Opinion makers were mesmerized by the ruling Bharatiya Janata Party’s “India Shining” message, which declared that India’s economy was on track to join China’s as a bona fide Asian miracle. In the last quarter GDP had risen faster than any country’s in the world, including China’s; foreign-exchange reserves were piling up. The party was cast as the proponent of aggressive reform. Yet the rosy numbers were driven more by a boom in global emerging markets and a good monsoon than by any substantive policy decisions. Now many in the media are interpreting the BJP’s drubbing as a defeat for reform, once again ignoring facts.
During former prime minister Atal Bihari Vajpayee’s five-year term, economic growth averaged 5.7 percent. That may have been enough to impress India’s vocal plutocrats, but obviously not the voting majority. That level of economic expansion translates into per capita income growth of only 4 percent, reduces poverty by just 0.6 percent a year and doesn’t create anywhere near enough new jobs. In a country where per capita income is a mere $500, far stronger growth is needed to meet the rising aspirations of a populace now exposed to global images of affluence through satellite television and other media.
Despite all the talk of era-defining reforms, India’s per capita income growth rate has been stuck at 4 percent since 1980. By comparison, East Asian boom countries like Japan and Taiwan achieved per capita income growth of 8 percent for 20 to 25 years at a stretch. After years of gradual reform, India still ranks in the third or fourth quartile on indices of economic freedom, corruption and human development.
The problem is not too much reform but too little. In India, changes are implemented in a random, piecemeal manner and under the pressure of lobby groups. There is weak faith in the notion that good economics makes for good politics. Furthermore, there’s no emancipatory zeal associated with reforms, which would resonate with the less privileged. Consequently, leading industrialists and the government actively engage with each other to share the spoils in fast-growing sectors, even as thousands of farmers continue to commit suicide because of government inaction during droughts.
The message of this election is that fresh faces should govern differently, by tackling the kind of basic-development issues at the micro level that will deliver higher growth rates at the macro level. The new Congress-led government needs to broaden reforms. It needs to focus on neglected areas like land reform and outdated property laws, which would both empower citizens as well as significantly step up economic growth. Greater investments in education and health care–so central to the success of the East Asian tigers–must be introduced.
Around two thirds of India’s work force earn their livelihood from the farming sector, which accounts for a little over a fifth of India’s gross domestic product. Those jobs need to migrate to the more rapidly expanding services sector. For that, the government will have to loosen labor laws and deregulate industries while providing a better safety net for those who are displaced. If they don’t, they’re missing the story, too.
