I AM just back from my latest trip to the sub-continent, having spent a week talking to the Indian political elite about their coming election for the Lok Sabha, India’s parliament, which is likely to be held in May 2014. While the Chinese Communist Party’s just-concluded plenum has rightfully overshadowed all else in Asian politics, it is vital not to miss the importance of the coming Indian vote; in the end, the result may turn out to be just as fateful as Xi Jinping’s efforts to jumpstart economic reform in China.
For as is true of the narrative arc for many emerging markets, India has gone from being neglected, to being the future, to being quietly ignored again. This will prove to be an expensive mistake. My global political risk consulting firm highlights four counter-intuitive “buys” at the macro-economic level every year. India heads our 2013 list for the simple fact that, of all the Brics, it is the only country that still has significant untapped reservoirs of catch-up growth – largely due to its very favourable demography – that can be easily attained. India has certainly been badly run recently, but it will still grow at an (albeit disappointing) rate of around 3.8 per cent this year. Think of the up-side when there is a moderately competent government at the helm again.
There is no doubt that the present Congress premiership of Manmohan Singh has lacked the sparkle of his earlier stint as finance minister in the 1990s. Then, he dismantled the license Raj, the cumbersome Nehru-era socialist rules so constraining India’s potential. The cardinal mistake analysts made about the present government was to assume that the reformist-minded Singh would be calling the shots; instead he has merely served as loyal family retainer to the still socialist-fixated Gandhi family, which has run the Congress Party as a fiefdom since India’s independence. It is Sonia Gandhi and her lacklustre son Rahul who have held sway, standing in the way of further reform.
But the consensus view in Delhi is that change is on its way. The Hindu nationalist Bharatiya Janata Party (BJP), under the leadership of the charismatic and capable Narendra Modi, the chief minister of Gujurat, is commonly viewed as a cinch to win the most seats in the coming election. There is much about Modi that ought to make investors cheer. He has established a decade-long record of economic competence in Gujurat, and is the first mainline politician to generate genuine public enthusiasm in memory, a vital quality that if used shrewdly (and everyone agrees Modi is just that) could power the significant economic reforms that India desperately needs.
So far, so good. But there are two storm clouds on the Modi horizon. The first is controversy over a pogrom that occurred in his state in 2002, where Hindu chauvinists murdered over 1,000 Muslims. At best, those around Modi did little to stop the atrocities. It is an open question as to whether such a divisive figure, with such a questionable reputation, can stably govern so heterogeneous a place as India.
The second problem revolves around the underlying risk of Modi running a bull-in-a-china-shop foreign policy in India’s very rough neighbourhood. With Afghanistan’s future a huge question mark, eternal rival Pakistan unstable as ever, coming rival China jostling for position along their unresolved border, a subtle Indian foreign policy is imperative. So far in the campaign, Modi has hammered Singh over how weak Congress’s foreign policy has been, with an alarming lack of specificity. The putative Prime Minister-in-waiting must fill in the blanks, and quickly, if investors are to have confidence in India’s regional stability.
Saying all that, Modi could certainly prove to be a step in the right direction. Assuming he can retain order both domestically and in terms of foreign policy, it is hard to think of investors coming across a better, more credible candidate to promote the labour market, infrastructure, and anti-corruption measures that will largely determine whether India makes it to the top table in global politics. More generally, I spent the week meeting an elite that spoke English, ordered whiskeys at a British oak-encrusted bar, talking about free markets, property rights, and rule of law as though they were not alien concepts. This common Anglosphere background is also part of the reason to be ultimately bullish about India’s prospects.
Dr John C Hulsman is president and co-founder of John C Hulsman Enterprises (www.john-hulsman.com), a global political risk consultancy. He is a life member of the Council on Foreign Relations, and author of Ethical Realism, The Godfather Doctrine, and Lawrence of Arabia, To Begin the World Over Again.