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India no longer shining

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COMMENTS

29 June 2012 10:26

Just as Washington's bookstores were piled high at the turn of the century with works celebrating America's global primacy, Delhi's were awash with titles proclaiming the rise of India. Almost each month, it seemed, a new book would appear with cover artwork depicting a tiger squaring up to a dragon. Back then, it seemed reasonable to ponder which country would end the Asian century on top, India or China?

Gone is the optimism of those 'India Shining' years, along with the rash of articles from reporters who believed they were present at the birth of a new superpower.

'Goodbye 2020, Hello 1991' lamented a recent headline, recalling the year India went cap in hand to the IMF for a bail-out. Some are even questioning whether India deserves its place among the BRIC nations, and whether the 'I' more rightly belongs to Indonesia.  

GDP growth, which averaged 8.7% from 2004-2008, slumped to 5.3% during this first quarter of 2012, its slowest pace in nine years. Corporations bemoan the policy paralysis in Delhi. The country is beset by long-standing infrastructure problems, while regulatory obstacles are blocking foreign investment. Consider the South Korean steel giant POSCO's plan to invest $12 billion in the steel sector. The deal, which would become India's biggest ever foreign investment, has been stalled for seven years.

'Will India be the first BRIC fallen angel?' asked a report last month from Standard and Poor's. The question was left unanswered, but the hard-hitting report would have made for unhappy reading in South Block, Delhi's version of the West Wing, not least because its focus was on politics as much as the economy.

Coalition government is part of the problem. Prime Minister Manmohan Singh's Congress Party-led administration had to reverse its plan to raise the cap on foreign investment in retail, which would have opened the way for US giants like Walmart, because of opposition from its coalition partners.

Allegations of corruption in sectors like mining and communications, an old Indian bugbear, have undermined public confidence in the economic reform agenda. Ministers also fear greater deregulation, not because of ideological qualms but through fear of relinquishing political power.

However, the overriding problem, according to Standard and Poor's, is the dysfunction at the top of government, and the separation of powers between Dr Singh and his political patron, Sonia Gandhi, President of the Congress Party. Singh, who as Finance Minister in the early 1990s started liberalising the economy, cannot choose his cabinet. Nor can he make it bend to his will, because he lacks a power-base of his own.

The irony is that Singh enjoyed far more power as Finance Minister in the Rao Government twenty years ago than as Prime Minister today.

Now, following Pranab Mukherjee's decision to step down as Finance Minister to run for the largely ceremonial position of president, Singh will perform both jobs himself. His aim is to revive the 'animal spirit' of Indian economic growth. It helps that India has a strong private sector, a thrusting middle class and foreign exchange reserves worth some $250 billion. But Singh's 'animal spirit' comments have been roundly lampooned, because the mild-mannered leader rarely, if ever, shows his teeth.

Nor is he likely to when it comes to confronting the central institutional problem: the impoverishment of Congress Party politics.

Photo by Flickr user snapper san.

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