There is a notable change of atmosphere in India since the elections. Suddenly, business conversations are full of optimism again. There is talk of growth and investment, of a golden future. This is in sharp contrast to the debilitating gloominess that had settled over the country in the final years of the last administration. The great Indian pendulum is swinging back.
- India is experiencing an emotional turnaround
- This is still based on expectations and announcements, not yet on facts
- It will take some time for international opinion to change
As India is again entering into a phase of optimism, let’s look back. Remember the heydays of 2005 to 2010? India was booming, I mean BOOMING. The questions and answers centered around the word “when”, not “whether”. When will India become the world’s biggest economy? When will it be global superpower? India’s IT prowess, the demographic dividend, its world class, internationalizing companies were hailed everywhere. Every international company had to have an “India strategy”. This is how the American author Fareed Zakaria experienced the India hype at Davos in 2006:
“As you got off the plane in Zurich, you saw large billboards extolling ‘Incredible India!’ The town of Davos itself was plastered with signs. ‘World’s Fastest Growing Free Market Democracy’, proclaimed the local busses…. When you entered the meeting rooms, you were likely to an Indian voice, one of dozens of CEOs of world-class Indian companies in attendance… The impeccably dressed chairman of the forum, Klaus Schwab, donned a colorful Indian turban and shawl, nibbled on chicken tikka, and talked up the country’s prospects with Michael Dell. ‘India Everywhere’ said the logo. And it was.”
India seemed to be on an unstoppable path to glory. Then, in 2011-13, it just imploded. Growth slowed from almost 10% to just over 4%. The demographic dividend became a demographic challenge. Stories of corruption and graft took over. First, international companies stopped investing in India. Then Indian companies stopped, too. The mood reached a nadir in early 2014. Now, however, following the elections, the pendulum is swinging back again. This is very good news. But how far does the optimism spread, is it on strong foundations and whom does it reach?
India’s fundamentals have not changed. The challenges and benefits of a large, complex democracy remain. The demographic development is predictable and will make India the world’s most populous country by the late 2020s. The population is young and thirsts for prosperity. If even a moderate measure of prosperity is achieved, it will change not only India, but the world. India can only stop itself. And sometimes, it does.
What has changed is the perception of where India is and can be (the “soft factor”). I see an emotional turnaround in the Indian business community. This is driven by the election victory of Modi’s BJP: by the fact that he is pro market and by the fact that he has an exceptionally strong mandate to effect much needed reforms. The mood is surpassing ground realities, which still have not changed much. Most researchers predict growth to still be much slower than in the heydays at around 6% for the next two years. It is also noticeable that the international community is still less bullish than the Indian one.
In my view, the exuberance of the years described by Zakaria was as exaggerated as was the later gloominess. The current sense of optimism is still well dosed, it is tangible and liberating and it helps the country tackle challenges without falling for the illusion that there are none.