most striking trend in Indian electoral politics is the explosion in political competition in recent years. In the 1952 general election, the first held after India won independence, 55 parties took part; in 2009, 370 parties entered the fray (see figure 1). The surge in political competition began in the 1980s—the number of parties contesting elections jumped from 38 in 1984 to 117 in 1989, a watershed year in Indian politics. It was only the second time since independence that the Congress Party was ousted from power. The dramatic surge in 1989 is explained by the proliferation of regional parties, which formed in direct response to popular disenchantment with Congress rule and the lack of representation for lower and backward castes, minorities, and regional or subregional interests. 

The 1989 election heralded the end of single-party rule in India and the rise of multiparty coalition government, which is likely to continue for the foreseeable future. This further incentivized the growth of regional parties, whose leaders recognized that they could wield considerable influence in the formation of governments with a relatively small number of seats in parliament. 

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
Yet, simply evaluating the number of parties participating in elections risks overstating the increase in competition because many parties are only minor contenders—with little chance of winning a sizeable number of votes or even a single seat for that matter. Between 1952 and 1984, the Lok Sabha saw on average 19 distinct parties occupying seats on its benches. After 1989, that number has averaged around 33. Following the 2009 election, 37 parties gained representation in parliament (today, that number stands at 39).

Weighing the number of parties by the number of seats they actually won in parliament—a common metric known as the “effective number of parties  ”—is a more accurate gauge of competition. Even using this refined measure, the increase remains substantial. The effective number of parties in India stood at 1.7 in 1952, grew to 4.3 in 1989, and rose to 6.5 in 2009 (see figure 2). To place this number in comparative context, Canada’s 2011 parliamentary election   produced 3.4 effective parties while Brazil’s 2006 election produced over 10. 

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
The effective number of parties varies greatly across India; indeed, states have developed their own “party systems.” For instance, in states such as Gujarat, Rajasthan, and Madhya Pradesh, elections are a bipolar contest between Congress and the BJP—the only two parties with a truly national reach. In several other states, such as Mizoram and Nagaland in the northeast, the contest is between Congress and a regional party. In Karnataka or Punjab, the contest is somewhere between a straight bipolar contest and a three-way race, typically with a regional party emerging as a significant player. And there are a handful of states with badly fragmented, multiparty systems. One example is Uttar Pradesh; many of the state’s constituencies feature a four-way race between the Congress Party, BJP, and two viable regional parties.

DECLINING MARGIN OF VICTORY

As the number of parties seeking—and winning—representation in parliament has steadily increased, so has the closeness of elections. The average margin of victory in a parliamentary constituency between 1962 and 2009 has decreased over time (see figure 3). From 1962 to 1977, elections in India actually became less competitive, with the average margin of victory in a constituency growing from nearly 15 percent in 1962 to 26 percent in 1977. Both 1971 and 1977 were unique “wave” elections. In 1971, the then Congress prime minister Indira Gandhi secured a landslide victory, and she was badly punished six years later in the wake of a two-year period of Emergency rule. Since 1977, however, the average margin of victory has come down substantially: in 2009, it registered at 9.7 percent, the thinnest margin since independence.

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
This degree of competitiveness at the constituency level in India is striking when compared to other electoral systems with similar winner-take-all electoral laws. For instance, the average margin of victory in a 2012 United States congressional race   was nearly 32 percent—more than three times as large as in India. The average margin of victory in Britain’s 2010 parliamentary election was more than 18 percent. 

As the number of parties (and, hence, candidates) increases and margins of victory shrink, a dwindling number of candidates win elections with the support of a majority of voters in their constituencies. As recently as 1999, as many as 40 percent of winning candidates enjoyed majority support. This figure has come down sharply in recent years, raising questions about the “legitimacy” of candidates   who win with only minority support. In 2009, candidates won with more than 50 percent of the vote in a mere 22 percent of constituencies.

UNPREDICTABLE TRANSLATION OF VOTES INTO SEATS

Although the number of players in elections has grown exponentially and the competitiveness of elections has correspondingly shot up, looking back at the last several national election cycles, it appears as if the share of votes earned by Congress, the BJP, and the total of the remaining (principally regional) parties combined is actually in relative equilibrium (see figure 4). 

In 1996, Congress earned slightly less than 29 percent of the vote, while the BJP and smaller regional parties won 20 and 51 percent, respectively. Although there have been modest fluctuations in votes in the intervening elections, the shifts in vote shares over the past two decades have not been dramatic. In 2009, Congress won 28.5 percent of the vote; this was almost identical to its showing in both 1996 and 1999. The BJP’s vote share peaked in 1998, when it took home 25.6 percent of the vote. Since then, its vote share has declined slightly to 19 percent, down a little over one percentage point from its 1996 tally. The other parties held 51 percent of the vote in 1996 and 52.5 percent of the vote in 2009. 

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
But appearances can be deceiving. There is a bias built into India’s electoral rules  , which often results in a discrepancy between the share of votes won and the share of seats earned. For instance, the Bahujan Samaj Party won nearly 26 million votes (or 6.2 percent of the all-India vote share), yet in the vast majority of the 500 constituencies in which it fielded a candidate, it earned a relatively small share of the vote. The party performed well in its stronghold of Uttar Pradesh (winning 21 seats there), but its vote share outside of the state was too small to pick up additional seats. 

There is rarely a perfect one-to-one correlation between votes and seats. Take the Congress Party. For every 1 percent share of the vote Congress garnered in 1977, it was rewarded with .9 seats (see figure 5). But in 1980, that changed drastically: a 1 percentage point increase in vote share was suddenly worth nearly 1.7 seats. This ratio is difficult to predict, and it varies wildly over election cycles; both the magnitude and the direction of bias can fluctuate substantially.

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
Even very small changes in the vote share can have dramatic impacts on the number of seats won. For instance, in 1999 and 2009 the Congress Party won an almost identical share of votes (28.3 versus 28.5 percent, respectively). 

Yet, with just a 0.2 percentage point difference in vote share, the party’s seat share rose from 25.8 percent (140 seats) to nearly 37.9 percent (206 seats). What triggers this effect is how broadly spread (or concentrated) a party’s vote share is at the level of individual constituencies. On an all-India level, a party’s aggregate vote share might not change much from one election to the next, but the distribution of where it got its votes could vary based on local factors such as the extent of competition and thus the fragmentation of the vote. 

HALTING GROWTH IN VOTER TURNOUT

Voter turnout in national elections has grown at a relatively modest clip over the years (see figure 6). In 1962, overall turnout stood at 55.5 percent, while in the 2009 election the number was 59.4 percent. This rate has fluctuated within a relatively defined band, from a low of 55.2 percent in 1971 to 64.1 percent in 1984, the year Rajiv Gandhi became prime minister following the assassination of Indira Gandhi. 

However, looking at average turnout rates, as with almost any statistic regarding national politics, masks a great deal of variation at the state level. For instance, average turnout rates in Kerala since 1977 have hovered around 73 percent, more than 20 percentage points higher than the average in Uttar Pradesh. But even state-level averages can be deceiving if one is trying to gauge voter mobilization in India’s states: the differences in voter turnout across constituencies within states are almost as large as those between states. For instance, in 2009 turnout in the state of Maharashtra ranged from 39 percent in parts of urban Mumbai to over 70 percent in rural Gondiya.

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  

“FEDERALIZATION” OF ELECTORAL POLITICS

As India’s federal system has become more decentralized, states have become the primary venues of political contestation. While a party’s prime ministerial candidate and issues concerning national policy can and do often matter, national elections are increasingly shaped, though not predetermined  , by state-level factors. 

One consequence of states moving to the forefront of voters’ minds is that turnout in state elections has gradually overtaken turnout in national elections. Average state turnout has been increasing over time (see figure 7), and indeed the turnout gap between state and national elections has risen in kind. 

India’s upcoming parliamentary election is painted as a head-to-head battle between two national-level parties, but political observers should not overlook local factors.  
State electoral systems also determine the slate of options available to voters in national polls. This is true both in terms of the parties contesting elections as well as the social cleavages (such as caste) that shape voting behavior. 

In addition, the interaction between state and national elections is also affected by the vagaries of the electoral calendar. The general rule of thumb   is that when state assembly polls are held no more than two years prior to national polls, state ruling parties enjoy a “honeymoon” when it comes to national elections. For instance, in all nine states that held state elections within a year of the 2004 and the 2009 national elections, the same party won the largest share of seats in both state and national elections. 

Conversely, when state governments are in the final two years of their term headed into national elections, the odds that they will succeed on the national level plummet. The reverse relationship—national elections impacting state results—also holds true, albeit in a much more modest way.

In an election held this past May, the ruling BJP was trounced in polls in the southern state of Karnataka, with the Congress Party bagging 121 seats (out of 224) to win a clear majority. The outcome represents a serious defeat for the BJP, not only because Karnataka had been the party’s only foothold in southern India, but also because the proximity to national elections means Congress is likely to do quite well in the spring’s national polls.

 Similarly, the stakes are high for state assembly elections that are due at the end of 2013 in four major states: Chhattisgarh, Delhi, Madhya Pradesh, and Rajasthan. Together, these states account for 72 Lok Sabha seats (or 13 percent of the overall total). To a large extent, all of these elections are head-to-head contests between Congress and the BJP, with smaller, regional parties playing only a marginal role.

THE DIFFICULTY OF PREDICTING

These five trends—increasing political competition, declining margins of victory, the complex translation of votes into seats, modest growth in national voter turnout, and the federalized nature of the electoral system—provide the context for India’s 2014 Lok Sabha election. They point to the complexity and richness of India’s electoral system and help clarify why India has often been considered a pollster’s nightmare.

It is perhaps too simplistic to declare that national elections in India are the sum total of thirty-five state-level contests; after all, national-level political leaders, issues, and dynamics—or even nationwide “waves”—can and do influence vote choice. Yet the growing relevance of local factors when it comes to determining national election outcomes is a trend that political observers ignore at their peril.

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