“What ails India?” So asked the FT‘s Mumbai bureau chief of a Western investor recently. The answer? Everything. “On every indicator we look at, there is a red flag,” the investor said. “This country is close to becoming the Greece of Asia.”
Growth has stalled. Inflation, thought to be under control, jumped up again on Monday. Data last week showed industrial output declining and the trade deficit growing. This week the rupee fell to its lowest rate ever against the dollar.
There are a number of reasons why India, once Asia’s most promising economy, is slipping. One is the decline of the License Raj, the long accepted patronage network of businessmen and politicians, the system of permissions, licences, and investment that kept India’s economic machine churning at a high rate. Recently, the Raj has come under attack—from a zesty media and active public who want more transparency, from foreign investors who want an easier way to get a piece of the pie, from an empowered Supreme Court and government auditors.As India’s economy continues to modernize, there will be inevitably be times of slow growth, inflation, corruption scandals, and skittish investors. Prime Minister Manmohan Singh, who championed the wildly successful economic reforms of the 1990s, has not had that kind of success in the next round of reforms. His government may be cracking down on corruption, but partly as a consequence of the complicated politics of Indian coalition-building, vital decisions have been deferred and even the low hanging fruit has been left hanging on the tree.Singh’s government will pay a steep price if the economic climate does not change by the time elections roll around in 2014. His Congress Party was battered in provincial elections a few months ago. One frontrunner to replace him, Narendra Modi, is a divisive figure and, due to widely credited reports of his personal responsibility for massacres of Muslims, he is not beloved by the international community. His party, the BJP, is usually identified with Hindu nationalism, and elements of that party have been labeled fascist.But Modi is a champion of business in his home state of Gujarat. Gujarat has consistently been one of the great success stories in the Indian economy, and Via Meadia can envision Modi pushing that line with some success during national elections. If Singh’s government can’t prove its current policies will brighten things up once again and continue India’s great success story (“India shining”), then we may well see Narendra Modi waltzing triumphantly into Delhi in the near future. If so, the world will have to hope that Modi the prime minister will live up to the best elements of his mixed record.The rise of great powers is complicated; look at the way that Andrew Jackson, one of the great American advocates of popular democracy, was also a slaveholder. India’s story is going to be at least as complicated and as difficult — for itself, and for countries whose strategic interests are closely bound up in its fate.