What Happened to India?

Raghuram Rajan in Project Syndicate:

[S]uccessive governments understood the imperative of economic growth, so much so that the Bharatiya Janata Party (BJP) contested the 2004 election on a pro-development platform, encapsulated in the slogan, “India Shining.” But the BJP-led coalition lost that election. Whether the debacle reflected the BJP’s unfortunate choice of coalition partners or its emphasis on growth when too many Indians had not benefited from it, the lesson for politicians was that growth did not provide electoral rewards.

In any event, that election suggested a need to spread the benefits of growth to rural areas and the poor. There are two ways of going about that. The first, which is harder and takes time, is to increase income-generating capabilities in rural areas, and among the poor, by improving access to education, health care, finance, water, and power. The second is to increase voters’ spending power through populist subsidies and transfers, which typically tend to be directed toward the politically influential rather than the truly needy.

In the years after the BJP’s loss, with a few notable exceptions, India’s political class decided that traditional populism was a surer route to re-election. This perception also accorded well with the median (typically poor) voter’s low expectation of government in India – seeing it as a source of sporadic handouts rather than of reliable public services.

For a few years, the momentum created by previous reforms, together with strong global growth, carried India forward. Politicians saw little need to vote for further reforms, especially those that would upset powerful vested interests. The lurch toward populism was strengthened when the Congress-led United Progressive Alliance concluded that a rural employment-guarantee scheme and a populist farm-loan waiver aided its victory in the 2009 election.