Will Elections Revive India’s Economy?

After soaring in the middle of the last decade, India’s economy has struggled in recent years. The country’s GDP growth rate has declined from over 10% in 2010 to less than 5% in 2012 and 2013. At the same time the inflation rate has remained close to 10%. Many of the root causes of the economic woes are related to the government: the India suffers from poor infrastructure, stifling bureaucracy, and endemic corruption. Optimists therefore think that India’s election, which started last week and continues until May 12th, could be a turning point for the country’s economy.

The great hope for the optimists is Narendra Modi, the leader of the Bharatiya Janata Party, which has been leading in the polls. While he was leader of Gujarat, a state in western India, it attracted business investment and grew substantially faster than the country as a whole. His supporters argue that he could pull off a similar trick at the national level, reviving India’s economic fortunes.

It’s not much of a stretch to think that a new leader could have a profound effect: renewed economic optimism after the election of Shinzo Abe in Japan at the end of 2012 led to a surge in that country’s stock market. Yet even if Modi’s party wins the election, he’ll have a number of challenges to overcome.

Political power in India is split between the federal government and the states, and even at the federal level the leading party often has to share power with smaller parties to get a majority in Parliament. And the vested interests that benefit from the current dysfunction could prove too powerful an obstacle. After all, the recent economic slowdown has been overseen by Prime Minister Manmohan Singh, an Oxford-educated economist who was himself a hero to reformers for his role in transforming India’s economy as Finance Minister during the early 1990’s.

Topics: Blog Narendra Modi Elections India