Attempts by India’s governing party, the BJP, to play up the country’s recent economic success and take credit for it backfired spectacularly. India’s rural poor, it emerged, did not buy the success – much less give anyone credit. So the BJP is out and the Congress Party in power. What next for India? (Part two of a two-part series.)

“…India’s economy, for instance, could be larger than Japan’s by 2032…” – Goldman Sachs, October 2003.

A new Silicon Valley sprouting in Bangalore. A roaring economy achieving nearly nine percent growth in 2003. A rising hysteria that every good US job might be outsourced to Mumbai.

And suddenly India was no longer a byword for poverty. It seemed the country had achieved that Leninist fantasy – leaping stages of development. From subsistence farming to software services almost overnight. To be sure, about 80 percent of Indians were – as commentator Sundeep Waslekar pointed out – still too poor to afford a bicycle. But the rest had catapulted their country to the forefront of the high-tech global economy.

In fact, no. What was an idle fantasy for Lenin remains so today. India has not leapt over anything. In India’s recent growth there is, unfortunately, less than meets the eye.

The story of India’s unlikely boom is extraordinary but ultimately tragic. It began in the 1980s, when the ruling Congress Party attempted to see off the opposition BJP by co-opting the BJP’s business backers. The government – long hostile to private business – began handing out favors. Though meager, this was enough. India’s businesses, beaten down by decades of central planning, responded to a bit of good treatment by unleashing a mini-boom. Economic growth rates hit five percent per year.

But this growth was volatile and driven in part by immense budget deficits. In 1991, India lurched into a balance-of-payments crisis. Forced to turn to the International Monetary Fund for help, India began economic reform in earnest. Onerous regulations were lifted, taxes cut, import barriers lowered, capital markets opened. This unleashed another surge of growth – topping seven percent from 1994 through 1996.

But it was the greatest reform program that no one had ever heard of. As scholar Ashutosh Varshney pointed out, the reforms impacted important but esoteric areas – investment, exchange rates, capital markets. Reforms with direct impacts on the Indian public – agriculture, labor law, government spending – were generally avoided.

The response of the Indian people to a mid-1990s survey on the popularity of economic reform was resounding: “what reform?” About 80 percent – 86 percent in rural areas – had never heard of the economic reforms. By contrast, nearly two-thirds had heard of the controversial destruction of the mosque at Ayodhya. While India’s politicians were talking up Ayodhya, they were doing their best to keep economic reform a secret.

In the meantime, India’s companies did their best given the lopsided business environment. Unreformed agriculture stagnated (less than two percent annual growth in the five years to 2002) and industry hobbled along (under five percent growth). But services – less dependent on the unreformed bits of the economy, such as the dismal transportation infrastructure – boomed, hitting eight percent growth per year. It was like leaping stages of development. Agriculture and industry, still stunted, would be left behind.

And here is where the story turns tragic. Emboldened by the service sector’s improbable success, the BJP – now in power – decided, finally, to sell economic reform to the Indian public. This was a bit late – some twenty years after Deng Xiaoping told the Chinese people, “to get rich is glorious.” But better late than never. The BJP’s version was “India Shining.” Here was India’s chance to equate economic power with national power, and bring the people behind a patriotic economic boom.

It was a stunning failure. The BJP was thrown from office. Even at the state level, many who talked up reform – for instance, Chandrababu Naidu of Andhra Pradesh – were booted out.

The poor had not seen the intended message in all those “India Shining” ads. Instead of Indians getting rich, they saw the upper castes getting rich, and wanted none of it. Instead, they voted for politicians like Laloo Prasad Yadav – now railways minister. He is spectacularly corrupt, but also lower caste. The lower castes thrill to see one of their own finally getting rich. Admittedly by dubious means. But the possibility that the poor might themselves become rich, if they elected better leaders, is – understandably – outside the realm of imagination for rural farmers unable to afford a bicycle.

So India remains a long way from full-blown economic success. The political will is not there at the national level. An attempt to put it there was nipped in the bud.

To be sure, the new Congress-led government is generally pro-reform. But without broad public support for economic development the truly difficult reforms – impacting neglected areas of agriculture and industry – are likely to go untouched. India’s growth will remain uneven and rates of nine percent the exception, not the rule. In economics, India is not yet shining. Though it has come closer than ever before.

This article was originally published on, before I sold the website to Roubini Global Economics.