Categorized | South Asian Politics

Can India finally become an economic superpower

Posted on 24 April 2014 by admin

With elections underway in the world’s second most populated country the question for Indian voters is whether they can have both social progressivism and powerful economic growth.

Elections underway in India could determine if the world’s largest democracy, and second most-populated country, will resume a promising Industrial Revolution that has stalled, unlike its counterpart in China which continues apace.

The stakes are high. There is India’s strategic importance, of course, and its role since gaining independence in the mid-20th century as a role model for the developing world. Political stability flowing from greater and more widespread economic prosperity in India has had a neutralizing effect on ethnic and nationalistic extremism in the entire region, notably neighbouring Pakistan, still implicitly providing safe haven for the Taliban and at sharp odds with Delhi over the long-disputed Kashmir.

Canada, no less than the U.S. and Europe, is reliant on India for lower-cost, high-skill labour – both of which we employ locally in high-tech centres like Bangalore, and Indian ex-pats, who represent some of South Asia’s best and brightest minds. India’s quest, peaking in the 2000s, to become an economic superpower has boosted Canadian exports to the region, creating jobs and generating export revenue at home, and providing hugely attractive, once-in-a-lifetime foreign investment opportunities in India for the enormous pools of mostly retirement funds managed by Canada’s enormous pension funds.

Post-independence Indian elections have tended to be been muddled affairs, the outcomes lacking clarity about India’s preferred way forward. That is a reflection of the ethnic and ideological complexities of a country of 1.2 billion people, 814 million voters and 447 mother tongues, 29 of them languages spoken by one million people or more.

But the voting that began in India’s 16th post-independence parliamentary elections on April 7 and concludes May 12 promises a more substantive outcome.

Like Canadians in 1988, who had a clear choice in the federal contest of that year between expanded trade with the U.S. or rejecting the proposed Free Trade Agreement, Indians are currently debating the direction of the country rather than the usual “identity politics” of ethnicity, religion, regional nationalism and personalities of the candidates. Those elements are by no means entirely absent, but in the midst of a current economic downturn, a battle of ideas over a better blueprint for prosperity has made a welcome, forceful appearance.

The question, essentially, is should India continue with the social welfarism of the ruling Indian National Congress Party (Congress). Or should it opt for radical change, electing the front-running Bharatiya Janata Party (BJP), which embraces a more Western-style brand of economics liberated of India’s notoriously sclerotic bureaucracy and attendant red tape as well as endemic corruption.

India first launched itself on an Industrial Revolution 23 years ago, with liberalizing reforms that have by now created the world’s biggest middle class. Numbering about 400 million people, India’s middle class is larger than the entire populations of both the U.S. and of Europe. The reforms also bred a generation of dynamic Indian entrepreneurs restless for market liberalizations.

That is a remarkable transformation, of course, in a young country which at the time of independence was distrustful of the profit motive and intent on creating an equitable society. That was the counter-reaction to lengthy British rule that favoured the few while hundreds of millions of Indians were relegated to chronic deprivation.

Yet in 1991, in the face of a balance-of-payments crisis, the Congress party abruptly pushed through reforms that laid the foundation for an emerging economic giant. In the decades since, the Indian experiment with more robust capitalism has taken hold widely elsewhere in the developing world, notably Southeast Asia.

Meanwhile, and not without irony, Congress has slow-footed the very reforms it brought about, but only half-heartedly believed in, even as India to this day nurtures a resentment toward China and its skyrocketing growth, which slightly pre-dates that of the new India.

And the process seemed to come full circle with the unexpected re-election of Congress in 2004, which kicked off what critics regard as a series of back-to-past social-welfare programs and weakening of free-market reforms.

Among biggest of those initiatives are 2005’s National Rural Employment Guarantee Act, akin in spirit to America’s New Deal, a gigantic public works program that has generated employment for a staggering 300 million households. The ruling Congress government also implemented hyper-ambitious food-security and universal education policies aimed at lessening inequality – the core message of the global Occupy movement.

But critics have found these priorities backward-looking and smacking of “nanny state” paternalism. That’s a simplistic assessment. While India can now boast the world’s biggest middle class, it also remains home to the world’s biggest impoverished population, also numbering about 400 million people.

Meanwhile, during his eight years in office, beginning in 2003, Brazilian president Luiz Inácio Lula da Silva was raising millions of Brazilians from poverty, and began closing the gap between rich and poor at an astonishing clip, inadvertently challenging India’s post-1991 model of developing world leadership.

India’s GDP has slumped, to below 5 per cent anticipated this year, lowest in a decade, from near double-digit economic expansion in the 2000s. Federal and local deficits have soared. Last year, India suffered an embarrassing run on the rupee. The OECD has warned Delhi it must reduce “regulatory uncertainty” or face accelerating declines in foreign direct investment (FDI), while local business confidence is also low.

The IMF, on a more positive note, has suggested that mere concern about shifting government priorities, with resulting uncertainty among investors, is the chief culprit in the slump – a factor more easily dealt with than the usual suspects of high interest rates, red tape, corruption and so on.

That certainty about India’s future is what the world seeks from the votes tabulated after May 12. But the outcome will not be as clear-cut as the decision of Canadian voters in 1988, which saw the FTA implemented the following year. Instead, the likely outcome is a coalition headed by a BJP led by Narenda Modi, 63, lacking a decisive mandate for radical change.

Still, a defeat for Congress and its leader, Rahul Gandhi, 43, will shift India’s priorities. Chiefly that means a re-think of the current Congress model of reducing income inequality at the expense – or so BJP supporters believe – of economic dynamism. Alone, that shift in tone would be a dramatic outcome, signaling India’s renewed economic superpower aspirations, and making FDI from Canada and elsewhere more attractive to Western investors.

As in the Western liberal democracies, the question for Indian voters, and perhaps more for the two leading contending parties, is whether there cannot be both social progressivism and powerful economic growth. After all, the lesson from the most successful economies, for a century now, has been that the two are mutually indispensable.

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