Tags: India | BJP | election | rupee

Hopeful India Faces Real Challenges

By    |   Wednesday, 21 May 2014 08:06 AM

India has just concluded the largest exercise in democracy ever. More than 600 million people were eligible to vote in the latest round of elections. That is nearly twice the total population of the United States — the total population, not just those eligible to vote.

It was staggered during five weeks and was a very bitter contest. The Congress party, which has ruled India for most of 60+ years, was completely destroyed. It achieved only 49 seats in the 545 strong parliament. The opposition party Bharatiya Janata Party (BJP) swept the polls with 282 seats, winning majority as a single party.

What makes this result significant is that India has been ruled by a coalition of parties for more than two decades. No single party has won an absolute majority in a very long time. The nature of a coalition government is one of compromise. In order to keep various supporting parties happy, often-critical compromises had to be made diluting the governance model of the ruling party.

This time they have one party that has majority and does not need to dilute its agenda much. The party has almost a dichotic face. On one hand it is an offshoot of the Hindu nationalist non-political party, which has some fairly strong views on Hinduism and a bit of non-tolerance of the non-Hindu population.

But on the other hand its leader, Narendra Modi, is a true capitalist. He has been the leader of one of the states of India for the past 12 years and has changed the economy and face of the state. His popular claim is to implement the state's success model throughout the country.

That has filled the country with hope and after a decade of crony capitalism and corruption under the Congress rule, the people booted Congress out with the hope that the BJP will bring about an economic revolution in India again.

The challenge in front of the BJP is to take a single state model and convert it to a national model. The difficulties that are faced by different regions of India are varied and one size fits all might not necessarily work. Terrorism is another major sore spot in India, and the stance taken by the BJP is a strict one of zero tolerance when it comes to India's neighbor Pakistan's interference. I am afraid that a war-like situation may soon arise there. With both countries being nuclear, this could have global consequences.

India's growth rate has deteriorated in the past few years. From its heights of 9 percent GDP growth, India now crawls at 4.5 percent GDP growth. While the United States would kill to have that growth rate, in India, that is close to stall speed or semi-recession. The first challenge will be to get growth rates up when the rest of the world is flat-lined.

The second challenge is to get the current account, as well as trade, deficit under control. The rupee had fallen by more than 17 percent last year and has since recovered, but has a long way to go before reaching safe territory. Inflation still runs at about 9 percent per year after the government massages the data a bit. This has people up in arms as day-to-day living has become unaffordable.

So the challenges in front of India are real and daunting.

It will be a few months before we can see if the BJP can live up to its election promises or it starts blaming others for its lack of progress.

The Indian stock market, as well as the rupee, shot up significantly in the run up to the election. While it holds its grounds today, it will likely wobble if the government is unable to handle the challenges as promised.

At this stage, the first challenge for Modi is to elect the right cabinet and ensure the world that crony capitalism and corruption will be crushed as promised. In the next few weeks we will see the gains unravel or pick up steam.

I will keep a close eye on India and report back periodically.

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India has just concluded the largest exercise in democracy ever. More than 600 million people were eligible to vote in the latest round of elections. That is nearly twice the total population of the United States — the total U.S. population, not just those eligible to vote.
India, BJP, election, rupee
Wednesday, 21 May 2014 08:06 AM
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