Implications for Society, the Economy and India's Foreign Policy
May 26, 2004
Isher Judge Ahluwalia, economist, International Food Policy Research Institute
Ritu Kochhar, international economist, Bear Stearns & Co
Radhika Lal, development economist, advisor for United Nations Development Programme
Philip Oldenburg, political scientist specializing in South Asia, Southern Asian Institute, Columbia University
Naazneen Karmali, Business India, moderator
The role of the rural poor was in the spotlight as India experts discussed the defeat of the incumbent Hindu nationalist Bharatiya Janata Party (BJP) at a program convened by the Asia Society. Most panelists expect the Congress Party to focus on agriculture infrastructure and reforms designed to spread "India Shining," the BJP growth slogan, and to prepare India for an economic challenge from China. But at the end of the day, India under new Prime Minister Manmohan Singh's Congress Party is not expected to stray far from former Prime Minister Vajpayee's market-based reform policies, which have contributed to a sea change in world opinion and investment in the formerly state-controlled economy.
Political scientist Philip Oldenburg let statistics tell part of the story. He argued that there was not a large vote swing, not an anti-incumbency vote, not a revolt of the rural poor, who were left out of 'India Shining'. Both alliance parties got 35% of the electoral vote. The Congress Party won because it made good alliances in several states, leading Oldenburg to predict that Indian politics is becoming state-level driven, as opposed to a national two party system. And why did the Congress alliance win? It was about jobs, he said, echoing similar sentiments in the United States. It was about the lack of good jobs for people who had become educated and wanted more than they were getting.
Isher Ahluwalia agreed with Oldenburg that the political power held by single major parties have been replaced by coalitions formed around local issues. She added that economic reforms will continue given that Prime Minister Singh was the architect of India's economic reforms during the 1990s, launched by Congress to attract the international markets. The BJP pushed those reforms farther and Congress ironically hesitated to claim any part of the ensuing economic success. Even the presence of the left parties in the coalition should not change this economic reform position since they seem intently interested in business and jobs. Dr. Ahluwalia argued that too many rural poor were left out of 'India Shining', and points to the draft of the Common Minimum Program which outlines needed agricultural reform, from infrastructure like roads to reforms needed in light of World Trade negotiations intended to open up markets. On a note of caution, Dr. Ahluwalia was concerned with the government deficit of a very high 6% rate of GDP. This public debt sustainability and macro-imbalances had not surfaced because of the country's feel-good factor. While reforms must continue, fiscal consolidation is needed, she warned.
Ritu Kochhar, who focuses on India and EMEA countries at Bear Stearns, gave good marks to India in its general economic health. A GDP growth rate of 6.5% to 7% is expected this year, irrespective of government actions. Current accounts are in surplus, inflation is relatively low and the rupee is stable, interest rates have been low. IT services and outsourcing is, despite all the media coverage, only 3% of GDP and has further potential. A growth story should continue over the next decade, she promised. But, unlike Oldenburg, she argues that the benefit of reforms did not permeate to the villages, the life of too many people remains untouched by India's global market presence, and there is a high percentage of unemployment and income disparity. Going forward, reforms must be broader-based and sustained. An 8% GDP growth rate in one year is not enough to change the lives of one billion people overnight. She points to three areas where Congress will change course: privatization, of state-owned banks and other assets; retention of subsidies; and flexibility in labor reforms. But the broad thrust of reforms will probably not change: deregulation of industry, building of roads and infrastructure, some level of trade reforms and steps to encourage foreign investment. The question remains how the government can put more emphasis on employment generation and investment in agriculture, at the same time it increases spending in health care and education, along with bringing down its fiscal deficits.
Radhika Lal, a development economist, looked deeper at the impact of the left parties and argued that their successes were attributed to their concentration on land reform and rural development, lending fire to the argument that it was a revolt of the marginalized rural poor that ousted the BJP. She warns that the Congress party may disappoint some by indulging in populist reform such as education benefits but not the real development opportunities needed to reduce the burden on the farmers. In Uttar Pradesh, for example, many farmers are suffering so much from lack of equitable water supplies and credit that they are reportedly committing suicide. The market-driven reforms had reached them: they were using pesticides and growing more cash crops and fewer food crops. But without agricultural infrastructure such as irrigation water project investment and agricultural credit availability, their condition was deteriorating. Even those moving to the city did not improve their living standard since there were not enough jobs. Ms. Lal warned that India under the Congress party must move in the direction China has, with true reform. India's GDP rate is coming from services, she said, not manufacturing, as in China.
Several questions from the audience dealt with the "democracy" of electing Sonia Gandhi's party but getting Singh as Prime Minister. Isher Ahluwalia was quick to point out that India's Constitution provides for the party to name anyone it chooses to run the government, followed by a vote. Others questioned whether India would eventually become a two-party national system, and what influence the left parties will have.
Finally, audience members questioned the impact the election will have on India's foreign relations. Isher Ahluwalia felt the events of 9/11 and subsequent war on terror will not cause India to change course towards a more peaceful coexistence with Pakistan and other neighbors. But because of its coalition of left parties, Congress may try to boost relations with the European Union to equal that with the US. It might become a "France", said Oldenburg, with a stylistic change in its relations with the US.