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India’s slowdown
Farewell to Incredible India
Bereft of leaders, an Asian giant is destined for a period of
lower growth. The human cost will be immense
Jun 9th 2012 | from the print edition
IN A world economy as troubled as today’s,
news that India’s growth rate has fallen to
5.3% may not seem important. But the rate is
the lowest in seven years, and the sputtering
of India’s economic miracle carries social costs
that could surpass the pain in the euro zone.
The near double-digit pace of growth that India
enjoyed in 2004-08, if sustained, promised to lift hundreds of millions of
Indians out of poverty—and quickly. Jobs would be created for all the
young people who will reach working age in the coming decades, one of
the biggest, and potentially scariest, demographic bulges the world has
seen.
Some of this crunch reflects the rest of the world’s woes. The Congress-
led coalition government, with Brezhnev-grade complacency, insists
things will bounce back. But India’s slowdown is due mainly to problems
at home and has been looming for a while. The state is borrowing too
much, crowding out private firms and keeping inflation high. It has not
passed a big reform for years. Graft, confusion and red tape have
infuriated domestic businesses and harmed investment. A high-handed
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to view of foreign investors has made a big current-account deficit harder
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to finance, and the rupee has plunged.
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Why, then, does Mr Singh not act? Vacillation plays a role. But so do two
deeper political problems. First, the state machine has still not been
modernised. It is neither capable of overcoming red tape and vested
interests nor keen to relax its grip over the bits of the economy it still
controls. The things that do work in India—a corruption-busting
supreme court, the leading IT firms, a scheme to give electronic
identities to all—are often independent of, or bypass, the decrepit state.
Is it time for a change at the top? Mr Singh has plainly run out of steam,
but there are no appealing candidates to replace him. Mrs Gandhi’s son,
Rahul, has been a disappointment. What about a change of
government? The opposition BJP is split and has been wildly inconsistent
about reform. Its best administrator, Narendra Modi, chief minister of
Gujarat, is divisive and authoritarian. If it formed a government
tomorrow, the BJP would also have to rely on fickle smaller parties.
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to Some reformers pray for a financial crisis that will shake the politicians
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from their stupor, as happened in 1991, allowing Mr Singh to sneak
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through his changes. Though India’s banks face bad debts, its cloistered
financial system, high foreign-exchange reserves and capable central
bank mean it is not about to keel over. A short, sharp shock would
indeed be useful, but a full-blown crisis should not be wished for,
because of the harm that it would do to the poor.
Instead the dreary conclusion is that India’s feeble politics are now
ushering in several years of feebler economic growth. Indeed, the
politicians’ most complacent belief is that voters will just put up with
lower growth—because they supposedly care only about state handouts,
the next meal, cricket and religion. But as Indians discover that slower
growth means fewer jobs and more poverty, they will become angry.
Perhaps that might be no bad thing, if it makes them vote for change.