India—A New Beginning?
When Antoine van Agtmael of the International Finance Corporation coined the term “emerging markets” in 1981 and helped launch the first global fund aimed at investing in those countries, he was desperate to change the negative perception about the “Third World.” Little did he know that, a few decades later, the problem would be exactly the opposite—excessive expectations.
One such case is Brazil, whose socioeconomic model is responsible for the country’s dismal performance of the past four years and is being severely questioned by both the establishment that once supported it and the rising middle classes saddled with debt after the government-fed consumption boom.
Another such case is India, whose annual economic growth rate is now, at 4.5 percent, half of what it was a couple of years ago.
Once viewed as an up-and-coming economy that was making terrific progress, India is a country where corruption is all-pervasive, bureaucracy has paralyzed infrastructure projects, and foreign capital is barred from important markets, while Vodafone, Nokia, IBM, Shell, and other multinationals have faced the consequences of tax laws that allow the authorities to reopen old cases. It also suffers from a big fiscal deficit, inflation, and general mismanagement.
Little wonder, then, that Primer Minister Manmohan Singh, who as finance minister undertook impressive but insufficient reforms in the early 1990s, is now departing his tenure in utter humiliation.
Singh’s Congress Party, which has ruled India for much of the past 65 years, has just been crushed in the general election and will command about one-sixth of the total number of seats that will be controlled by the incoming administration of Narendra Modi’s Bharatiya Janata Party.
The legendary Congress Party of the Nehru-Gandhi dynasty has been reduced to a parliamentary bloc comparable in size to regional parties such as AIADMK, led by the chief minister of Tamil Nadu. The country’s more than 500 million voters have said “basta!” to a scheme of patronage, welfare programs, and subsidies that was once the key to the Congress Party’s lock on the majority. Millions of young voters from the middle class who are the children of the half-hearted reforms of the 1990s recognize the chasm that has opened between their aspirations and a model that is the major obstacle in the path to meeting them.
It is fascinating to see liberal Indians, including many intellectuals, who used to despise the nationalist Bharatiya Janata Party and Modi, its controversial leader who has been repeatedly accused of intolerance towards Muslims, now cling to the hope that this very man will shake up the system, open India to full-throttle globalization, and make the economy competitive again. Only sheer desperation about the current of state of affairs could have pushed them to vote for Modi and take his word when he promises not to endanger the country’s famed secularism—a leap of faith since it was only in 2002 that Modi, then chief minister of Gujarat, was perceived to have tolerated a massive pogrom against Muslims.
Indians have done the right thing. The Congress Party needed to be sent an unequivocal message that dynastic politics and 20th century interventionist populism have no place in a modern world power. Modi’s overwhelming mandate and his strong majority mean there will be little excuse if the incoming prime minister does not make true on his catchy slogan—“less government and more governance.”
The biggest risks are these: that Modi will feel obliged to pay back the campaign funds he has received from the major capitalist players; that the chaotic nature of India’s federal architecture will make decision-making impossible; and that Modi’s nationalist zeal will come back to the forefront and the reform agenda will be replaced with religious and political authoritarianism.
Liberal writer Gurcharan Das recently addressed the third risk in the Financial Times: “I take comfort in India’s pugnacious press, fearless judiciary and hugely diverse, disobedient people—all of which make dictatorship a tall order.” As for the other two risks, only Modi’s leadership can overcome them.
We are about to find out if it can.