A bright future for India?

(c) khrawlings

In hindsight, the Congress party’s decision to campaign with ‘Jai Ho’ (Victory to You) as its theme song smacks less of hubris and more of confidence in the people of India.

Slumdog Millionaire’s feel-good track captured the mood of a nation ready to move away from the kind of fragmented, caste-based politics that so often undermined past governments.

Instead of delivering a lame duck coalition beholden to minority interests, Indian voters defied predictions to give the ruling Congress-led alliance an overwhelming mandate.

A 14.1 per cent weekly jump in the Mumbai stock exchange reflected the surprise, and indeed relief, at such a clear-cut election result in the world’s largest democracy.

The success of Congress presents a rare opportunity to push through much-needed economic reforms, which have been stalled over the past five years by left-wing allies such as the Communists.

While India’s forecast growth rate of 5% for 2009 is the envy of traditional superpowers such as Japan (-6.4%) and Germany (-5.2%), it has slumped from a peak of nearly 9% last year. And, equally significantly, the country lags behind China’s 6.5% GDP growth.

The global recession has reduced demand for Indian exports and simultaneously dried up inflows of foreign investment. Furthermore, this decline in trade is likely to be exacerbated as more countries follow the lead of President Obama’s protectionist ‘Buy American’ policy.

In the short-term, this fiscal shortfall will probably be filled by sales of state-owned companies. The government currently owns around 200 companies, encompassing everything from gold prospectors to fertilizer manufacturers. Reducing this number will improve efficiency and provide the funds to boost the economy.

However, Congress needs to distance itself further from India’s socialist heritage by opening up markets to foreign investors. The retail sector, in particular, would benefit immensely from the expertise of international companies such as Wal-Mart and Tesco, although any regulatory relaxation would be politically sensitive.

As well as attracting big corporations, Congress also has to appease small businesses and farmers. Economic inequality across India has actually increased over the last decade despite strong growth. Therefore rural states such as Uttar Pradesh, which were crucial to the party’s comprehensive victory, will press for more policies like the mooted waiver of loans for struggling farmers.

This balancing act between a burgeoning middle class and their poorer counterparts in the countryside will prove extremely challenging. But in a sense Congress and India have both already achieved victory. The country has united behind a progressive government and avoided a potential swing to the far right following the Mumbai terrorist attacks.

Of course, Congress is yet to live up to the promise of its theme song. Tony Blair swept to victory in 1997 promising ‘Things Can Only Get Better’ and we all know how that ended. And yet India stands on the cusp of success – only the years to come will tell whether ‘Jai Ho’ rings true or hollow.