That the crisis in China’s economy and financial markets is an opportunity for India has quickly become conventional wisdom. Even India’s policymaking establishment has embraced the proposition with alacrity. But the fact is this: India has been staring (economic) opportunity in the face, for the last 15 months, 15 years, even 50 years. The reality is that India has consistently let opportunity slip by. So why will things be different now?
It is possible to make the argument that India only reforms (or grabs an opportunity) when it is faced with a crisis. The most obvious example is 1991, when a dire balance of payments crisis, which threatened the country with bankruptcy, forced the unleashing of the only instance of big bang reforms. But there have been other instances too, like in the mid-1960s, when a similar balance of payments problem forced a radical devaluation of the rupee.
But have crises that have their epicentre outside India evoked reformist spirit in India’s policymakers? Not always. UPA 2 failed to react firmly (in terms of domestic reforms) to the sovereign debt crisis in Europe, though it steadily blamed it for India’s economic woes. In fact, during the six months of the global economic meltdown in 2008 and 2009, when India’s growth suffered dramatically, the response of the policy establishment was entirely defensive — that India had withstood the crisis relatively well because it hadn’t liberalised some sectors of the economy, most notably the financial sector. The UPA’s resounding election win in 2009 in the immediate aftermath of the global crisis may even have been interpreted as an endorsement of caution on reform.
The one government which may have reacted more decisively to external crisis was the one led by Atal Behari Vajpayee, which navigated the aftermath of the East Asian crisis (1997-98) and the Dotcom bust (2000-01). It is difficult to say whether external crises alone motivated Vajpayee’s government. The consequences of the sanctions in the aftermath of the nuclear test in 1998 may have played an equal if not greater role. Whatever the cause, Vajpayee’s government did try and seize a small part of the ever present opportunity for India. It did not win that government a second term, but it did fuel the boom of 2003-08.
The crystal ball of opportunity is now in the hands of Prime Minister Narendra Modi’s government. On his campaign in 2013-14, Modi seemed to suggest that he would not need any nudges (from inside or outside) to radically change the face of India’s economy. But the beast of government has neutralised campaigner Modi. China’s crisis may be an opportunity, but so far it has not translated into a dire crisis for India — the only assured catalyst for change. In fact, the new GDP data series is probably lending policymakers with a (false) sense of security. Let’s be blunt: on the ground, for investors and consumers, it doesn’t feel like the economy is growing at 7% per annum. There is no general feeling of prosperity.
Will India’s policymaking establishment at least grasp the urgency, if not the “opportunity”?