Bereft of leaders, an Asian giant is destined for a period of lower growth. The human cost will be immense
In a world economy as troubled as today’s, news that India’s growth
rate has fallen to 5.3% may not seem important. But the rate is the
lowest in seven years, and the sputtering of India’s economic miracle
carries social costs that could surpass the pain in the euro zone. The
near double-digit pace of growth that India enjoyed in 2004-08, if
sustained, promised to lift hundreds of millions of Indians out of
poverty—and quickly. Jobs would be created for all the young people who
will reach working age in the coming decades, one of the biggest, and
potentially scariest, demographic bulges the world has seen.
But now, after a slump in the currency, a drying up of private
investment and those GDP figures, the miracle feels like a mirage.
Whether India can return to a path of high growth depends on its
politicians—and, in the end, its voters. The omens, frankly, are not
good.
In office but not in power
Some of this crunch reflects the rest of the world’s woes. The
Congress-led coalition government, with Brezhnev-grade complacency,
insists things will bounce back. But India’s slowdown is due mainly to
problems at home and has been looming for a while. The state is
borrowing too much, crowding out private firms and keeping inflation
high. It has not passed a big reform for years. Graft, confusion and red
tape have infuriated domestic businesses and harmed investment. A
high-handed view of foreign investors has made a big current-account
deficit harder to finance, and the rupee has plunged.
The remedies, agreed on not just by foreign investors and liberal
newspapers but also by Manmohan Singh’s government, are blindingly
obvious. A combined budget deficit of nearly a tenth of GDP must be
tamed, particularly by cutting wasteful fuel subsidies. India must
reform tax and foreign-investment rules. It must speed up big industrial
and infrastructure projects. It must confront corruption. None of these
tasks is insurmountable. Most are supposedly government policy.
Why, then, does Mr Singh not act? Vacillation plays a role. But so do
two deeper political problems. First, the state machine has still not
been modernised. It is neither capable of overcoming red tape and vested
interests nor keen to relax its grip over the bits of the economy it
still controls. The things that do work in India—a corruption-busting
supreme court, the leading IT firms, a scheme to give electronic
identities to all—are often independent of, or bypass, the decrepit
state.
Second, as the bureaucracy has degenerated, politics has fragmented.
The two big parties, the ruling Congress and the opposition Bharatiya
Janata Party (BJP), are losing support to regional ones. For all the
talk of aspirations, voters do not seem to connect reform with progress.
India’s liberalisers over the past two decades, including Mr Singh
himself, have reformed by stealth. That now looks like a liability. No
popular consensus exists in favour of change or tough decisions.
As a result, when the government tries to clear bottlenecks, feuding
and overlapping bureaucracies can get in the way. When it suggests
raising fuel prices, it faces protests and backs down. When it tries to
pass reforms on foreign investment, its populist coalition partners
threaten to pull the plug. It does not help that the ageing Mr Singh has
little clout of his own: he reports to the ailing Sonia Gandhi, the
dynastic chief of Congress. With a packed electoral timetable before
general elections in 2014, Congress does not want to take risks.
Is it time for a change at the top? Mr Singh has plainly run out of
steam, but there are no appealing candidates to replace him. Mrs
Gandhi’s son, Rahul, has been a disappointment. What about a change of
government? The opposition BJP is split and has been wildly inconsistent
about reform. Its best administrator, Narendra Modi, chief minister of
Gujarat, is divisive and authoritarian. If it formed a government
tomorrow, the BJP would also have to rely on fickle smaller parties.
Some reformers pray for a financial crisis that will shake the
politicians from their stupor, as happened in 1991, allowing Mr Singh to
sneak through his changes. Though India’s banks face bad debts, its
cloistered financial system, high foreign-exchange reserves and capable
central bank mean it is not about to keel over. A short, sharp shock
would indeed be useful, but a full-blown crisis should not be wished
for, because of the harm that it would do to the poor.
Instead the dreary conclusion is that India’s feeble politics are now
ushering in several years of feebler economic growth. Indeed, the
politicians’ most complacent belief is that voters will just put up with
lower growth—because they supposedly care only about state handouts,
the next meal, cricket and religion. But as Indians discover that slower
growth means fewer jobs and more poverty, they will become angry.
Perhaps that might be no bad thing, if it makes them vote for change.
