India’s 420 million voters have delivered a “humbling lesson in democratic wisdom that could be just what their barely governable country needs”, says the FT.
The pro-reform Congress Party has been swept to power, winning the most seats since 1991. In a swell of euphoria, the Bombay Stock Exchange had to halt trading for the first time in its history after the Sensex index jumped 17% in one day. “The average Indian voter may not know where his next meal is coming from,” says Saisuresh Sivaswamy of Indian news agency Rediff, “but today he has made a choice – to keep out blatant power-mongers, blackmailers and undeserving dreamers, in favour of a new dawn”.
For investors this decisive mandate exorcises one serious risk: political uncertainty. The result demonstrates India’s will to push back “three profoundly centrifugal forces” that have hindered the country over the last decade, says the FT – caste-based populism, sectarian Hindu revivalism and regional parties with “a habit of holding the national interest hostage”. The hope now is that the re-elected Manmohan Singh will deliver economic reform with a free hand – opening India’s insurance, retail and banking sectors to foreign investment and increasing trade with neighbours.
Unfortunately, his hands are still tied, says Julian Jessop of Capital Economics. Singh’s spending plans will be severely limited by a hefty government deficit – 10% of GDP. Rating agencies are threatening to cut India’s already weak credit rating (it’s just a notch above ‘junk’).
Corruption remains a big problem too, says Hamish McRae in The Independent. If you want to build an airport in China, for example, you have to pay off the local municipality, “but then you have a deal”. In India, the problem is that “no deal is ever final” and more money has to change hands whenever a blockage occurs.
So we’re unlikely to see the sort of infrastructure stimulus that’s reviving China. Indian banks have avoided hits from the global financial meltdown, but the sector is small and underdeveloped – loans as a percentage of GDP are half that of China. So with its firms facing a rough global environment, India’s potential growth, previously around 8%, is starting to slip, says Jessop.
A new dawn? Yes, but perhaps bringing with it tough times for the Congress Party.