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The Politics of Private Sector Development: Political Fragmentation and Private Sector Development in India Open Access

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My dissertation explores the impact of political fragmentation and coalition politics on the development of the private sector in India. Specifically, I ask two key questions: 1) Why do some governments develop their private sectors more rapidly than others, and why do they pick different methods of doing so? 2) What impact does democratic policymaking have on private investment? The first two chapters focus on trying to understand the impact of electoral politics on the different ways in which India has its domestic private sector. One of the most prominent strategies countries have adopted for developing the private sector has been privatization of existing public sector enterprises (PSEs). Privatization has been shown to be beneficial for economic growth and development, and remains a ubiquitous strategy for developing a state’s domestic private sector today. Alternatively, governments can also develop their private sectors by encouraging private sector participation in industrial and infrastructure development through public-private partnerships. What explains the variation in the state’s economic strategies to develop their private sectors?I argue that while discouraging privatization of public sector enterprises, the fragmentation of the party system encourages industrial and infrastructure development through PPPs. As party systems become more fragmented, they generate greater risks to reelections for incumbent leaders, and also create greater likelihood of coalition politics. Leaders and parties are thus forced to avoid risky or contentious policies like privatization. Under these circumstances, leaders avoid privatization or do few privatizations to help fund strategic government spending. On the other hand, such fragmentation incentivizes governments to push for more PPPs, and use them for broad-based or social development. Finally, while international financial institutions have played an important enabling role in greater private sector development. The first chapter explores this question at the national level in India since 1991, using a qualitative research design to study the general trends in private sector development over the last 25 years, and an in-depth case comparison of private sector development under two national governments. The second chapter explores this question at the state level in India, by looking at private sector development in Andhra Pradesh, Gujarat and Maharashtra. For these chapters, I utilize archival and interview evidence I collected through fieldwork in New Delhi, Hyderabad and Bangalore between 2013 and 2015. The final chapter explores the effects of parliamentary democracy on investment, by looking at the state electoral system in India. Existing research on democracies does not sufficiently look at the impact of coalition governance and the rise of new parties on private investment. I show that two kinds of changes in the electoral dynamics of parliamentary systems – coalition politics and the rise of new lead parties – fragment the policy-making process. Using data from India’s post-Independence period (1951-2005) for 15 major Indian states, I employ a mixed-methods research design, combining an instrumental variable approach with a case study paired comparison of Andhra Pradesh and Bihar.My findings have important implications, and improve our understanding of policymaking in democracies. I find that while democracy makes some economic policies harder to implement, it might make alternate economic policies easier.

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