India’s new government must take its cue from the summer of 1991. That was the last time this country was desperately seeking a turnaround strategy.
Consider the facts. The governments that came to power in 1996, 1998-99, 2004 and 2009 did so against the background of a vastly improved economic situation compared to the one their predecessor inherited.
Even though the world economy was in crisis mode in 2009, the second Manmohan Singh government (UPA-2) took charge patting itself on the back for India’s relatively robust response to the trans-Atlantic financial crisis and the global economy slowdown.
In 2014 things are different. India’s new prime minister faces a challenge that no one since the late PV Narasimha Rao has faced: The challenge of restoring India’s credibility as a growing economy, defined by credible and predictable macro-economic governance that is hospitable to business.
Outgoing finance minister Palaniappan Chidambaram has tried hard to restore that credibility, but the jury is out. Indian business has been on an ‘investment strike’ for over three years now.
Till Indian investors invest in India, the world will not invest in her.
Till 2010 India had a credible long-term story to tell and sell. The sub-continent’s growth rate had been close to zero percent per annum between 1900 and 1950, then went up to an average annual rate of growth of 3.5 percent between 1950 and 1980, to 5.5 percent between 1980 and 2000 and to around 7.5 percent in 2000-2010. An accelerating trend that imparted confidence to investors at home and abroad.
India’s initial ability to absorb the shocks transmitted by the trans-Atlantic financial crisis further boosted investor confidence in the government’s economic management.
Then came the downturn. The political and policy elements that defined that downturn, and the Congress party and its alliance partners’ inability to understand the significance of these factors, have been the focus of the election campaign this summer.
In response to this background the prime ministerial candidate of the Bharatiya Janata Party, Narendra Modi, has consistently focussed his attention on ‘development’, fully aware of the challenge of reviving the Indian growth story.
Whoever becomes the head of the new government this May cannot afford to take his eye off this goal.
As India’s election cycle comes to a close, the news that has grabbed column space across the front page of most newspapers around the world (but went largely unreported on navel-gazing prime time national news in elections-focussed India) was China’s emergence as the world’s largest economy, in purchasing power parity (PPP) terms, overtaking the United States.
According to the World Bank, and based on the data collected by the International Comparison of Prices (ICP) Project, China’s gross domestic product measured in PPP dollars will surpass that of the United States by the end of 2014. The US has been the world’s largest economy since the second half of the 19th century. By the middle of the 21st century, China could well overtake the United States not just in PPP terms but also in US dollar terms.
China’s re-emergence as the world’s largest economy two hundred years after its decline, along with that of India, is the most important geo-political challenge and opportunity facing India. However, India’s response to this external challenge will have to be defined and acted upon almost entirely at home.
Check out our Festive offers upto Rs.1000/- off website prices on subscriptions + Gift card worth Rs 500/- from Eatbetterco.com. Click here to know more.
(This story appears in the 30 May, 2014 issue of Forbes India. To visit our Archives, click here.)