>DIFFERENT TRACK: India's unique rise

India never fails to confound, amaze or disappoint

India is a country with multiple personalities within each of its social, political

and economic layers. The palpable extreme contrasts, and the day-to-day

decision making and outcomes often appear to challenge logic, but never fail

to confound, amaze or disappoint - sometimes all in a single snapshot. Even

on a good day, there seems to be crisis somewhere in the folds of this chaotic

democracy. On a bad day, one often wonders how it functions at all, let alone

how it evolved to be Asia’s second-fastest growing economy.

Economic rise has been uneven

But despite its multinational character and the baggage of vast size of

uneducated and poor population, India has defied doomsday predictions.

However, its economic rise has been far from smooth or even, and continues

to have its share of uncertainties. This has more to do with the evolving local

endogenous political cross-currents than with the country’s democratic

foundation. The irony that the world’s largest democracy has a selected - not

popularly elected - prime minister should not be overlooked.

India is following a different economic path

A late bloomer, India’s economic evolution is following a different path

compared to other Asian economies. The differences are underappreciated

and often misinterpreted. Unlike the Asian authoritarian political regimes that

favoured political openness after becoming economically open, India is

moving ahead with the reverse combination, and with the additional liability

of weak coalition governments. To be sure, unlike Deng Xiaoping in China,

Lee Kuan Yew in Singapore or Mahathir Mohamad in Malaysia, India has no

effective visionary reformist-politicians who can ably negotiate political

consensus on reforms. Prime Minister Manmohan Singh, who is in office but

does not seem to be in power, is an accidental reformer at best.

Product markets reformed before factor markets

Still, trend economic growth has accelerated despite a lethargic reform

agenda since 2004, when the Congress-led UPA-1 came to power. UPA-II has

been embroiled in corruption scandals and is balancing the trade-off between

environment issues, corruption, growth and vote-bank politics. Admittedly,

the government’s policy paralysis in the last year has added to the cyclical

slowdown, but the attractiveness of a strong structural story does not

eliminate cyclical headwinds. The current challenges with land and labour are

another rude reminder that India’s topsy-turvy approach to reforms has

reformed product markets before fixing its factor markets. It appears ironic

that land and labour, which are both in surplus in India, have become

liabilities for growth but capital, which is scarce, has had a smoother ride.

Global export share has risen despite low reliance on FDI

Unlike other Asian economies, India’s global merchandise export share has

been rising without a comparable jump in FDI, without the aid of a superundervalued

currency, and despite the embarrassing infrastructure deficit.

Living with chronic twin deficits will remain challenging but globalisation is

also forcing Indian governments to do some right things, eventually.

There is nothing preordained about India’s economic rise

There is nothing pre-ordained about India’s economic rise, despite the scope

for unlocking of the structural tailwinds, which will be affected by the pace

and nature of reforms. The evolving demographic dividend, which has already

been contributing to economic growth, is also fuelling rising aspirations across

rural and urban areas and calls for greater accountability. Governments will

have little choice but to attempt better delivery, or Indians will vote with their

feet. In the final tally, India remains a glass half-full story that cannot be fully

appreciated by assessing it through the lens used for other Asian economies.

To read the full report: DIFFERENT TRACK