Populist tendencies and a lack of action by top leaders, as well
as allegations of corruption, are undermining Indians' optimism and
growing competitiveness, many say.
India's coalition government just celebrated the third
anniversary of its tenure with a self-congratulatory banquet that
could not have been more poorly timed: India's currency, the rupee,
is collapsing; investment and growth rates are falling; inflation is
rising; and deficits are eating away at government coffers.
India's burgeoning problems have dampened hopes that it, along
with China and other non-Western economies, might help revive global
growth, as happened after the 2008 financial crisis. Instead, India
is now facing a political reckoning, as the country's elected
leaders must address difficult, politically unpopular decisions or
risk even deeper problems.
"When India was being run comparatively well, in 2008, they
seemed to cope with these external shocks, at least from a financial
perspective," said Glenn Levine, a senior economist at Moody's
Analytics in Sydney. "I think people are starting to question the
long-term Indian story. That is the difference now."
India's difficulties come as the global economy is wobbling once
again. Europe is grappling with a sovereign debt crisis that could
shatter the Continent's economic and political union. The United
States is still not generating enough new jobs. China's growth has
weakened, with a real estate downturn and stalling exports, while
important emerging economies like Brazil's are slowing down, raising
grim prospects for the world economy at a critical time.
India is often viewed as a rising global powerhouse, and not too
long ago Indian officials were predicting growth rates of 9 percent
or higher. The administration of U.S. President Barack Obama, eager
to tap into such a booming market and envisioning India as a
regional counterweight to China, trumpeted the U.S.-India
partnership. Some analysts even saw the global downturn as an
opportunity for India, making it more attractive for foreign
investors wary of putting money into declining advanced industrial
Today, India's economy is still expanding, with growth projected
between 6 percent and 7 percent this year. And analysts say India's
long-term strengths remain significant. It has one of the world's
youngest populations and polls consistently show that Indians are
overwhelmingly optimistic about their future. Meanwhile, India's
businesses are competing more aggressively on the global stage.
But the slowdown has punctured the once-bubbly mood in the
business and political classes and brought sharp criticism of the
government. Indian business leaders, foreign investors and analysts
say the country's strengths are being undermined by growing
political dysfunction: the populist tendencies of Indian
politicians, a lack of action by top leaders and allegations of
corruption have blunted the authority of policy makers.
India is desperate for investment in mining, roads, ports, urban
housing and other areas, but Indian businesses and foreign investors
are starting to shy away. Indian corporations, unable to obtain
governmental licenses or permissions for projects, are investing
overseas instead. Foreigners also are pulling back, as their
investment in Indian stocks and bonds totaled $16 billion in the
last fiscal year, compared with $30 billion the year before. The
trend has accelerated in recent months after the Finance Ministry,
trying to stem a rising budget deficit, proposed new taxes on
foreign institutions doing business in India.
"A quiet crisis of confidence is building up," said Pratap Bhanu
Mehta, president of the Center for Policy Research in New Delhi.
"There is no certainty over the regulatory regime. There is no
certainty over the tax regime."
Indians have long thrived amid adversity, often by creatively --
at times, illegally -- subverting onerous regulations with a
workaround ethos that has encouraged economic activity. …