Policy: Economy

Stakes are high for U.S. in India's next election

Opinion,Op-Eds,Economy,India,Foreign Policy

India is an important natural ally of the United States, with shared roots in democracy and an ongoing turn toward a free-market economy.

It will also be an increasingly powerful -- India is projected by HSBC Bank to have the world’s third-largest economy in 2050.

But India is at crossroads today, as it struggles with key issues ahead of a national election that must be held by May. The nation's self-confidence has been sapped by a combination of three factors: uncertainty regarding the correct economic path, well-publicized incidents revealing deeply inequitable treatment of women, and all-pervasive governmental corruption.

How the next government copes with those issues will have a major impact on the Indo-American relationship.

In the post-independence era of 1947-1991, India’s economy combined features of capitalism with a heavy dose of socialism, resulting in inward-looking, interventionist policies. Economic growth barely kept pace with the population-growth rate.

In 1991, Prime Minister P. V. Narasimha Rao pushed through free-market reforms. The resulting turbo-charged economy established India by 2008 as one of the world’s fastest-growing economies; its gross domestic product grew by 9.3 percent in 2010-11. But a shift to populist schemes, a slowdown in infrastructure development, and the general incompetence of the ruling government over the last two years caused the growth rate to nosedive; the GDP grew at an anemic 4.7 percent in October-December 2013.

The fast change from the Image of a rising world power to economic stagnation caused a severe whiplash to the Indian psyche. A fierce debate has broken out on the correct economic path for the country. The eminent Harvard economist Amartya Sen has asserted that India’s free market reforms did not help the poor. Following his advice, the ruling Congress Party shifted to massive welfare spending. The government’s fading interest in growth and overzealous environmental enforcement brought approvals for new projects to a virtual halt.

Another eminent economist, Jagdish Bhagwati of Columbia University, champions pro-market reforms and rules-based capitalism, which would restore high economic growth and help everyone, rich and poor alike. His thoughts may find good reception if the opposition party BJP comes to power in the general election scheduled to be held in April or May.

Women's rights are another sore point; traditional norms often conspire against laws meant to enforce them. Multiple rape cases have jolted India's conscience. Unfair treatment of women is a national epidemic. A young cop, Preeti Dhaka, was part of the Delhi police's strategy to build a bigger corps of policewomen in the wake of increasing reports of sexual violence. In January 2013, Dhaka hanged herself. In a suicide, note she wrote that her husband was harassing her for dowry.

The recent kerfuffle between the U.S. and India over the arrest of an Indian consular officer in New York may have puzzled most Americans. The diplomat, Devyani Khobragade, was arrested by American authorities on charges that she fraudulently obtained a work visa for her housekeeper. The reaction in India was highly emotional: Indians saw this as an instance of wanton humiliation.

Deeply-rooted corruption causes Indian citizens to dread any interaction with the bureaucracy. Palms have to be greased in all matters, whether it be parents applying for a birth certificate or bereaved relatives beseeching the authorities for a death certificate. The opportunities for graft get truly massive as one moves higher up the food chain. The telecommunications minister was arrested in 2010 on charges of giving away vast chunks of the lucrative 2G bandwidth spectrum to his cronies, with an estimated loss of $40 billion.

The party assuming power after the next election will need to act on an urgent agenda to re-ignite India’s growth. An immediate challenge is to vastly expand the share of manufacturing in India’s economy, which has stagnated at 16 percent of GDP. The new government will need to undertake major reforms in land acquisition, labor laws, tax rules and regulations.

The BJP’s standard-bearer is the current Gujarat state chief minister, Narendra Modi.

Modi, 63, has won praise for turning Gujarat into an economic powerhouse and a magnet for foreign investment. But many allege he did little to stop sectarian riots in his state in 2002; in fact, this led America to deny Modi a visa in 2005. If voted into power, he will undoubtedly be a strong prime minister, unlike the ineffectual incumbent, Manmohan Singh. The United States is already taking steps to ease its relationship with him; its ambassador, Nancy Powell, met with Modi in the first week of February.

Modi would be a good partner for the United States in promoting free-market capitalism and a muscular approach to combating global Islamic terrorism, and managing the rise of an increasingly assertive China.

A resident of Southern California, Sardul Singh Minhas is a business consultant and writer. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions for editorials, available at this link.
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