India, A Burgeoning Economic Star, Hits Its Stride

India has a good time, selling to the West diesel and gasoline, produced from Russian oil.

"New Delhi -- For what seems like forever, India was a story of unfulfilled potential: abundant labor and entrepreneurial energy hobbled by lousy infrastructure, a meddlesome state, stifling regulation and a deep ambivalence about engagement with the broader world.

It might be time to retire that story. In fact, 2023 could be the year India finally emerges as a global economic heavyweight. For that, thank solid economic growth, microeconomic reform and a changed geopolitical environment that has the West more eager than ever to draw India into its orbit. Just this week, nine Democratic senators and Treasury Secretary Janet Yellen traveled to India, the latter for a summit of the Group of 20 economies. Commerce Secretary Gina Raimondo and Secretary of State Antony Blinken are close behind.

The bullish case starts with demographics. This year, India is expected to officially surpass China as the world's most populous country, one much younger than China and most of the West. The economic clout that comes with population has been muted, but India is steadily getting less poor.

The International Monetary Fund says India's annual economic growth will average 6.5% this year and next, the fastest among 30 major economies.

Last year, India displaced the U.K. as the world's fifth-largest economy in current dollar terms.

So the macroeconomic picture is impressive. Sustaining it requires microeconomic reforms. "This is the time when infrastructure starts becoming a constraint," said Ashwini Vaishnaw, the minister for railways, communications, electronics and information technology.

This is where India has made strides.

In recent years, numerous new expressways have been or are being built. Since Prime Minister Narendra Modi took office in 2014, the number of airports has doubled and the total of rural roads has increased 85%. Electricity plant capacity has risen 66%.

I got a peek at this transformation from the cab of a locomotive on a rail line north of Ahmedabad. Freight trains must share congested tracks with passenger trains and thus plod along at an average of 25 to 30 kilometers per hour with no fixed timetable. But the locomotive I rode was pulling 45 cars at 80 kilometers per hour on a "dedicated freight corridor" with no other traffic in sight. Once complete, this high-capacity electrified railway will carry double-stacked containers on trains up to 1 1/2 kilometers long from north of New Delhi to Mumbai in half the time of regular lines, while connecting to container ports.

Infrastructure, physical and digital, has also improved the lives of ordinary Indians. In the past three years, the government says, the number of homes with piped water has roughly tripled, to 108 million. An India-born colleague returned to his ancestral village in Bihar, India's poorest state, in 2021 for the first time in eight or nine years, and was flabbergasted at how many homes now had tap water, electricity and appliances.

Not all of this is thanks to Mr. Modi. Some of the build-out began under previous governments.

India's vibrant startup scene, which now includes more than 100 unicorns -- new businesses valued at more than $1 billion -- also took root before he did.

But Mr. Modi has prioritized improving India's business environment with a new bankruptcy law and a goods and services tax. A digitization of public services has made it possible to carry out countless tasks online. Thousands of minor technical and procedural defaults have been, or are being, decriminalized. Tariffs have risen as part of Mr. Modi's Make in India plan, but free-trade deals with the United Arab Emirates and Australia are now in force, and talks with the U.K. are well advanced.

Given those structural improvements, it's surprising that growth isn't even stronger. Anantha Nageswaran, Mr. Modi's chief economic adviser, says that while other countries' growth was helped by taking on more leverage, India was dealing with its banks' bad debts. That deleveraging, followed by the pandemic and commodity price shock, "delayed the full impact of structural reforms."

But the lack of a stronger response to reform might also signal how much work India has to do. The pandemic set back education for kids, and inflation and budget deficits are high. It remains a hard place to do business, and the controversy engulfing Adani Group, accused of fraud by a U.S. investor, which the company denies, highlights how much of business is controlled by family conglomerates close to politicians.

Then there's Mr. Modi. His critics worry his controlling majorities in Parliament have revealed autocratic tendencies in him and his Hindu nationalist Bharatiya Janata Party. They say his government uses allegations of financial misconduct to target critics, including nonprofits, journalists and politicians.

Business leaders fear retaliation if they say anything critical. "When you put a coercive, fear-driven ecosystem in place where everybody and their grandmother is being raided by the law enforcement instrumentalities of the government, people generally don't want to work and invest in that environment," said Manish Tewari, of the opposition Indian National Congress party.

Mr. Blinken has raised concern about human rights under Mr. Modi. Yet the Biden administration has clearly concluded that India's flaws don't diminish the appeal of having such a large and influential economic power in its corner as the geopolitical contest with two true autocracies, China and Russia, heats up." [1]

1. U.S. News -- Capital Account: A Burgeoning Economic Star Hits Its Stride
Ip, Greg.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 24 Feb 2023: A.2.