India's Election Choice: Growth Economy or Welfare State (BusinessWeek)

By Akash Kapur                                             April 03, 2014



A shopkeeper displays water sprinklers with portraits of Rahul Gandhi and Narendra Modi in Chennai, India

Indian elections aren’t known for their clarity. Messy, cacophonous affairs, they stretch across months and almost invariably result in fragmented verdicts. Political groupings are opportunistic, driven by personality rather than issues; competing party platforms are often indistinguishable.

This year’s parliamentary elections—the nation’s 16th since independence, running from April 7 to May 12—are proving an exception. The distinctions between India’s leading parties are unusually sharp; the race is shaping up as a genuine battle of ideas, a real debate over the direction of the nation.

India’s two main parties are led by men who in many ways couldn’t be more different. Rahul Gandhi, the standard-bearer for the ruling Indian National Congress party, is the scion of a distinguished family that includes three former prime ministers. At 43, he’s also the candidate of youth. Narendra Modi, the leader of the Bharatiya Janata Party (BJP), which is ahead in most polls, is 63, a self-made man, and an experienced administrator who has served for more than 12 years as the chief minister of the state of Gujarat. Gandhi espouses a brand of secular, inclusive politics; Modi is viewed with suspicion by many for a series of bloody communal riots that took place under his watch in Gujarat. (The Indian courts exonerated him of personal involvement.)

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These are the lines along which the elections are generally being interpreted. But there is, also, a third distinction between the parties, one that’s less remarked upon but arguably more important. The elections are in many ways a contest over economic ideas, over the model of development best suited to India. This contest significantly raises the stakes for Indian voters; the outcome of these elections could very well determine the fortunes of an economy that has recently fallen into stagnation.

Since 1991, when India undertook a series of reforms in the face of a balance-of-payments crisis, the nation has been governed by a broad (if largely implicit) agreement about its economy. Call it the Delhi Consensus: a plodding, somewhat half-hearted acceptance of capitalism, a grudging acknowledgment that no alternative exists. The pace of change has often been painfully slow, but for more than two decades India has appeared to be on an ineluctable—if halting—path toward free-market capitalism.

The Congress party government run by Prime Minister Manmohan Singh has in many ways upended that consensus. Ever since its surprising victory in the nation’s 2004 elections, Congress has enacted a series of laws that, to critics at least, hark back to the welfarism and socialism that marked the country for much of its post-independence history.

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In 2005 the government passed the National Rural Employment Guarantee Act (NREGA), a massive public works program that has provided jobs to close to 300 million households. Congress also enacted an ambitious right-to-education program and a food security bill that will ultimately deliver subsidized grains to two-thirds of the population. Supporters argue that these laws are historic steps toward addressing India’s chronic poverty and inequality; critics deride them as old-fashioned budget-busting handouts.

The BJP has refashioned itself over the years from a party associated with identity politics to a champion of good economic governance and business-friendly administration. This shift has been pronounced since the ascendancy of Modi, whose supporters point to a record of growth and relative efficiency in Gujarat. Skeptics question the so-called Gujarat model, pointing to its numerous shortcomings. But this hasn’t stopped business from making a beeline to his state—or a number of prominent executives from extolling Modi as a leader with vision.

Inevitably, the distinctions between the two parties have their nuances. Congress is, after all, the original architect of India’s reforms, and many within the party (including Singh, a former finance minister) are more market-friendly than some government policies would suggest. The Hindu nationalist wing of the BJP has long been associated with swadeshi, or self-reliance, an ideology distinctly unfriendly to foreign investment.

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There is, moreover, the inescapable reality of the nation’s fractured politics. Even the most lopsided of polls has the BJP coming to power in a coalition. Modi’s free-market instincts are likely to be constrained by the diktats of regional allies. As Naresh Fernandes, a journalist and editor based in Mumbai, says: “No matter what people say, it all depends on what coalition comes together. No one can promise any real policy.”

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Still, the distinctions are real enough to matter and to present a clear choice to voters. Gurcharan Das, an author and former chief executive officer of Procter & Gamble India (PG), argues that while both parties are broad tents, containing a wide range of views, there do exist clear differences of emphasis. “It’s a real debate based on priorities,” he says. “The difference between the two options we have today is that one is single-mindedly focused on a passion for growth. The other side feels you have to have compassion for the poor.”

The significance of this choice is accentuated by its timing. The elections are taking place amid an economic slowdown and crumbling business confidence. Before 2007, India’s growth rate appeared to be approaching China-style double-digit increases; the nation’s leaders spoke exultantly of ascending to the ranks of “economic superpowerhood.” Growth this year is likely to be less than 5 percent (the lowest in a decade), and deficits are worrisomely high. In 2013 the country endured a humiliating run on its currency.

The mood—and the realities—have shifted dramatically, and India has been engaged in an increasingly urgent debate to understand why. The terms of this debate, simplistically framed as pitting growth against equity, largely map themselves onto the respective positions of the main parties. In one corner stand those who argue that India is languishing because it has focused too much on economic growth and gross domestic product, neglecting social indicators such as education, health, and equality. Opposing them are those who argue that the problem is, rather, too much emphasis on social development and too little on the imperative of growth.

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Last year the debate spilled onto the nation’s TV channels and op-ed pages in an ill-tempered spat between two leading Indian economists: Columbia University professor Jagdish Bhagwati, and Harvard’s Nobel prize-winning Amartya Sen. Bhagwati accused Sen, long an advocate of social development, of promoting “dangerous” policies. When Sen questioned Modi’s economic record in Gujarat, a BJP member of parliament demanded (in a tweet) that the government strip Sen of his Bharat Ratna, India’s highest civilian honor. Their argument was emblematic of an emerging ideological division in the country, a philosophical split akin to the one separating Democrats and Republicans in the U.S.

For all the occasional shrillness—even nastiness—of this debate, there are reasons to think it might be a good thing for India. What has arguably weighed the country down most in recent years is a lack of clarity. Policymaking has too often operated in a kind of muddled middle: a series of policy zigzags and U-turns, a set of conflicting and contradictory signals about the nation’s commitment to markets and capitalism.

Last year the Organisation for Economic Co-operation and Development warned that India needed to reduce “regulatory uncertainty” to promote growth. A series of analyses by International Monetary Fund economists found that about half the nation’s ongoing investment slowdown could be attributed to policy uncertainty (along with falling business confidence and supply bottlenecks) and that the resulting doubts posed a bigger problem than many often-cited barriers to investment such as high interest rates.

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Pratap Bhanu Mehta, one of India’s leading political scientists, sums the problem up more evocatively. In a recent essay, he compared the country to a mountain climber midway up a peak who suddenly decides to look below. “She could not decide whether to go up or down,” he wrote. “There was a deep sense of confusion, a loss of resolve and direction. She remained frozen, yelling and precariously perched. Anything could happen.”

Now, at last, India has the opportunity to move past its confusion—to decide whether to go up or down the slope of free-market capitalism, to choose between a model that emphasizes growth or equity. Indian politics is so chaotic, its workings so opaque, and the pace of decision-making so slow that there is a tendency to dismiss elections as irrelevant. The nation stumbles on, in this view, despite its politicians, despite its policy inertia and corruption. These elections are different. The nation is at a crossroads. Voters have an opportunity to choose a path that will define India for decades to come.

Kapur is the author of India Becoming: A Portrait of Life in Modern India (Riverhead Books, 2012).