India emerges as the new star of Asia: Democracy

For a casual visitor, the most striking feature of India’s month-long general election, for which the fourth and final round of voting takes place today, is the ennuiwith which it has been greeted by the local population.

I spent the past week in New Delhi and found throughout my stay that colleagues and acquaintances were more interested in discussing European soccer players – about whom they were incredibly well-informed – than domestic politicians. While Indian politics,
as the world’s largest exercise in democracy, remain fascinating to outsiders, the boredom of local voters strikes me as a perfectly healthy sign of political maturity.

As in so many western countries, these elections are unlikely to bring about radical change. Whether the BJP or (less likely) the Congress party end up forming the next government, their political direction – with the important exception of the question of
religious tolerance – will be similar. From the point of view of foreign investors, the crucial point is that economic reform, deregulation, privatisation and the opening up of India to the world through lower tariffs and fewer trade barriers are likely to

Economically, India is already on a roll at present. Not only is it growing strongly in absolute terms, with gross domestic product rising at an annual clip of more than 8 per cent in the latest quarter, boosted by a favourable monsoon. It is also starting
to do relatively well against China, with which it has long been unfavourably compared.

India may not be “shining”, as the ruling BJP would have voters believe – certainly rural India is not. But as China’s growth starts to sputter, India’s star will appear even brighter. That should boost inflows of foreign direct investment, which are still
tiny, as well as attracting even more institutional money.

And in the long term, India’s scope to catch up with developed countries, as well as its favourable demographics, give it a potential for sustained growth that even China may not be able to match. In a recent update to its report last autumn about the four
big developing economies – Brazil, Russia, India and China (or BRICs) – Goldman Sachs forecasts 5 per cent-plus annual GDP growth for India for the next 45 years. If those assumptions are correct, India will become the world’s third-largest economy by 2050,
behind only China and the US.

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