Since India’s national election results were announced last weekend, its chief stock index has surged (before falling a bit yesterday and today), as has the rupee. (Bloomberg reports that the Indian currency “is set for its best week in 13 years.”) The incumbent center-left Congress party won an unexpectedly robust victory, picking up dozens of seats in the lower house of parliament. The opposition Bharatiya Janata party, a Hindu nationalist outfit, turned in a surprisingly weak performance. For the past five years, Congress has held power as the leading member of a coalition government, the United Progressive Alliance (UPA). For much of that time, however, the UPA included a bloc of far-left parties that worked to thwart free-market initiatives. Those parties split from the coalition last summer, in reaction to the U.S.-India civilian nuclear agreement. Now, with its parliamentary gains, Congress has no need to partner with them.
Prime Minister Manmohan Singh — who unleashed India’s post-1991 reform era while serving as finance minister — will be back for a second term. Prior to the global financial crisis, his government was presiding over 9 percent annual GDP growth; yet economic liberalization had stagnated. In the most recent World Bank survey of the easiest business environments, India places 122nd out of 181 economies. The latest Index of Economic Freedom, compiled by the Heritage Foundation and the Wall Street Journal, ranks India 123rd out of 179 economies (the South Asian giant is barely ahead of Rwanda).
In his post-election statements, Singh has emphasized the need for further reforms. “The government will certainly be under pressure,” says Columbia economist Arvind Panagariya, author of the 2008 book India: The Emerging Giant. While Panagariya worries that the Congress party’s anti-reform faction has been bolstered by the global economic downturn, India has weathered the turmoil better than most countries. (We might also note that India’s communist parties suffered major losses in this election.)
Over the past two decades, the opening of India’s economy has proceeded intermittently. “Indians joke that India is like a drunk walking home: it takes one step forward, then two steps sideways, but eventually makes it home,” writes Robyn Meredith in The Elephant and the Dragon, her 2007 book on the rise of India and China. “Indian reforms, hampered especially by local politics, tend to lurch ahead, then jolt to a stop, only to hurl forward again.”
What about India’s relations with the United States? Singh has been a great booster of U.S.-India ties, which were strengthened enormously under George W. Bush. (Panagariya says that Bush’s dogged support for the nuclear pact was “remarkable.” Without that support, he indicates, the deal might easily have collapsed.) But Indian officials fear that President Obama is less committed to the bilateral partnership. “He needs to visit India,” says Panagariya.
Tunku Varadarajan agrees.