INDIA: by Sharif ShujaNews Weekly
The economic test for India's new government
, September 11, 2004
India's newly elected government will suffer electorally like its predecessor if its economic policies fail to improve the lot of the poor, says Sharif Shuja.India is the fourth largest economy in the world and, despite its reputation as a third-world economy, its achievements include being at the forefront of many areas of innovation.
It is a world leader in the computing and technology sector and is one of a handful of countries in the world with a space program.
India's economy grew at an annual rate of 8.5 per cent in the last quarter of 2003. Under the BJP Government, India was on a roll, its economy booming.Minority benefit
But the economic policies of the past decade have chiefly benefitted a small minority that still retains substantial control over the levers of economic policy.
The new government, in its election campaign and speeches, addressed the problems faced by farmers, the lack of jobs for the people, the inadequacy and poor quality of the most basic public services, the hunger and despair that affect backward regions, and the growing inequality.
Voters responded by decisively voting out the previous government.
Now the Congress-led United Progressive Alliance (UPA) Government is in power. So, in economic terms, what does the change of government mean for India?
India's economic liberalisation policy remains unchanged. Congress Party officials have reaffirmed that it will seek to increase foreign investment and push ahead with reforms, a process that it initiated when in power in 1991.
The party's economic strategy aims at reducing barriers to investment, simplifying bureaucracy, streamlining taxation and trimming the state's role in the economy, all with the goal of pumping up India's GDP growth rate.
However, policies that were the hallmark of BJP rule, such as the privatisation of state-owned enterprises, will likely be put on hold.
In many ways, there is likely to be more continuity than change. The development in infrastructure is likely to continue, as any political party which allowed the process to falter would suffer an electoral backlash.
For India to sustain a high rate of economic growth, it will need to attract much more foreign direct investment (FDI). But India's grossly inadequate infrastructure is a significant disincentive for potential investors.
There are occasional reports about daily water and power cuts, poorly functioning ports and airports, and a deteriorating road system.
Improved infrastructure not only offers opportunities for employment, but also raises standards of living, reduces transportation time and costs, and attracts foreign investors.
Accounting for over 20 per cent of global trade, the European Union is keen to extend its relationship with India.
The European Commission - which is the executive arm of the world's largest common market with a single currency - has proposed to the European Council a strategic partnership with India in view of its impressive economic growth, size, economic and military clout in the region, and importance in world affairs.
The Council's view would provide the basis for discussions at the fifth India-EU Summit to be held in the Netherlands in October 2004.
Underlying the move for strategic partnership is their deep commitment to democracy.
As India grows, it will become an increasingly important trading partner for Australia. Already, Australia is India's eighth largest investor.
Australian companies have joint ventures in India in manufacturing, telecommunications, hotels, minerals processing, food processing, oil and gas, and the automotive sectors.
India is also likely to become a more significant investor in Australia in the areas of copper resources. In December 2002, India made an agreement with the West Australian Government to build the world's largest ammonia plant.
India is already an important consumer of Australian education services, and is now the ninth largest source of overseas students to Australia.
Economists predict that India's strong recent growth in services, manufacturing and exports will continue.
Most of the key portfolios in Dr Manmohan Singh's Government have been allocated to experienced Congress MPs. Two ministers, in particular - P. Chidambaram in finance and Kamal Nath in commerce - are well respected in international circles.
However, the election is serving as a reminder to Indian politicians that India must not neglect the many poor and rural voters who simply have not benefitted from the economic-reform process.
In other words, the UPA Government has to deliver quality primary education, clean drinking-water, basic health care and roads to the villages.
If the government merely continues the old policies, it will lose touch with the people, which will be a prescription for losing office.