Regarding India

Josh Chafetz has assigned me the homework task of explaining the ramifications of the surprising Indian elections for India’s economic development and relations with Pakistan. Actually, I think the links Chafetz provides in his post do a fair job of capturing some of the dynamics. As this Washington Post editorial points out, it wasn’t an increase in poverty that caused the BJP to fall:

Mr. Vajpayee is said to have been punished for the pro-market reforms that fostered India’s high-tech boom; voters in the villages felt left out and took their revenge at the ballot box. This suggests that even the world’s most successful economic reformers run big political risks. India conducted poverty surveys in 1993 and ’94 and again in 1999 and 2000; over that period, the rural poverty rate fell from 37 percent to 30 percent, so the idea that the villagers have not benefited from India’s growth is spurious. Given India’s continued boom since 2000, poverty in the villages has almost certainly fallen further. Mr. Vajpayee apparently got no thanks for this.

Salman Rushdie suggests that it wasn’t rural poverty so much as growing inequality that triggered this outcome:

The Indian battle for centrality in the debate about the country’s future has always been, to some degree, a battle between the city and the village. It is between, on the one hand, the urbanized, industrialized India favored by both the socialist-inclined Jawaharlal Nehru and the free-market architects of “India Shining,” the new India in which a highly successful capitalist class has transformed the heights of the economy; and, on the other hand, the agricultural, homespun India beloved of Mahatma Gandhi, the immense countryside India where three-quarters of the population still lives and which has not benefited in the slightest from the recent economic boom. It’s no accident that the ruling alliance lost heavily in Andhra Pradesh and in Tamil Nadu, precisely the states that wooed information technology giants such as Microsoft to set up shop, turning sleepy “second cities” such as Madras, Bangalore and Hyderabad into new-tech boom towns. That’s because while the rich got richer, the fortunes of the poor, such as the farmers of Andhra, declined year by year. The gulf between India’s rich and poor has never looked wider than it does today, and the government has fallen into that chasm.

Rushdie also points out the numerous sins of the government in power — particularly it’s hidden-hand role in the 2002 pogrom of Muslims in Gujarat. The Economist provides an excellent summary account as well. My quick answers to Josh’s questions — the election returns aren’t going to affect all that much of India’s policy, except that there will be a ratcheting up of anti-American rhetoric. Congress has repeatedly said that its committed to the liberalization program — and 8% GDP growth buys a lot more rural development aid than the 4% growth that would come if liberalization stalled. Relations with Pakistan might worsen a bit, in the sense that the BJP, as Hindu nationalists, had the credibility to compromise. Congress might not have that margin of error. UPDATE: Looks like India’s financial markets are less sanguine than I about the election results.