Voters in India are frustrated by the mediocre performance of the economy, and the results of the recent national elections are a demand to shift to a growth agenda. The elections that ended last week gave Narendra Modi and his Bharatiya Janata Party a stunning victory over the incumbent Congress Party, which has held power for all but a handful of years since 1952.
Mr. Modi will take over as prime minister on Monday, backed by an outright majority of 282 out of 545 seats in the lower house — rare in a parliamentary democracy. The surplus of 70 million votes represents an unmistakable mandate given in the belief that Mr. Modi can replicate on a national level the vigorous growth he presided over as chief minister of the state of Gujarat.
India, in the embrace of inflexible socialism for decades, has failed to live up to its enormous potential. The British left India with an appreciation of democracy and the English language, but modern India’s growth has nevertheless lagged far behind China’s 7.5 percent. While 4 percent and 5 percent growth figures would be stellar for the United States and the developed world, it’s not a number to boast of in an emerging-market economy.
Slow growth keeps Indians mired in poverty. Each year, 10 million Indians join the labor force, but the newest data show that only 53 million jobs were created between 2005 and 2012, leaving a shortfall of 17 million jobs. India needs growth rates in the 7 percent to 9 percent range to keep its young population working.
The primary drag on the economy is the country’s notorious bureaucracy, which has raised official lethargy to an art form. According to the World Bank, international investors have the choice of 133 other countries to set up shop where a profit can be turned with far less hassle. India is afflicted with inflexible labor laws, complex land-use requirements and grossly inadequate infrastructure.
Mr. Modi has a different vision, having cultivated an investment-friendly climate in his home state by fast-tracking projects and presiding over 10 percent growth in the Gujarat economy. The challenges he faces in replicating this feat nationwide are formidable.
Cutting red tape for languishing foreign-investment projects would be the quickest and easiest way to start reforms, but Mr. Modi has to deal with the enormously expensive — and enormously popular — subsidies to food, fuel and fertilizer. This accounts for 15 percent of the federal budget. Cutting the subsidies will be politically difficult.
Mr. Modi’s party lacks a majority in the upper house of Parliament, so he will need a skillful coalition to have a hope of overcoming business as usual. Privatization will be difficult. Easing inflexible labor laws and the simplification of the tax code will require the cooperation of state governments as well.
But there’s no alternative to uncomfortable choices. Rising out of poverty will require not a lick and a promise but deep reform. The good news is that India’s voters seem to have recognized this when they endorsed the Modi platform promoting economic growth. They understand at last that they have been hobbled by decades of top-down government policies that put bureaucrats, not the market, in charge of picking winners and losers in the marketplace.