New Hope for India

The measures needed to stimulate economic performance in India will take time to implement and to produce results. But anyone who wants to judge whether the new government is acting effectively to achieve faster long-term growth should examine whether progress is being made in ten policy areas.

CAMBRIDGE – India’s recent general election could be the most important positive economic event of 2014. Indian voters decisively rejected the Congress party, which had governed India virtually without interruption since it gained independence from Britain in 1947. They are likely to be happy they did.

Sonia Gandhi, the head of Congress and the widow of former Prime Minister Rajiv Gandhi, has been the power behind the throne since 1998, turning Prime Minister Manmohan Singh into little more than a figurehead. Under her leadership, Congress has pursued a populist agenda that increased transfer payments and reduced India’s annual economic-growth rate to less than 4% in 2013. GDP per capita is still only about $4,000, less than half the level in China.

The newly elected prime minister, Narendra Modi, campaigned on a platform that promises to deliver to India as a whole the rapid growth in employment and income that the state of Gujarat achieved when he was its chief minister. Under Modi’s leadership, Gujarat became a business-friendly state that expanded economic activity, and attracted business investment from both Indian and overseas companies.

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